Spring 2016 Italian Tax Update

Spring 2016
Italian Tax Update
Como, 18 March 2016
Avv. Colin Jamieson, Solicitor of England and Wales
Dott.ssa Marianna Da Frè

Summary
2
1. Tax revenues of the state budget
2. IRPEF Update
3. IRES Update
3.1 Clarification of tax regime for waiver of receivables the shareholders
4. Tax Reliefs and Incentives
4.1 Special scheme for repatriated workers and exemption from contributions
5. International Update
6. IRAP Update
7. VAT Update
8. Tax Administration Update
8.1 Limitation periods
8.2 Ravvedimento operoso (Self-Correction)
8.3 Administrative Penalties
8.4 Electronic transmission of invoicing information
9. Anti-abuse and a new GAAR
10.Decision of the revenue Agency no. 55/E of 29 may 2015
11.Self-laundering crime and tax crimes
12.Supreme Court rulings from October 2015 to March 2016

Tax revenues of the Italian State
3
1%
64%
2%
2%
20%
3%
3% 1% 4%
Ires
Irpef
Substitute Tax
Other Direct Taxes
VAT
Mineral Oils
Tobaccos
Lotteries
Other Indirect

2016 IRPEF rates
Income rates and brackets of income for FY 2015
Bracket of income Rate Amount
Up to € 15,000 23% € 3,450
Over € 15,000 and up to €
28,000
27% € 6,960
Over € 28,000 and up to €
55,000
38% € 17,220
Over € 55,000 and up to
€75,000
41% € 25,420
Over € 75,000 43% surplus income*43%
4
The above does not include the municipal tax supplement from % 0.1% to 0.8%
nor the regional tax supplement – from 0.70% to 3.33% depending on
municapility/region

IRPEF
Update
1. Tasi and Imu • TASI on residential property used as primary
residence abolished
• IMU on agricultural land and on business equipment
fixed to the ground abolished.
• TASI is also abolished for tenants occupying a
primary residence.
• Reduced rate of IMU on protected tenancies.
2. Building • Extended tax breaks for building renovations (tax
credit of 50%) and for energy saving (65%).
3. Furniture bonus • Tax deduction of 50 % to couples under 35 for
expenses incurred in buying furniture in 2016 up to
16,000 EUR
4. Facilitating the registration tax the first house • Reduced registration tax rate of 2% for the purchase
of principal private residence
5

IRPEF
The news about Irpef
5. IVIE • From 1 January 2016, IVIE will not apply to the possession
of the main and appurtenances thereto and the marital
home assigned to a spouse, as a result of legal separation,
annulment, dissolution or termination of the civil effects of
marriage.
6.Tax credit VAT per housing unit purchases • An IRPEF deduction of 50 % of the VAT amount on
purchases made by end 2016 of energy class A or B
dwellings sold by construction companies .
• Deduction of 50 % of the tax due (tax credit), divided into
10 annual installments.
7. Real estate financial leasing for use a main residence • Deductibility for income tax purposes to the extent of 19 %
of costs relating to financial leases, and in particular :
• of lease payments and related transaction costs, for
an amount not exceeding € 8,000 ,
• The purchase cost of the property on final exercise of
the option, for an amount not exceeding 20,000 euro
6

Change to IRES rates
• 2016 Stability Law provides for a reduction to 24% of the nominal
rate of IRES (corporate rate of IRES) starting with FY 2017.
• The rate of IRES impacts other rates such as:
• Withholding tax on dividends paid to EU (not eligible for parent/subsidiary
exemption, EEA and White listed entities - reduction from 1.375% to 1.2%).
• A special Decree will determine the proportion of the taxable quota of
dividends and capital gains, currently fixed at 49.72%, as well as that
relating to proceeds received by non-commercial entities (now
stands at 77.74%).
• In order to prevent such changes involving a higher tax rate for
individuals and partnerships etc. (art. 5 Income Tax Code) the new
percentages will not apply with respect to such persons.
7

HISTORY OF ITALIAN IRES/IRPEG
Period Rate
From 01.01.1982 to 31.12.1999 30%
From 01.01.2000 to 31.12.2000 37%
From 01.01.2001 to 31.12.2002 36%
From 01.01.2003 to 31.12.2003 34%
From 01.01.2004 to 31.12.2018 33%
From 01.01.2008 to 31.12.2016 27.5%
From 01.01.2017 ……. 24%
8

IRES surcharge for credit and financial
institutions
• Paragraphs 65 to 69 have introduced a 3.5% IRES surcharge for certain credit and financial
institutions. The surcharge applies to the following taxpayers from FY 2017:
• banks;
• real estate investment trust management companies;
• holding companies of banking groups members of the banking association;
• securities intermediation companies (SIM, Società di Intermediazione Mobiliare):
• financial intermediation providers;
• electronic money institutions;
• payment institutions;
• financial holding companies
• the Bank of Italy.
• Tax deduction for interest expenses incurred by insurance companies and holding companies
of insurance groups will be restricted to 96% of the total payable starting from FY 2017
9

Super-depreciation
10
• Paragraphs 91-97 of the 2016 Stability Law provide a benefit
aimed at encouraging investment in new business assets
• Taxpayers in receipt of income from business, trades and
professional activities who purchase a new tangible asset in the
period from 15 October 2015 to 31 December 2016, will be entitled
to an increase of 40% of the acquisition cost, for the purposes of
calculating the tax deductible depreciation or the relevant tax
deductible finance lease payments.

• Alfa Srl. buys a machine for € 50,000 + VAT in the month of November 2015.
• Considering the cost increase of 40%, the value by which to determine the deductible amortization
amounted to € 70,000 [50,000 + (50,000 x 40%)].
• Assuming a depreciation coefficient of 20%, the depreciation schedule is so
Cost Depreciation Adjustment in
tax returnBook Tax Year Book Tax
50,000 70,000
2015 10,000 14,000 4,000
2016 10,000 14,000 4,000
2017 10,000 14,000 4,000
2018 10,000 14,000 4,000
2019 10,000 14,000 4,000
50,000 70,000
Super-depreciation
11

Super-depreciation
12
• Applies to acquisitions/business combinations starting from FY 2016
• Limit of € 516.46 for write-off of assets in year of acquisition per item
remains

Financial leasing amortization
For contracts up to April 29, 2012
For the user enterprise
• Lease installments can be deducted if the duration of the lease term is greater than or equal to 2/3 of the
amortization period determined by the table rates
• the interest implicit in the lease payments (distributed linearly over the term of the contract) is subject to the
provisions of art. 96 Consolidated Income Tax Act (deductible up to the amount of interest income and the
surplus by 30% in ROL).
Example
transport vehicle (purely instrumental): coefficient amm.to 20%
depreciation period five years
Minimum lease term contract for deductibility = (5 2/3) = 3 years 4 months
For fixed assets
• if 2/3 of the length of the contract is under 11 years it is deductible if the duration of the contract is not less
than 11 years
• if the duration of the contract exceeds the deduction to 18 years is allowed anyway
13

After April 29, 2012
• finance lease payments are tax deductible, irrespective of their duration, over a period equal to 2/3
(was 50%) of the amortization period determined by the table rates
• implicit interest (distributed linearly over the term of the contract) in lease payments is subject to the
provisions of art. 96 Consolidated Income Tax Act (deductible up to the amount of interest income
and 30% of ROL).
Example
vehicle (used exclusively for purposes of the business): depreciation rate 20%
Regardless of the length of the lease, deductibility = (5 x 2/3) = 3 years 4 months
For real estate fixed assets
• if 2/3 of the amortization period is ≥ 18 years deductibility of at least 18 years
• if 2/3 of the depreciation period between 11 and 17 years (inclusive) deduction equal to 2/3 of
the same period of amortization
• if 2/3 of the lower amortization period is 11 years deductibility over at least 11 years
14

15
Dal 1 January 2014
• you can deduct finance lease payments, irrespective of their duration, equal to half of the
amortization period determined by the tabular rates ...
• implicit interest (distributed linearly over the term of the contract) in lease payments are subject to
the provisions of art. 96 Consolidated Income Tax Act (deductible up to the amount of interest
income and the surplus by 30% in ROL).
Example
transport vehicle (purely instrumental): coefficient amm.to 20%
Regardless of the length of the lease, deductibility = (5 1/2) = 2 years and 6 months
For fixed assets
• if the contract duration is ≥ 12 years deductibility of the contract period
• if the contract duration is <12 years deduction equal to the minimum tax-term (12 years)

Realignment of statutory and tax
values
• The 2016 Stability Law has re-opened the provisions regarding the alignment of
book and tax values of depreciable tangible and intangible assets – excluding
stock-in-trade and investments in subsidiaries or associates.
• Opportunity to align the tax value of assets to a higher book value, through the
payment of a substitute tax.
• 16% substitute tax for depreciable assets, or 12% for non depreciable assets
• This provision applies to all taxpayers not just those preparing their financial
statements pursuant to IAS/IFRS per (EC) Regulation no. 1606/2002 of the
European Parliament and the European Council of 19 July 2002.
• For these taxpayers the increase in value deriving from the alignment net of the
substitute tax constitutes an untaxed reserve that can be released by payment of
a 10% substitute tax, on the additional value deriving from realignment
16

Example
• A company has a fixed asset in its financial statements at end 2015 for a net
value of € 70,000 (100,000 original cost less accumulated depreciation of 30,000)
purchased in 2014 with a depreciation rate of 20% for both book and tax.
• Revaluation of the property for an amount of 50,000 €
• Book value increases from 70,000 to 120,000 € (revalued 150,000 cost).
• By 16 June 2016 must make payment of the first installment (of 3) of the
substitute tax amounting to € 2,666.67 (1/3 x 8,000 being 16% of 50,000 €).
• the recognition of the higher values for tax depreciation purposes starts from FY
2018.
• The revaluation reserve can be distributed to shareholder, at any time, on
payment of further 5,000 (10% of 50,000 €)
17

Assignment of assets to shareholders
• Extension of the relief for
• assignment of assets to members or shareholders
• the transformation of real estate management companies (general
partnerships, limited partnerships, limited liability companies, joint stock
companies and limited partnerships, real estate management companies) into
simple partnerships.
• Any such entity which by 30 September 2016, assigns or sells to
shareholders:
• real property (land and buildings), except those defined by their intended use
as operating assets used in the business, or
• assets recorded in public registers, which are not used in the conduct of the
company's business,
• Substitute tax in the place of regular income tax and IRAP
amounting to 8% (10.5% for non operating companies)
18

Non Operating Companies
Threshold for
Income and gains
Alternative
Minimum
Income
Shares, equities 2% 1.5%
Real Estate, Ships 4%-5%-6% 3%-4%-4.75%
Other tangible and intangible
assets, including finance
leases (plant, machinery,
patents, research costs, etc.)
15% 12%
19

The new tax regime for waiver of
receivables exercised by the shareholders
• A waiver of a debt due by a company to a shareholder
(regardless of percentage held):
• For the company, non-taxable extraordinary income up to the
tax value of the payable, taxable over that amount;
• For the shareholder, non deductible computing taxable profits –
increases the tax base cost of the investment
20

Tax credit for investments in the South of
Italy
• The 2016 Stability Law introduced a tax credit for the purchase of
new business assets to be used in production facilities located in
the “Mezzogiorno” (Italian regions of Campania, Puglia, Basilicata,
Calabria, Sicily, Molise, Abruzzo and Sardinia) starting from 1
January 2016 up to 31 December 2019.
• The tax credit differs depending on size of the business:
• 20% for small enterprises.
• 15% for medium-sized enterprises;
• 10% for other enterprises.
21

Tax credit for investments in the South of
Italy
• Investment in the following items is covered by the relief (and therefore eligible for tax credit)
where the investment is part of an initial investment project related to the purchase, including
by way of finance lease, of:
• Machinery;
• Facilities;
• Miscellaneous equipment
intended for new or existing production facilities.
• The tax credit can be used only to offset payable tax and must be claimed in the Tax Return.
If, following an assessment, it is established that tax credits have been utilised without
entitlement, the Revenue Agency will proceed to claim back the unpaid amount increased by
interest and penalties.
• the Tax Agency will issue a regulatory measure to define the reporting procedure for
applicants
22

Example
Start up, small dimension formed in 2016, assets not yet in use
• Qualifying machinery: EURO 500,000 Depreciation of machinery FY
2016, no amortization
• Amount to calculate the bonus: EURO 500,000 (no point deduction)
• Payable bonus (20%): EURO 100,000
Small business with amortization
• Qualifying Machinery: EURO 500,000
• Depreciation of machinery in FY 2016, except for subsidized goods from
the bonus: EURO 100,000
• Amount to calculate the bonus: EURO 400,000 (500,000 to EURO
100,000)
• Bonus payable (20%): EURO 80,000
23

Definition of micro, small and medium
enterprises
Parameters Micro enterprise Small enterprise Medium enterprise
Number of employees
less than
10 50 250
Turnover 2 million 10 million 50 million
Balance sheet assets 2 million 10 million 43 million
24

Patent Box
• An optional preferential taxation regime applicable to income derived from the use of intangible
rights, such as:
1. intellectual property;
2. industrial patents;
3. trade marks, whether registered or pending registration;
4. drawings and legally protectable models;
5. know-how.
• Part of total profits exempt from tax - 30% for 2015, 40% for 2016 and from 2017 50%
• Italian rules require determination of patent box related revenues in compliance with OECD transfer
pricing principles
• Then that revenue is split pro rata according to the ratio between eligible expenditure and total
expenditure for creating the IP
• May be not in compliance with the principle nexus approach (effective activity) enshrined in the
OECD.
25

Patent Box
• Paragraph 148 has changed the objective scope of the
regulations that go under the name of Patent Box, in particular
by replacing the word “intellectual property” in the list of
eligible activities with “copyrighted software”.
• A second modification provides that if several assets are
covered by the incentive where those assets are connected in a
complementary manner and are used jointly for the realization
of a product or process, then those assets will constitute a
single item of intangible property for the purposes of the regime
governing the recognition of the Patent Box.
26

Tax Credit For R & D
Beneficiaries:
• All businesses investing in research and development from the
tax period following the period in progress on 31 December
2014 and up to the year in progress on 31 December 2019,
irrespective of
• the legal form,
• the economic sector in which they operate; and
• of the accounting regime applied.
Eligible activities:
• Under the provisions of Article 2 (1) of the Decree.
27

Tax Credit For R & D - Eligible Activities
• experimental or theoretical work targeted at the acquisition of know-how, without any direct
commercial application or use in view;
• planned research or investigation aimed at acquiring new know-how, to be used to "create"
new products, processes or services or to allow an improvement of products, processes or
services, or components of complex systems, which are necessary for industrial research;
• acquisition, combination, development and use of existing scientific knowledge and skills,
technology and business, in order to produce plans and arrangements or designs for
products, processes or services, which are altered or improved.
• the conceptual definition, planning and documentation of new products, processes and
services
• The production of drafts, drawings, plans and other documentation (including feasibility
studies), provided they are not intended for commercial use.
• the construction of prototypes for commercial purposes
• pilot projects aimed at technological or marketing experiments
The Decree specifies that ordinary or periodic amendments to products, production lines,
manufacturing processes, existing services and other continuing operations, even if such
changes may represent improvements, are not considered research and development activities.
28

Costs Eligible for R & D Tax Credit
a) The costs of highly qualified personnel with a Ph.D. degree, or
enrolled in a Ph.D. course in an Italian or foreign university, or who
hold a master's degree in a technical or scientific field, according to
the ISCED (International Standard Classification of Education)
b) Costs of employees of the company or
c) Costs of collaborate with the company, employed in research and
development and conducting their activities at the facilities of the
same enterprise
d) Depreciation related to the cost of acquisition or use of instruments
and laboratory equipment, within the limits of the amount resulting
from application of the depreciation rates established by Ministerial
Decree 31 December 1988 and in any case with a unit cost no
lower than Euro 2,000, net of VAT.
29

Costs Eligible for R & D Tax Credit
d) Laboratory instruments and equipment acquired by the company.
If any such asset is acquired by way of financial lease contract the
component of principal in each lease payment will be included in
the computation eligible costs, up to the maximum available
deriving from the application of depreciation rates established by
the Ministerial Decree of 31 December 1988 and in relation to the
actual use of the asset in research and development activities.
e) For instruments and laboratory equipment acquired by operating
lease, the value for the application of depreciation rates is the
historical cost of the asset, which must be shown in the relevant
lease contract, or a separate declaration by the lessor.
30

Determination of tax credit
• The tax credit may be claimed up to a maximum amount of EUR 5 million
a year per taxpayer as follows:
• 50% of “Supplemental costs" (i.e. the excess of the total amount of expenses for
investment in research and development incurred in the tax period in respect of which
the credit is applied for, over the annual average of the same expenses incurred in the
three tax periods before the period in progress on 31 December 2015, (in the
preceding slides subparagraphs a) and c));
• 25% of Supplemental costs relating to the costs described in the preceding slides
(subparagraphs b) and d))
• De minimis Euro 30,000
31

Applying for the Tax credit
• The tax credit must be shown in the tax return for the tax period during
which the relevant costs are incurred.
• The tax credit does not contribute to the formation of taxable profits (IRES
& IRAP)
• It may be used exclusively to offset tax due , with effect from the tax period
following the period in which the R & D costs were incurred.
• Limitations of tax credit and interaction with other tax credits
32

R & D Documentary Requirements
• Taxpayer must retain all the accounting documentation needed to prove
the eligibility for tax credit, as well as the actual costs incurred.
• This accounting documentation must be certified by the person carrying
out the statutory audit, by the board of statutory auditors, or by a
professional registered in the Register of Statutory Auditors. The certificate
must be attached to the annual financial statements.
• Companies that are not required to have a statutory audit and who have
not appointed a board of statutory auditors, must anyway obtain
certification from a registered statutory auditor or an auditing firm.
33

Tax Credit for new hires
• The facility consists of a tax credit equal to 35% of the company
cost incurred, for a maximum period of one year and a
maximum annual ceiling of Euro 200,000.
• The company cost is represented by the actual salary cost
incurred by the company, including the gross pay (before
taxes), compulsory social security contributions and assistance
for children and family.
• The tax credit should be indicated in the tax return and must be
used by way of offset through F24.
34

Assistance for economic growth - ACE
• Ministerial Circular no. 21/E of 3 June 2015
• The ACE facility is a tax incentive for the capitalization of companies
that finance themselves with risk capital.
• ACE grants a deduction, based on the notional return of new capital
injected into an enterprise from 1 January 2011, in computing net
taxable profits.
• The notional return on new equity that can be deducted from the net
total income amounts to:
• 4% for FY 2014
• 4.5% for 2015
• 4.75% for 2016.
35

•Applies to foreign entities engaged in commercial
activities in Italy through a permanent
establishment with reference to the increases to
the equity reserve (“fondo di dotazione”) of the
permanent establishment.
36

Conversion of surplus ACE into a tax credit for IRAP purposes
• The taxpayer may carry forward, fully or partially, any surplus
notional return to subsequent tax years for IRES purposes, or
convert them, in whole or in part, into a tax credit for IRAP purposes.
• Circular Letter no. 21/2015 provides that "a taxpayer which has a
higher notional return than the total net profit for any tax period can
opt for any surplus to be carried forward, fully or partially, to
subsequent tax periods, for IRES purposes, with no time limitation;
or, for the conversion of the surpluses into IRAP tax credit. However,
the part that has been converted into IRAP tax credit and not used
may not be reconverted to IRES surplus".
• The part converted into an IRAP tax credit and not used cannot be
converted into IRES surplus.
37

40% increase in ACE base for listed
companies
• companies whose shares are listed on a regulated market or
multilateral trading system in the EU or a European Economic
Area Member State, for the tax period when they are so
admitted to these markets and the following two periods, the
variation to the increase of shareholders' equity compared to
the amount shown for each period prior to those in progress in
the aforementioned tax periods increased by 40 percent
• The increased benefit is reserved for companies whose
securities are admitted to listing and trading after 25 June 2014
38

Assistance for economic growth -
Ministerial Circular no. 21/e of 3 June 2015
ACE and anti-avoidance regulations
• The Circular has clarified that anti-avoidance rules apply if the transactions
are carried out between:
• companies, resident commercial entities, permanent establishments of resident
commercial entities, permanent establishments of non-resident commercial entities
and individuals that produce business income falling within the subjective scope of
application of the ACE facility (see Articles 2 and 8 of Ministerial Decree dated 14
March 2012);
• controlling persons, pursuant to Article 2359 of the Italian Civil Code, or who are
controlled, jointly with other parties, by the same parent company, i.e. by persons
belonging to the same group.
• Advance Ruling
39

Special scheme for employees returning
to Italy
• No age requirement of the taxpayer;
• Need to have been abroad at least five years;
• Income subject to IRFEF reduced by 30% (instead of 70% for
the previous regime)
• Tax relief for 5 tax years;
• The special scheme for repatriated workers covers only
employees.
40

Jobs Act – Social Security Exemption For
New Hires
• New hires in 2015 on open-term contracts;
• Does not apply to apprentices and domestic staff;
• Max Euro 8,060 per employee per annum;
• Exemption from social security contributions for 3 years
• Regime extended by Stability Law 2016 – but reduced
• New Hires in 2016 subject to maximum of Euro 3,250 per
annum
• Reduction is 40% of total contributions
41

New provisions in international
international taxation
• The 2016 Stability Law contains significant changes in the field
of international taxation, with particular reference to the rules
on:
• the deductibility of expenses and negative components of income
involving black listed suppliers;
• controlled foreign companies (“CFC’s”);
• the regulation of transfer pricing and in particular the reporting
obligations for multinational groups.
42

Deductibility of expenses paid to black listed
suppliers
• The regime which previously provided for the non tax-
deductibility of expenses and negative income components
arising from transactions with suppliers located in States or in
non-EU territories defined in a “black list” has been abolished.
• Due to the changes, those costs thus become deductible,
subject to ordinary rules:
• inherent to the business carried on by the company.
• arm’s length value (for transactions with related parties)
43

CFC regulations
• Jurisdictions with tax regimes, including special regimes, in
which the nominal level of taxation is lower than 50% of the
applicable Italian rate will be treated as tax havens.
• Move away from black-list approach
• Abolition of compulsory ruling for the disapplication of the
regime
• Separate indication in Annual Tax Return of CFC Investments
44

CFC regulations
45
Step 1 - Black list
A. Any jurisdiction with a level of
taxation below 50 percent of
the nominal applicable level in
Italy.
B. Which Italy has not concluded
an agreement ensuring an
effective exchange of
information.
CFC
Step 2 - White list
A. Any jurisdiction with a level of
taxation below 50 percent of the
effective applicable level in Italy.
B. Any jurisdiction have earned income
from more than 50% of financial
assets and intangible assets or
services, including financial,
intercompany.

Transfer Pricing
• The Stability Law 2016, paragraphs 145 and 146, by implementing the provisions of the
Final Report on the Action 13 of the OECD base erosion and profit shifting project (BEPS)
"Transfer Pricing Documentation and Country-by-Country Reporting" has introduced
specific reporting obligations for larger multinational groups.
• The final report of the aforementioned action 13 Transfer Pricing Documentation and
Country-by-Country Reporting" has made provision for final templates for this reporting
(Country-by-Country Reporting), which constitutes Annex III of Chapter V of the OECD
Report on Transfer Pricing.
• Country-by-country reporting has been introduced for resident parent companies of group
that are obliged to file consolidated financial statements, with consolidated revenues in
previous year at least of Euro/M 750. Revenues, profit before tax, tax paid, etc. should be
disclosed. Implementing regulations are expected.
46

Transfer Pricing
More specifically, the Country-by-Country Reporting consists of three tables
(See Technical Annex 1):
• the first (Table 1), in which the following must be shown, for each State where
business is carried on: 1) income from transactions between group companies and the
income from transactions with third parties; 2) gains and losses before tax; 3) taxes
paid during the year and the year to which the tax relates; 4) the share capital and
reserves; 5) the number of employees; 6) the book value of tangible assets;
• the second (Table 2), which contains for each single tax jurisdiction the various entities
comprising the group, highlighting cases where the tax residence of each entity is in
the State of incorporation of the same, as well as the main activities performed by each
entity;
• the third (Table 3), in which any additional information required or useful to better
understand the data provided in the tables should be provided.
47

Changes to IRAP
Flat-rate deduction - 10 %
• From 2015 a tax credit is available for IRAP for taxable persons
with no employees
• 10 per cent gross IRAP due in the tax return
• This credit can be used only to offset other taxes from the year
of submission of the corresponding tax return.
• The 10% gross IRAP credit is to be regarded as taxable non
operating income.
51

IRAP - Reminder
Rules for determining the IRAP tax base for industrial and commercial
companies
The IRAP tax base of capital companies carrying on industrial or commercial
activities is determined as the difference between the value and cost of
production referred to in subparagraphs A and B of Article 2425 of the Civil
Code, with the exception of:
• personnel expenses (B9 - C. E.);
• other write-downs of fixed assets (B10, letter. c), - C. E.);
• write-downs of receivables included in current assets (B10, letter. d), -
C. E.);
• provisions for liabilities (B12 - C. E.);
• other provisions (B13 - C.E.).
52

Changes to IRAP
Exemption from IRAP for agriculture and fisheries;
Increase of the flat rate deduction for “small” taxpayers;
Deductibility of contributions paid to mandatory consortia;
Full deductibility of interest expenses for banks.
53

Regional tax on production activities -
IRAP
• Summary of IRAP deductions available to corporations:
54
IRAP taxable base Deductible amount (starting from the
2014 tax period)
Tax base not exceeding EUR
180,759,91
8,000
EUR 180,759,91 to EUR 180,839.91 6,000
EUR 180,839.91 to EUR 180,919.91 4,000
EUR 180,919.91 to EUR 180,999.91 2,000

VAT provisions (paragraphs 126 - 127)
• The main changes in the 2016 Stability Law include:
• the postponement to 2017 of the increase in ordinary and reduced VAT
rates;
• the identification of the VAT point on issue of credit notes decreasing the
VAT in cases of breach of contract, non payment, ineffective distraint
proceedings and insolvency proceedings;
• the extension of reverse charge mechanism to services rendered by a
member of a consortium to the consortium itself.
• the application of a reduced rate to the supply of accommodation in
marina resorts until 31 December 2016;
• the extension of the rate of 4% to the supply of newspapers, periodicals
and other publishing products in electronic format.
55

History of Italian VAT
Period Rate
From 01.01.1973 to 07.02.1977 12%
From 08.02.1977 to 02.07.1980 14%
From 03.07.1980 to 31.10.1980 15%
From 01.11.1980 to 31.12.1980 14%
From 01.01.1981 to 04.08.1982 15%
From 05/08/1982 to 31.07.1988 18%
From 01.08.1988 to 30.09.1997 19%
From 01.10.1997 to16.09.2011 20%
From 17.09.2011 to 30.06.2012 21%
From 01.07.2012 to 31.12.2016 22%
2017 24%
2018 25%
56

Limitation periods
• The Stability Law modifies the rules on the deadlines for
assessment of income taxes and VAT
57
Before the 2016 Stability Law
Expiry of Limitation
Period
Incorrect Declaration Non-declaration
by December 31, 4th year after
return deadline.
Example: the 2016 tax period
expires on 31 December 2021
by 31 December of the 5th
year after deadline for filing
return.
expires on 31 December 2022After the 2016 Stability Law
Expiry of Limitation
Period
Declaration unfaithful Non-declaration
by 31 December of the 5th year
after return deadline.
expires on 31 December 2022
by 31 December 7th year after
return deadline.
expires on 31 December on
2024

Limitation periods
• The provision doubling the deadlines for assessment of VAT
and Income Tax in the event of a violation that involves a
potential criminal offense been repealed.
• These changes shall not have immediate effect, but will apply to
assessments relating to the tax period in progress at 31
December 2016 and subsequent periods.
58

Ravvedimento Operoso (Self-Correction)
NEW REDUCTIONS
Term for Discolure
After error or omission After relevant return filing date Reduced penalties to Taxes covered
Within 14 days n/a 2/1000 (0,2%) All taxes
From 15 to 30 days n/a 1/10 All taxes
90 days if not «retrunable» 90 days if “returnable” 1/9 All taxes
One year from error or omission in a year 1/8 All taxes
Two years from error or omission
where no scheduled return
requiremen
by the deadline for submission of the
return for the following year
1/7 Only taxes administered by the Tax Agency
(Agenzia delle Entrate)
or, if not 'scheduled periodic
declaration, more than two years
from error or omission
after the deadline for submission of
the return for the year following the
year during which and the offense
was committed
If the amnesty takes place after
the finding of a violation in PVC
(official report)
59

Effective date for reform of tax
administrative sanctions
• Paragraph 133 brings forward to 1 January 2016 the effective
date of the reform of the regime of administrative sanctions
brought in by Legislative Decree 24 September 2015 no. 158
which was originally scheduled for 1 January 2017.
• The new administrative penalty regime thus entered into force
on 1 January 2016
60

Administrative Penalties
Omitted Return - Direct taxes (ordinary rule) • From 120% to 240% of the tax due with a
minimum of 250 euro;
• From 250 to 1000 Euros if they are not taxes
due;
• The penalty is doubled for persons required to
keep statutory accounting records
Omitted Return - Direct taxes ( return
presented before deadline for next year’s
return)
• From 60% to 120% of the tax due with a
minimum of 200 euro
• From 150 to 500 Euros if no tax is due
• The penalty is doubled for persons required to
keep statutory accounting records
Failure to make Withholding Tax Return
(sostituto d’imposta)
• From 60% to 120% of withholding unpaid with
a minimum of 200 euro,
• The sum of the penalties can not exceed €
50,000
61

Administrative Penalties
Failure to file annual VAT return (ordinary rule) • From 120% to 240% of the tax due for the tax
period, or for operations that had to be
indicated in the declaration, with a minimum of
258 euro
• From 250 to 2000 euro if the person carries out
only transactions for which the tax is not due
Failure to file VAT return (return presented
before deadline for next year’s return)
• From 60 to 120% of the tax due with a
minimum of 200 euro
• From 150 to 1000 Euros if the subject performs
only transactions for which the tax is not due
Incorrect Declaration • From 90% to 180% of the tax
Non-payment of withholdings • If more than 150 thousand euro, the legislature
has provided for the imprisonment from six
months to two years.
• Who does not, in whole or in part, the
withholding tax is subject to the administrative
penalty of 20 per cent of the amount withheld.
62

Reduced penalties for prompt payment
Compliance (l’acquiescenza) • A taxpayer who receives a notice of
assessment based on data and determinations
which are difficult to challenge, may, on
renouncing the right to appeal, achieve a
reduction of administrative penalties to 1/3 (1/6 if
the assessment notice was not preceded by an
official report or an invitation to be heard)
• Payment must be made, within 60 days from the
notification of assessment, either in full (the
reduced amount) (or the first instalment, if a
payment in instalment option is taken)
63

Electronic transmission of invoicing
information
• From 1 January 2017 VAT traders are able opt to send
electronically the Revenue Agency a copy all invoices issued
and received by electronic means, by way of the Interchange
System (Sistema di interscambio, SDI).
• The option has effect from the beginning of the calendar year in
which it is applied for until the end of the fourth subsequent
calendar year and is automatically renewed each five-year
period until revoked.
64

information
• Taxpayers who effect transactions (sale of goods or provision of
services) in the retail sector, except for some special cases involving
large-scale retail distribution (LSRD), are required to authenticate all
transactions by issuing a receipt or a tax invoice and register the
transaction in the VAT ledger.
• These taxpayers, starting from 1 January 2017, will be able to opt
(for a period of five years) for the electronic storage and transmission
to the Revenue Agency of daily receipts data for transactions carried
out.
• For vending machines, electronic storage and submission of data
will be mandatory. In particular, the electronic transmission of data
must be made through technology capable of keeping the data
unaltered and secure, including methods that allow payments by
credit and debit cards.
65

informationPenalty Regime:
• Failure to comply with the electronic transmission of invoice data
requirements, or the submission of incomplete data comports a
penalty from Euro 258,23 to Euro 2.065,83 (see Article 11 (1), of
Legislative Decree no. 471 of 18 December 1997)
• A penalty equal to 100% of the tax chargeable on any irregularly
documented operation will apply in the event of an omission
concerning electronic storage.
• A violation will lead to suspension of the license or discontinuation of
the authorization to carry out or perform the activity, or to exercise
any such activity for a period from three days to a month.
• If the total amount of the income subject to challenge exceeds the
sum of € 50,000, the suspension can be extended to a period from
one to six months (cfr. Art. 12 (2) of Decree 471/1997).
66

information
Termination of the benefit:
• The benefits described above which are given to Taxpayers as a result of
participation in the electronic data transmission system for VAT
transactions cease if the taxpayer has incurred certain violations, such as
the omission of the transmission, i.e. the transmission of incomplete or
data.
Entry into force:
• The provisions contained in the Decree will enter into force on the
issuance of the relevant implementing decrees.
67

68
Abolition of article 37bis D.P.R. n. 600/1973
• Article 1 of D.lgs 5 August 2015 amends the Taxpayers' charter
with a new art. 10-bis, thus providing codification in law the notion
of abuse of law, deriving from the case law and repealing article.
37-bis of Presidential Decree 600/1973.
• Abuse of law arises in the presence of one or more transactions
which, although in formal compliance with tax rules, are devoid of
economic substance and allow the taxpayer, who effects the
transaction(s), to achieve an undue tax advantage.
Abuse of Law and Italy’s GAAR

Decision of the revenue Agency no. 55/E
of 29 may 2015.
• By means of Resolution no. 55 / E of 29 May 2015, the Tax Authorities have provided
clarification on the tax treatment of deferred tax assets (DTA) in respect of multiple tax
recognition, subsequent to the first, of the same goodwill.
• The deferred tax assets recorded in the financial statements (...) related to goodwill and
other intangible assets, where the relevant expenditure is deductible, for income tax and
IRAP purposes over several tax years are converted into tax credits if the financial
statements for each individual company show an operating loss.
• The rationale for the rule is to attempt to reduce the gap between deferred tax assets in
the financial statements of Italian operators compared to European operators , which
derives, for instance, on the impossibility to fully deduct bad-debt adjustments in the year
in which they arise, with the consequent formation of a deferred tax assets (DTA).
69

Self-laundering crime and tax crimes
• On January 1, 2015 came into force the Law n. 186/2014, which
introduced into Italian law the crime of self-laundering ;
• The introduction of the self-laundering involves the extension of the
administrative liability to those entities whose employees, after
having committed or participated in committing a crime, employ,
replace, transfer to financial, entrepreneurial or speculative activities,
money, assets or other benefits derived from the (previous)
commission of the crime, in order to concretely hinder the
identification of the criminal origin;
• In terms of penalties, besides the financial penalties against the
company held liable there is a risk of sanctions affecting the carrying
of the activity of the company.
70

Supreme Court tax rulings
from October 2015 to March 2016
Sentence Maxim
Supreme Court judgment 10.14.2015, n.
20649 (Redditometro – “Income-o-
meter”)
Assessment by redditometro is valid even if the assessment is not fully motivated. Moreover,
the taxpayer, in order to challenge a Tax Office claim, needs to do more than simply state
that the management fees that are "too high" are paid to the spouse, who pays tax on the
relevant income. It is in fact necessary to properly document the expenses incurred by the
spouse.
Supreme Court judgment 14.10.2015,
n. 20678 (Change in depreciation)
If the depreciation shown in the profit and loss account is increased from one year to
the other without adequate justification in the notes to the accounts, any increase is
not deductible in the year.
20979 (Tax Adjustment)
n. 403 (Assessment based on
statements of third parties)
The acceptance by an entrepreneur of an uplift in the tax basis reported in the
minutes drawn up by tax inspectors during an inspection can constitute an
extrajudicial confession that legitimates, without the need for any additional element,
the Tax Office's assessment. The same applies to any declaration of a taxpayer
which can constitute direct evidence of higher taxable income “without the need for
further evidence".
An inductive assessment against a company based on the statements of a director
and employee is valid "more so when the testimonies are supported with non-
accounting data".
71

Sentence Maxim
21362 (Redditometro)
When determining the income of a household by “redditometro” the total income of a household
is represented exclusively by the income of the spouse and children living in the household, and
not other relations, inasmuch as they are “outside the notion of the family."
2623 (Sector studies)
An assessment based on industry studies is illegitimate if it does not take into account the fact
that the reduction in revenues / fees declared by the taxpayer derives from the performance, by
the same, a second activity. In this case the professional income of a self-employed person
(surveyor) had decreased since the same had become a partner in a company involved in the
administration of condominiums which resulted in the participation of income.
n. 21349 (Revaluation of company
assets)
The revaluation of company assets (in this case, pursuant to Law no. 342/2000), which has
not affected all the goods in each category it is of no effect in respect of all the goods of the
that same category
22744 (Redditometro)
The new redditometro rules approved by DM 24.12.2012 do not apply retroactively. The taxpayer,
in seeking to refute the findings of the Tax Office, cannot invoke the application of the principle of
“favor rei” in relation to an issue which is not a question of sanctions.
n. 21358 (Non-operating company
and business rental)
The discipline of the shell company is also applicable to persons who "have a turnover of
zero or almost because they have rented the business".
72

Sentence Maxim
2190 (Explanatory notes)
Adequate explanation if a Judge deems void a resolution approving the annual financial settlements
in an abbreviated form on the basis that the information contained in the Explanatory Notes relating
to certain items are not sufficient for a true and fair view of the financial statements. The Judge must
explain "the reasons for which compliance with the rules that ensure prescribed minimum standards,
do not permit a clear view of the financial position.
1915 (Parent company of people and
group VAT)
VAT group rules apply even where the parent company is a partnership. It is noted that on the
Ministry of Finance in a 1986 Circular had excluded such entities from constituting a VAT group.
n. 1334 (Check prolonged tax)
Tax audit continuing for more than 30 days. The taxpayer can "always appeal to the Ombudsman to
enforce the guarantees contained in the statute" as per Law no. 212/2000.
4631 (Non-payment of VAT and new
administrator)
A new director can be held liable for the crime of failure to pay VAT pursuant to Legislative Decree. N.
74/2000 even if the debt has matured before taking the assignment. In order to avoid criminal
responsibility the director must check the position before accepting the office.
73

Spring 2016 Italian Tax Update

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Spring 2016 Italian Tax Update