The ordinary taxable period is equal to 12 months. Conformity with the calendar year is not requested. In particular cases, the duration of the taxable period can be different from 12 months (e.g. newly established companies may be allowed to have taxable periods of up to 18 months; companies that are involved in extraordinary transactions [merger, de-mergers, etc.], as well as companies that are liquidated, may have taxable periods shorter than 12 months).
As a general rule, IRES and IRAP returns must be filed by the end of the 11th month following the tax year-end.
The ordinary filing deadline for the WHT agent return is 31 October of the following year.
Payment of taxes
For IRES and IRAP purposes, the tax law provides for both advance payments and settlement payments. As a general rule, the advance payments are equal to the net tax liability for the previous tax period and are due during the tax period to which they refer. The advance payments due are equal to 100%.
Advance payments are split into two instalments:
- 40% by the end of the sixth month following the tax year-end.
- 60% by the end of the 11th month following the tax year-end.
For taxpayers subject to the so-called Synthetic Index of Tax Reliability, please refer to the next paragraph. The advance payments have to be split into two equal instalments.
Settlement payments are due by the end of the sixth month following the tax year-end to which they refer to.
Tax payments should be performed through a specific form to be electronically filed to the tax authorities (i.e. F24 form).
Offsetting of taxes
Payables and receivables (not claimed for refund) resulting from a return regarding different taxes are allowed for off-setting within a yearly limit of EUR 700,000.
For the calendar year 2021, the above limit has been increased to EUR 2 million (EUR 1 million for the calendar year 2020).
Furthermore, in order to offset tax credits exceeding EUR 5,000, a so-called ‘conformity mark’ affixed by a qualified professional on the related return is required. In addition, there is an obligation to channel the filing of the F24 form through the tax authorities system (so-called ‘Entratel’) in case of offsetting tax liabilities with other tax credits.
No offsetting is allowed in case of unpaid taxes resulting from an official payment notice and exceeding EUR 1,500.
Failure to file a tax return results in a penalty ranging from 120% to 240% of the taxes due. Minimum penalties (ranging from EUR 250 to EUR 1,000) are applicable if no tax liability emerged in the return.
A tax return showing either a taxable income lower than the one assessed or a tax credit higher than those owed to the taxpayer (i.e. an untrue tax return) results in a penalty ranging from 90% to 180% of the higher taxes ultimately due.
Omitted and/or late payments of taxes, of whichever kind and nature, result in a penalty equal to 30% of the unpaid/late paid tax. However, in cases where the delay is within 15 days, the penalty is equal to 1% per day; if the delay is between 15 and 90 days, the penalty is equal to 15%.
Special rules apply where similar violations are repeated over various years.
Self-disclosure of tax law breaches are allowed on payment of the higher taxes and of reduced administrative penalties. The reduced penalties are always computed on the floor of the applicable range of penalties. The starting of an audit does not prevent anymore the possibility to amend tax returns or to carry out late tax payments.
The actual reduction of penalties depends on the time elapsed between the occurrence of the breach and the self-disclosure itself (i.e. different interim thresholds apply). The penalty is reduced from 1/10 (lower floor), if the correction is done within 30 days (for an omitted/lower tax payment only), up to 1/5 (upper floor) if the correction is carried out during a tax authorities audit or after the issue of a tax audit report (i.e. processo verbale di constatazione).
In any case, the possibility to apply the self-disclosure is prevented after the issuance of final notice of tax assessment (i.e. avviso di accertamento) or tax redetermination (i.e. avviso di irregolarità).
Synthetic Index of Tax Reliability (the so-called ISA)
Starting from FY 2018, the so-called Sector Studies Assessment (i.e. special tax control procedures for those enterprises whose total turnover does not exceed EUR 7.5 million) has been replaced by a system of indexes to identify and reward reliable taxpayers (now applicable for the taxpayers which total turnover does not exceed EUR 5,164,569).
In particular, the ISA represents an economic and statistical methodology to determine the level of the tax reliability of the taxpayers. A low level of reliability will increase the risk to be included in the list used by the tax authorities in order to select the taxpayers to be audited.
The tax ruling is an instance where the taxpayer directed a behaviour for tax purposes to the tax authority before implementing it; its scope is to seek clarification on the interpretation of a rule objectively uncertain, related to state taxes, to be applied to concrete and personal cases.
The procedure can also be started by non-resident taxpayers, by WHT agents, and by persons in charge of fulfilling the tax payments.
The tax authorities must admit to the procedure within 30 days from the receipt of the instance; however, tacit acceptance from the tax authorities applies. The procedure that involves a contradictory procedure between the tax authorities and the taxpayer ends within 180 days from the receipt of the instance.
The content of the instance could be on the transfer pricing, the application of rules to attribute profits and losses to a PE, the tax treatment of dividend, interest, royalties, or other incomes, etc.
In particular, a ’ruling on new investments’ has been introduced for those enterprises that intend to make new investments in Italy for a value above EUR 30 million, disclosing tax treatment of the investment and all related extraordinary transactions. The tax authorities will be bound not to issue any deed inconsistent with the answers given.
The tax authorities’ answer must be notified within 120 days. The deadline can be extended for an additional 90 days if the tax authorities asks for new additional information.
Tax audit process
For larger companies having a yearly turnover exceeding specific thresholds (that are in the process of being progressively decreased to EUR 100 million), administrative checks on tax returns may be carried out within the year following that in which the tax return has been filed.
Tax audit can take place at the taxpayer’s premises as well as in the tax authorities’ offices. The statute of limitations provides that tax auditors can stay at a taxpayer’s premises for not longer than 60 working days (30 days ordinary term plus 30 days of extension). At the end of this period, the audit must come to an end. Tax auditors must take note of the observations and requests made by the taxpayer. At the end of their audit, the tax auditors must draw up a tax audit report whereby the outcome of the audit activity must be detailed and the findings (if any) must be illustrated and motivated. A copy of the report has to be filed with the tax office.
The tax office receiving the tax audit report examines the findings reported by the tax auditors and starts the assessment procedure, which may lead to the issuing of a tax assessment notice bearing the request for payment of higher taxes and/or penalties.
Tax controversy and dispute resolutions
Should the taxpayer accept all of the challenges raised by the tax authorities, it may take advantage of the application of reduced penalties. The reduced penalties are equal to 1/3 of the applied penalties.
In case the taxpayer decides not to accept the challenges by the tax authorities, a settlement procedure can be initiated. The favourable outcome of the settlement procedure brings forth (in addition to the agreed-upon reduction of challenged taxes) the reduction of penalties: ordinarily down to 1/3 of the minimum applicable penalties.
In case no settlement is either achieved or requested for, the taxpayer may start a tax dispute before the Court. The judicial proceedings are structured in three tiers:
- Provincial Tax Commission, in first instance.
- Regional Tax Commission, in second instance.
- Supreme Court of Cassation.
Statute of limitations
From the fiscal year in progress as at 31 December 2016, the Italian tax authorities are entitled to make an assessment in relation to corporate taxes (IRES and IRAP), VAT, and WHT returns up to:
- the end of the fifth calendar year following the year in which the tax return was filed (previously up to the end of the fourth calendar year), or
- the end of the seventh calendar year following the year in which the tax return would have been filed, for an omitted return (previously up to the end of the fifth calendar year).
Previous rules were applicable until FY 2015.
The possibility to file an integrative tax return in favour of taxpayers within the deadlines of tax assessment has been introduced (e.g. FY 2017 tax return is amendable in favour of the taxpayer until FY 2023).
Topics of focus for tax authorities
Extraordinary transactions (such as mergers, de-mergers, etc.) continue to be a topic of focus for tax authorities due to the potential applicability of tax anti-abuse rules.
As a response to recent cases of carousel-frauds on VAT, cross-border transactions are being more heavily scrutinised.
Over the last few years, we experienced an increasing focus by the tax authorities on transfer pricing and PE-related issues.
The beneficial ownership condition is very carefully scrutinised in case of payments where a nil or reduced WHT is applied based on EU Directive or applicable DTT, in particular when the ultimate owner of the group is non-EU.
Cooperative compliance regime
The Italian government introduced into the domestic tax system a cooperative compliance regime (so-called 'Adempimento Collaborativo') in order to promote cooperation between the tax administration and taxpayers.
The regime can be accessed by the following taxpayers:
- For the years 2020 and 2021, taxpayers who achieve a turnover or revenue equal to at least EUR 5 billion.
- Entities granting execution to the opinion of the Italian Revenue Agency in response to the advance ruling on new investments, notwithstanding threshold of turnover or revenues.
- Foreign entities that have submitted the self-disclosure procedure regarding hidden PE in Italy of foreign enterprises, regardless of the amount of revenues attributable to the PE.
- Entities participating the VAT group whose participant adheres to the cooperative compliance regime. In this case, the extension depends on the possession of the other requirements (i.e. Tax Control Framework) provided by the Italian Tax Law for each individual participant for the access to the cooperative compliance regime
Eligible taxpayers are required to implement an effective Tax Control Framework compliant with the OECD guidelines with the following features:
- A clear attribution of roles and responsibilities implemented according to the best corporate governance practices at the national and international level.
- An organisational model containing effective procedures for the detection, measurement, management, and control of tax risks ensuring compliance with all company levels.
- Effective procedures aimed at remedying any deficiencies found with consequent activation of corrective actions.
In order to be admitted to the program, taxpayers should file with the Italian Tax Authority an application using the model named 'Participation to the cooperative compliance regime'.
The application for access to the regime must be signed by the legal representative or general or special attorney and must be accompanied by the following documentation:
- Description of the activity carried out by the company.
- Tax strategy.
- Description of the tax risk control system adopted and its operating methods.
- Map of business processes.
- Map of the tax risks identified by the tax risk control system from the moment of its implementation and of the envisaged controls.
After the submission of the application, the preliminary investigation of the tax authorities begins, aimed at verifying the existence of subjective requirements. The assessment process is defined within a term of 120 days from the receipt of the submission of the application.
This assessment activity is driven by the tax authorities on two levels:
- Company level: In which the Agency carries out checks on the design of the Tax Control Framework, in terms of compliance with the principles derived from international best practice, merged in the OECD documents and in the COSO Framework.
- Activity level: In which the Agency carries out an in-depth analysis of two or three processes, in a walk-through logic of the controls detected to mitigate the relevant tax risks.
The benefit of the admission to the cooperative compliance regime has a retrospective effect, starting from the tax period of submission of the application.
Admission to the cooperative compliance regime allows taxpayers to benefit from several advantages, such as:
- Continuous cooperation with the tax administration based on trust and transparency (e.g. fast track rulings are dedicated to admitted taxpayers).
- Tax penalties reduced by 50% and, in any case, applied to an amount not exceeding the minimum provided by law.
- Exemption from the guarantees required to obtain refunds of direct and indirect taxes.
- Inclusion in the list of all taxpayers who have joined the regime, which is published on the Italian Revenue Agency website.
Joining the cooperative compliance regime is also the first step for taking part in the International Compliance Assurance Programme (ICAP).
ICAP is a voluntary program for a multilateral co-operative risk assessment and assurance process, which gives comfort and assurance where tax administrations participating in an MNE’s risk assessment consider a covered risk to be low risk.
Tax offences and the entity’s criminal liability: The rules as per Decree 231/2001
With the Fiscal Decree linked to the Budget Act (Decree Law no. 123, converted into Law no. 157 of 2019 on 'Urgent provisions on tax matters and urgent matters that cannot be postponed'), a significant part of the tax crimes, attributable to tax fraud, entered the catalogue of offences for the liability of entities for administrative offences, governed by Legislative Decree no. 231 of 2001 (Decree 231/2001).
Article 39(2) of the fiscal Decree has amended decree 231/2001 by inserting under article 25-quinquiesdecies (sources of administrative criminal liability) the following tax fraud crimes, which are included in Legislative Decree no. 74 of 2000 (Decree 74/2000):
- Fraudulent tax returns, through the use of invoices or other documents for non-existent transactions (Article 2(1) and (2), Decree 74/2000).
- Fraudulent tax returns, by means of other artifices (Article 3, Decree 74/2000).
- Issuing invoices or other documents for non-existent transactions (Article 8(1) and (2a), Decree 74/2000).
- Concealing or destroying accounting documents (Article 10, Decree 74/2000).
- Fraudulent deduction from the payment of taxes (Article 11, Decree 74/2000).
Further legislative changes occurred as a result of Legislative Decree No. 75 of 2020 (implementing Directive (EU) 2017/1371, better known as the 'PIF Directive'), which expanded the category of tax offences provided for in Article 25 quinquiesdecies of Legislative Decree 231 of 2001 with the following types of offence:
- Unfaithful declaration (Article 4, Decree 74/2000).
- Omitted declaration (Article 5, Decree 74/2000).
- Undue compensation (Article 10c, Decree 74/2000).
The same Legislative Decree no. 75 of 2020 provides that the offences listed above are relevant to the administrative liability of the entity if they are committed as part of cross-border fraudulent schemes and for the purpose of evading VAT for a total amount of not less than EUR 10 million.
It is therefore necessary to update the Organisation, Management, and Control Model (MOGC) to include the tax risks associated with the types of tax offences included in 'catalogue 231'. Procedures must be mapped in the MOGC in order to define roles, responsibilities, principles of conduct, operating procedures, as well as the criteria of conduct that individuals must uphold in order to prevent the commission of tax fraud offences.
The sanctions applicable to the entities, in relation to the commission of the offences, may be both pecuniary and interdictory. Pecuniary sanctions range from a minimum of 400 to a maximum of 500 quotas, with a possible increase of one third in the event of a significant profit obtained by the entity as a result of the commission of tax fraud. Considering the current value of the quotas, the maximum financial penalty applicable to the entity for a tax offence may reach up to EUR 1,032,667.
Interdictory sanctions with a considerable impact may also be imposed. Interdictory sanctions may even be applied as a precautionary measure, including a prohibition on contracting with the public administration and a prohibition on advertising goods or services, as well as confiscation and seizure of the profits accumulated from the tax offence.
Mandatory automatic exchange of information in the field of taxation in relation to reportable cross-border arrangements (the so-called 'DAC 6')
The EU 'DAC 6' Directive, adopted by the Council of the EU on 25 May 2018 and entered into force on 25 June 2018, introduces new rules at a European level regarding the mandatory automatic exchange of information in the tax sector.
In particular, DAC 6 requires intermediaries and taxpayers to promptly communicate to the tax authorities of the member state of tax residence, establishment, or in which they operate, the 'cross-border arrangements subject to the reporting obligation' ('Reportable Cross Border Arrangement' or RCBA), when certain conditions are met.
In this regard, from an objective point of view, two elements are relevant:
- the presence of a cross-border element and
- the presence of at least one of the hallmarks in the arrangement, so that it is considered to be 'subject to the reporting obligation' (such hallmarks are listed in the Annex IV of DAC 6).
Each person, in the role of an intermediary or a relevant taxpayer, with respect to DAC 6 can assume the obligation to report the arrangements that have an impact on its tax position or on its client’s taxation or on the correct application of Common Reporting Standard (CRS) and anti-money laundering (AML) procedures. As a result, DAC 6 requires the prompt interception of potential RCBAs and to proceed with their analysis and, if necessary, report to the revenue agency.
The reporting obligations were scheduled to enter into force as from 1 July 2020 and intermediaries and taxpayers would have 30 days to comply with the reporting obligations.
Further, it should be noted that the Directive has a retrospective effect, which will also require reporting in relation to the RCBAs whose first step of the implementation was carried out between 25 June 2018 and 30 June 2020. Information relating to these RCBAs should have been reported by 31 August 2020.
However, the amending Directive (2020/876) approved on 24 June 2020 provides for a 6-month optional deferral on the DAC 6 reporting deadlines.
As per the amending Directive, member states: may, on an optional basis, allow:
- the reporting of retrospective RCBAs (first step of implementation between 25 June 2018 and 30 June 2020) by 28 February 2021, and
- the 30-day period for filing information for on-going RCBAs implemented between 1 July 2020 to 31 December 2020, to begin on 1 January 2021.
The tax authorities of the EU member states, starting from the end of April 2021 and thereafter on a quarterly basis, will exchange among themselves the information submitted by intermediaries and taxpayers in order to promptly intercept aggressive tax planning schemes and neutralise the distorting effects that they produce on the EU market.
Each member state had to adopt the laws, regulations, and administrative provisions necessary to comply with DAC 6 by 31 December 2019.
The implementation procedure was initiated by most member states. As far as Italy is concerned, under Legislative Decree 30 July 2020, n. 100, DAC 6 has been implemented in the Italian Legislation, supplemented by the Decree released by the Ministry of Finance on 17 November 2020. The revenue agency has provided the first guidance on the application of the Directive with the Circular letter n. 2/2021, released on 10 February 2021.
The Italian implementation is basically aligned with the EU minimum standard, with the main possible deviation linked to the hallmarks and the relevance for the application of the main benefit test of the (sole) taxes due by a taxpayer with a link with Italy (residence, presence of a PE, income sourced in Italy, or economic activity carried out in Italy).