The Italian government has introduced a new decree, now converted into law, to encourage debt capital markets transactions by expanding favorable tax treatment.

As banks adapt to new capital requirements, bank finance — traditionally the source of the majority of credit extended to Italian businesses — has become less available for small and medium businesses. The debt capital markets have emerged as a growing alternative to bank finance, giving rise to a dramatic increase in the number of new issuances by Italian companies on the international markets. The liberalization of corporate bond issuances by Italian unlisted companies, including small and medium-sized enterprises (SMEs), under the so-called Decreto Sviluppo (Development Decree)1 allowed institutional and qualified persons to invest directly in such debt instruments. One of the gaps in fostering the debt capital markets as an alternative to bank finance is encouraging domestic demand for bonds.

To further facilitate bond issuances by SMEs and encourage the development of an Italian debt capital market, the Italian government has adopted new measures to encourage demand for SME-issued corporate bonds and to streamline debt capital markets transactions generally:

• The extension of the withholding tax exemption to investment funds investing in bonds

• The extension of the privilegio speciale (special lien) to corporate bonds

• The extension of the tax relief regime of the substitute tax (imposta sostitutiva) to corporate bonds

• The possibility for banks to issue bonds guaranteed by financial assets

• The fostering of domestic Italian demand for corporate bonds by insurers and pension funds

• The extension and simplification of the rules governing securitization transactions involving corporate bonds