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 2021 tax deadlines
- Extension until FY 2022 of the tax credits provided by the National Plan “Transizione 4.0”
- Step-up of business assets
- Italian anti-hybrid rule
- Introduction of the “Super” ACE for FY 2021
- 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.
Please click here for a description of temporary tax measures in response to COVID-19.
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The 2020 finance bill introduced a new ‘web tax’ on digital services applicable as of 2020, which, de facto, repealed the previous measure introduced by the 2019 finance bill (never entered in force).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 2021 tax deadlines
Some tax deadlines have been changed. In detail:
- Stamp duty on e-invoices - The amounts are due on quarterly basis. Generally the amounts have to be settled by the end of the second month following the quarter of reference except for the second quarter which deadline is scheduled by the end of September. However, possible postponements are applicable in case the amount due is lower than the relevant thresholds.
- Electronic filing of WHT statement (so called “Certificazione Unica) related to the simplified returns - The new ordinary deadline is scheduled on March 16. By the same deadline, the WHT statement has to be made available to the recipient.
Extension until FY 2022 of the tax credits provided by National Plan “Transizione 4.0”
Law no. 178 of the 30th December 2020 (so-called Budget law 2021), introduced important changes in the field of tax incentives for enterprises. The law extended the measures of the National Plan Transizione 4.0 and strengthened the intensity of the incentives. Below we analyze the main aspects of the new provisions.
Step-up of business assets
- Step-up as per 2020 Budget Law
The 2020 Budget Law revamps the 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, by the deadline for the tax payment related to the fiscal year in progress at 31 December 2019 (i.e. 30 June for companies having a fiscal year corresponding to the calendar year), 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 amortisation and depreciation purposes, and
- the fourth fiscal year subsequent to the one in which the step-up was done for 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 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 recognised as of the fiscal year ongoing on 1 December 2021).
Note that the step-up regime for accounting purposes is only available to Italian GAAP companies, while the step-up regime for tax purposes is also available to IFRS companies.
The above provisions in the matter of step up and realignment set forth by 2020 Budget Law have been extended to the financial year following the ones closed as at 31 December 2019, 31 December 2020, 31 December 2021.
2. More favourable Step-up as per Law Decree 104/2020
The Law Decree n. 104/2020 introduced a more favourable voluntary revaluation of the assets, with the application of a substitutive tax rate (3%) in case of election for the tax recognition of the higher values that shall be disclosed in the Financial Statements as at 31 December 2020.
In particular, the revaluation may be applicable - by the corporations and other public and private entities that carry out commercial activities, provided that they adopt the ITA GAAP - to tangible and intangible assets with legal protection as well as to participation in controlled and associated companies, which are recorded among the fixed assets in the financial statements as at 31 December 2019.
Real estates and other immovable properties which are built or traded in the context of the business purpose of the owning taxpayers are excluded from the scope of the present provision.
The Decree recalls the discipline applicable to the previous revaluation’s law provisions of the business assets, however, unlike many of the previous versions of the same measure, each individual business asset may be object of step up without the obligation to extend the revaluation to all assets belonging to the same homogeneous category.
The beneficiary subjects of the measure may choose to carry out the revaluation only for statutory/accounting purposes with a consequent capital strengthening, or to opt also for the tax recognition of the higher values by means of payment of a substitutive tax equal to 3%, applicable both to the depreciable and non-depreciable assets. In both cases, the attribution of the higher values of the assets in the balance sheet will imply the recording of a corresponding revaluation reserve in the net equity.
Lastly, for those subjects who adopt the international accounting standards (the so-called IAS adopters), the Decree provides for the possibility to step up, for tax purposes only, any higher book value disclosed in the Financial Statements as at 31 December 2020 by means of payment of the substitutive tax equal to 3%.
The Law Decree no. 104/2020 also allows taxpayers to realign the tax value of the assets to their current accounting value, if higher. The substitute tax rate is the same as the one provided for the step-up regime for accounting purposes. The Budget Law 2021 extends the same realignment option also to the goodwill and other intangible assets.
The Law Decree no. 41/2021 (the so-called “Sostegni Decree”) extended the step up regime to assets on the Financial Statements as at 31 December 2021 for statutory/accounting purposes only.
Italian anti-hybrid rule
The Italian anti-hybrid rules (here in after the “Italian Regulation”) were introduced by Legislative Decree no. 142/2018, Articles 6-11 (implementing EU Directive 2017/952 of 29 May 2017, also known as “ATAD 2”).
In simple terms, the Italian Regulation rules seek to neutralise circumstances where cross-border arrangements with a hybrid feature give rise to payments that:
- are deductible under the tax rules of the payer and not included in the assessable income of the recipient (deduction/non-inclusion or “D/NI”); or
- give rise to duplicated deductions from the same expenditure (double deduction outcome or “DD”)
The Italian Regulation also includes an “imported mismatch” rule which denies tax deductions for payments made by the Italian group which directly or indirectly offsets an offshore hybrid elsewhere in the global group. That is, if there is a hybrid entity or hybrid instrument anywhere in the global group, if it could impact the tax position of the Italian entity.
The Italian Regulation identifies nine types of “core” hybrid mismatches which are mainly the following (1) Hybrid financial instrument/Hybrid transfer/(Substitute payments), (2) Payment to a reverse hybrid, (3) Diverted branch payment, (4) Disregarded branch, (5) Disregarded payment by a hybrid entity, (6) Deemed branch payment, (7) Deductible payment made by a hybrid entity / Deductible branch payment, (8) Deductible payment made by a dual resident entity and (9) Imported mismatch arrangement.
If arrangements give rise to a D/NI or DD outcome due to a defined hybrid feature, the Italian Regulation rules typically operate to eliminate the mismatch: by neutralising the benefits of a hybrid mismatch arrangement by disallowing a deduction or including an amount in an entity’s assessable income. In the case of a hybrid payer mismatch or deducting hybrid mismatch, the amount of a hybrid mismatch can be reduced by “dual inclusion income” (“DII”). In broad terms, DII is income or profits which are subject to Italian income tax and/or foreign income tax in at least two countries in the same income year.
Explanatory notes of the Italian Regulation and ATAD 2 (preamble 28) make reference to explanations and examples in the OECD Reports (“Neutralising the Effects of Hybrid Mismatch Arrangements”, Action 2 - 2015 Final Report and “Neutralising the Effects of Branch Mismatch Arrangements”, Action 2: Inclusive Framework on BEPS - 2017) as a source of illustration or interpretation to the extent that they are consistent with the provisions of the Directive and with Union law.
The Italian Regulation entered in force starting from 1 January 2020 for calendar year taxpayers (i.e. tax period following the one in course as of 31 December 2019), except for the reverse hybrid mismatch rule, which applies with starting from 1 January 2022 (i.e. tax period following the one in course as of 31 December 2021). However, Italian Regulation does not provide for any “grandfathering” rule for transactions already in place prior to the implementation of the new anti-hybrid legislation in Italy.
To date, there is not any official guidance or clarification issued on hybrid mismatches, neither from Italian Ministry of Finance nor by Italian Tax Authorities.
Introduction of the “Super” ACE for FY 2021
The Law Decree no. 73/2021 (the so-called “Sostegni Bis Decree”) introduced a measure aimed to strengthen the ACE benefit for the tax period 2021 only.
The actual rate of 1.3% has been increased to 15% up to 5 million Euro of the 2021 net equity increases.
Changes have been introduced in different matters, such changes in electronic transmission of the considerations obligations, new technical specifications re e-invoicing issued by Italian tax authorities and mandatory from 1 January 2021, cancellation of the cross-border communication starting from the year 2022, tax receipt lottery.