€54 billion austerity plan seeks to balance the books

Individual taxation
Corporate taxation

On September 14 2011 Parliament approved an austerity package that aims to present a balanced budget for 2012.(1) Its various provisions - with an estimated financial impact of €54 billion - include a number of significant measures affecting individual and corporate taxpayers.

Individual taxation

Material changes to the taxation of interest, capital gains and dividend income have been introduced, increasing the rate for Italian source income from 12.5% to 20%.

Income derived from debt instruments will be subject to a final 20% withholding tax (except income from bonds issued by the Italian government, EU member states or states that allow for an adequate exchange of information with the Italian tax authorities). Dividends distributed by resident companies to resident private individuals (and to non-resident individuals, unless a tax treaty applies) on the basis of a non-substantial participation are subject to tax at the same rate.

The new rate triggers a similar tax burden for equity investments in non-substantial participations and investments in substantial participations, which remain taxable at 49.72% with the application of the ordinary tax rate. In effect, the tax burden on income derived from a substantial participation will be around 19% at most, depending on the recipient's personal circumstances.

Capital gains derived from debt instruments and equity investments will be subject to the same treatment. The package includes grandfathering provisions that are intended to allow a step-up in the tax base for such financial instruments from December 31 2011. The new 20% tax rate will apply to interest and dividends paid from January 1 2012.

A special solidarity surcharge of 3% will apply to individuals with a personal income in excess of €300,000 in the tax years from 2011 to 2013. This surcharge is deductible from the income tax base on a cash basis. Members of Parliament whose income exceeds €90,000 will pay a 10% surcharge, rising to 20% on incomes over €150,000. A 5% surcharge will apply to public-sector employees and former employees in receipt of salary or pension income worth €90,000 or over, rising to 10% for income over €150,000.

Corporate taxation

Dormant companies
The corporate income tax rate for the deemed taxable income of dormant companies has been raised from 27.5% to 38%. Companies that report losses for corporate income tax purposes for three consecutive tax years are subject to the dormant companies regime - some exceptions apply and this provision can be set aside by a positive ruling from the tax authorities.

Indirect taxation
The ordinary value-added tax rate has been raised from 20% to 21% with effect from September 17 2011. The applicable rate is determined by the date on which the goods and services were supplied, according to Article 6 of Presidential Decree 633/72.

Criminal penalties
The decree reduces the thresholds for certain criminal offences:

• In respect of fraudulent tax returns based on invoices or other documents relating to non-existent operations, the provision that allowed for a reduced sentence on certain conditions has been deleted.
• The new rules state that taxpayers submitting tax returns which are deemed fraudulent on other grounds are subject to criminal penalties if:
  • one of the tax payments due is more than €30,000 (formerly €77,468); and
  • the total assets involved in the tax evasion represent more than 5% of the total assets declared in the tax return, or are valued at more than €1 million (formerly €1,549,370).
• Knowingly submitting an inaccurate tax return is a crime if:
  • one of the tax payments due is more than €50,000 (formerly €103,291); and
  • the total assets involved in the tax evasion represent more than 10% of the total assets declared in the tax return, or are valued at more than €2 million (formerly €2,065,827).
• Failure to submit a tax return is a crime where one of the tax payments due is more than €30,000 (formerly €77,468).

Carry-forward rules
Law 70/2011 and Legislative Decree 98/2001 also introduced material changes to corporate taxation. One of the most significant provisions amends the rules on the carry-forward of tax losses for corporate income tax purposes. The amended Article 84 of the Corporation Tax Act provides that:

• losses may be carried forward indefinitely and may be offset against future taxable income, up to a limit of 80% of the taxable income;
• losses exceeding 80% of taxable income may be carried forward indefinitely and used to offset taxable income in subsequent years, subject to the 80% limitation; and
• losses incurred in the first three years of business may be carried forward indefinitely without being subject to the 80% limitation.

Losses incurred before 2011 should be subject to the new regime, but the new provision is unclear. The 80% limitation should apply to losses from before 2011, but clarification is needed on whether the five-year limit on the carry-forward applies.

For further information on this topic please contact Marco Abramo Lanza, Simona Zangrandi 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, simona.zangrandi@slta.it or franco.pozzi@slta.it).

Endnotes

(1) Legislative Decree 138/11, converted into Law 148/2011.