Italian Parliament Approves Changes to Tax Regime Applicable to Equity Awards

On August 3, 2006, the Italian Parliament confirmed Law Decree of July 4, 2006, no. 223 which contemplated, among other things, that certain tax and social security benefits for equity awards granted to Italian beneficiaries would be repealed with immediate effect, resulting in the ordinary taxation for personal income tax and social security purposes of the difference between the fair market value of the shares at delivery and their price (the “Gain”).

However, during the confirmation procedure, Parliament passed an amendment partially mitigating the harshness of the new rules. Therefore, the beneficial regime (which provides for an exemption of the Gain from personal income tax and social security charges at delivery if, inter alia,the strike price is not lower than the shares’ fair market value at grant and the taxation of such Gain at a flat 12.5% rate once realized upon sale) still applies to any equity deliveries, regardless of the date of the award grant, insofar as (i) no transfer of, or guarantee on, the stock occurs during the five-year period following delivery; and (ii) the fair value of the delivered stock does not exceed the gross compensation received in connection to the year preceding delivery.

Moreover, Parliament introduced a grandfathering rule whereby equity deliveries pursuant to grants made under plans launched prior to July 5, 2006, not complying with the two new requirements outlined above, are exempt for social security purposes although fully subject to personal income tax.

Should you have any questions regarding the above, please contact Vania Petrella in our Rome office (tel.: +39 06 695 22 204; e-mail: vpetrella@cgsh.com).

CLEARY GOTTLIEB STEEN & HAMILTON LLP