The major recent changes in the Italian tax rules that occurred in the last 12 months are the following:
- Introduction of a new digital service tax (DST) as of 2020.
- New 2020 tax deadlines.
- Replacement of hyper and super tax depreciation regimes with a new tax credit.
- Enforcement of the tax incentives system.
- Re-introduction of the allowance for corporate equity (ACE).
- Repeal of a reduced corporate income tax (CIT) rate on profits carried forward.
- Changes in the interest cost deduction rules.
- Step-up of business assets
- Value-added tax (VAT) changes.
Please note that Italy tax updates are generally expected to occur between November and December in connection with the finance bill and approval of related laws.
Introduction of a new digital service tax (DST) as of 2020
The 2020 finance bill introduced a new ‘web tax’ on digital services applicable as of 2020, which, de facto, repealed the previous measure introduced by the 2019 finance bill (never entered in force). Under this new Law, corporations (including non-Italian residents) shall apply a tax at the rate of 3% on the value of digital services, net of VAT and other indirect taxes.
New 2020 tax deadlines
Some tax deadlines have been changed. In detail:
- The monthly cross-border communication now has to be filed on a quarterly basis (i.e. within the last day of the following month subsequent the quarter period).
- For calendar year 2019 and the following ones, CIT (Imposta sul Reddito delle Societàor IRES) and regional production tax (Imposta Regionale sulle Attività Produttive or IRAP) returns are due by 30 November 2019.
Corporations having their tax period different from the calendar year will file the above returns within 11 months following the financial year-end.
Replacement of hyper and super tax depreciation regimes with a new tax credit
The new regulation introduced a tax credit for investments in new capital assets instrumental to the exercise of the business activity, purchased from the 1st January to 31st December 2020, or within 30th June 2021, provided that within 31st December 2020 the purchasing order is accepted by the seller and the buyer has paid an installment of at least 20% of the whole purchasing price.
Such tax credit replaced the hyper and super depreciation regimes in force until December 2019. However the past regulations still continue applying for investments in «ordinary» assets sustained between 1st January and 30th June 2020, if the purchasing order was accepted by the seller within 31st December 2019 and the buyer paid an installment of at least 20% of the purchasing price (so called “super depreciation”) or for investments in «Industry 4.0» assets sustained between 1st January and 31st December 2020, as the purchasing order was accepted by the seller within 31st December 2019 and the buyer paid an installment of at least 20% of the purchasing price.
Specific supporting documentation is required to benefit from these provisions.
Enforcement of the tax incentives system
Several incentives have been established or propagated to stimulate investments in research and development (R&D), technological, digital or ecological innovation, design and aesthetic innovation, training of personnel in 'Industry 4.0' and in advertising campaigns, and to attract new industries to southern Italy and certain depressed mountain areas in central and northern Italy.
Reintroduction of allowance for corporate equity (ACE)
The ACE deduction (a sort of notional interest deduction on equity increases) , in force through 2018, has been reintroduced starting from FY 2019.
The rate applicable to ACE deduction for FY 2019 was 1.3%.
Repeal of a reduced CIT rate on profits carried forward
The increasingly reduced IRES rate on the profit (not distributed) accounted as net equity reserve up to 4% has been retroactively repealed starting from FY 2019 due to the re-introduction of the above ACE deduction (de facto, it never entered in force).
Change in interest cost deduction rules
The main changes in interest cost deduction rules are set out below:
- New definition of earnings before interest, taxes, depreciation, and amortisation (EBITDA). In particular, the relevant EBITDA is no longer based merely on the results of the profit and loss account; but it has been replaced by EBITDA relevant for tax purposes (e.g. exempt items of income or non-deductible items of cost will not be included in the relevant EBITDA).
- Interest income exceeding interest expenses can now be carried forward to offset future interest expenses in any following FYs.
- Unused interest cost exceeding 30% EBITDA can be carried forward only for five FYs.
Step-up of business assets
The 2020 Budget Law revamps the one-off opportunity for Italian GAAP companies to step-up the business assets for accounting and tax purposes.
The step-up election may apply to tangible and intangible fixed assets (i.e. trade goods and immovable properties held by real estate trading companies are excluded) as well as to qualifying shareholdings (i.e. resulting in at least 20% voting rights in the ordinary shareholding meeting of the relevant subsidiary and accounted for as financial assets) by paying a substitute tax on the increased value at the rate of 12% for depreciable assets and 10% for non-depreciable assets provided that the mentioned assets are included in the balance sheet related to the period ongoing on 31 December 2018.
The accounting step-up has to be performed in the FY 2019 Statutory Financial Statements. The relevant tax effects will occur from:
- the third fiscal year subsequent to the one in which the step up was done for the amortization and depreciation purposes;
- the fourth fiscal year subsequent to the one in which the step up was done for the capital gain purposes.
Taxpayers are also allowed to pay a 10% substitute tax in order to freely distribute the equity reserve deriving from the accounting the step-up.
The 2020 Budget Law also allows taxpayers to realign the tax value of the assets to their current accounting value, if higher. The substitute tax rates, the payment rules and the relevant tax effects are the same as the ones provided for the step-up regime for accounting purposes (the only exception refers to immovable properties for which the higher values are recognized as of the FY ongoing on 1 December 2021).
To be noted that the step-up regime for accounting purposes is only available to ITA GAAP companies while the step-up regime for tax purposes is also available to IFRS companies.
Changes have been introduced in different matters, such as, electronic transmission of the considerations obligations, deadline for issuance of invoices, intervention of the so-called marketplaces, VAT rules for the vouchers, VAT procedure that entitles the usual exporter to carry out purchases of goods or services without application of VAT, deadline for the submission of the cross-border communication, tax receipt lottery, broader application of the reverse-charge mechanism.