New anti-abuse provisions introduced for companies incurring consecutive tax losses - International Law Office

Law Decree 138/2011, which was later converted to Law 148/2011, introduced new anti-abuse provisions for companies consecutively incurring tax losses(1) and widened the application of provisions concerning non-operating companies that are required to disclose for tax purposes a minimum income determined on the basis of their assets,(2) notwithstanding the actual result of the application of ordinary tax provisions.

The new rules state that companies reporting tax losses for three consecutive tax years – the 'observation period' – will be regarded as dormant companies from the fourth tax year onward in accordance with Law 724/94. For entities whose fiscal year corresponds with the calendar year, the new provision will be applicable for the first time to the 2012 tax period, with the three years from 2009 to 2011 constituting the observation period. Thus, the provision will be taken into account for advance tax payments referring to 2012 .

Law Decree 138/2011 states that the reasons for exemption set forth for dormant companies in Law 724/94 will also be applicable to companies that incur consecutive losses.

Moreover, on June 11 2012 the director of the Tax Administration adopted Measure 87956, which sets out the specific conditions under which companies will be exempt from the regime for companies consecutively incurring losses, and therefore are not required to file for a ruling on the matter.

These conditions for exemption must be verified in the three-year observation period (for the 2012 tax period, they must occur in at least one of the tax years from 2009 to 2011). The anti-abuse provision will not be applicable to:

• companies that hold equity interests accounted in the balance sheet as financial assets only, on condition that the company does not carry out an activity other than one strictly connected to the management of equity interests and has a hashafair market value that mainly refers to:
  • companies not incurring consecutive losses;
  • companies that are excluded from the regime for companies not constantly incurring losses as a result of a positive ruling from the tax authorities; or
  • foreign associated companies to which controlled foreign corporation provisions are applicable;
• companies with a positive gross operating margin; and
• companies that have a positive sum when the tax loss of the relevant fiscal year is combined with any amounts that are:
  • tax-exempt (eg, certain dividends or capital gains);
  • non-taxable in accordance with a special regime; or
  • subject to final withholding or substitutive taxes.

The Tax Administration has also issued Circular Letter 23/2012, which clarifies some aspects of the new anti-abuse regime and gives guidelines regarding the ruling procedure for its applicability.

A company may request a ruling from the tax authorities to determine whether it is exempt from the anti-abuse provisions. The requesting entity must give objective evidence of the reasons for the consecutive negative taxable incomes. The circular letter points out that the application for clarification must clearly contain and thoroughly and precisely provide evidence of all elements:

"useful to identify the objective circumstances …justifying the non-application of the legislation under scrutiny, expressly indicating both the tax period in relation to which the non-application is being asked and the tax period to which the same circumstances pertain."

If the Tax Administration is not provided with this information, the request will be unsuccessful and the company will be deemed subject to the anti-abuse regime.

According to the circular, the request for exemption from non-operating companies provisions under Article 30 of Law 724/94 and the application for exemption from the rules on companies incurring consecutive losses must be filed separately, as they are based on different requirements.

The competent tax offices will issue a decision within 90 days of filing a request.for a ruling

For further information on this topic please contact Marco Abramo Lanza or Franco Pozzi at Studio Legale Tributario Biscozzi Nobili by telephone (+39 02 763 6931), fax (+39 02 780 146) or email (marco.lanza@slta.it or franco.pozzi@slta.it).

Endnotes

(1) Companies to which such rules apply are indicated in Article 30(1) of Law 724/94: joint stock companies, limited partnerships, unlimited partnerships, general partnerships and foreign bodies with a permanent establishment in Italy.

(2) As of tax year 2012, dormant companies are subject to a 10.5% corporate surtax which therefore brings the corporate tax rate to 38% (from 27.5%).