Law Decree 138/2011, which was later converted to Law 148/2011, introduced new anti-abuse provisions for companies consecutively incurring tax losses 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, notwithstanding the actual result of the application of ordinary tax provisions.
In order to encourage corporate self-financing, the government has introduced the allowance for corporate equity, which enables companies to deduct an amount equal to the notional return on invested capital from their taxable income for income tax and corporation tax purposes. Further deductions are available for regional tax on production as an incentive to employers.
Parliament recently approved an austerity package that aims to present a balanced budget for 2012. Its various provisions - with an estimated financial impact of €54 billion - include a number of significant measures for individual and corporate taxpayers. In particular, companies should be aware of new provisions on carry-forward rules, criminal penalties and dormant companies.
Since 2010 Italy's controlled foreign company rules have applied to foreign subsidiaries that are established in whitelisted jurisdictions. The tax authorities have recently issued a circular which provides new guidelines on the application of the controlled foreign company rules to foreign companies in jurisdictions that are not tax havens.
A circular from the tax authorities provides further details on the Italian tax treatment of trusts. It focuses on when an instrument will be considered a 'sham' trust and must be disregarded for income tax purposes. However, many tax experts have criticised the circular for its basis in a misleading interpretation of trust taxation rules and its disregard for general principles of Italian income tax law.
New legislation has been published which introduces changes to the tax system in respect of real estate investment trusts (REITs). The new provisions are intended to prevent the real estate fund structure from being abused as a vehicle for private investment by a single entrepreneur. They also modify the favourable tax regime for non-resident investors in Italian REITs.
New rules have been introduced on offsetting value-added tax credits against corporation tax, regional income tax and social security contributions. Taxpayers wishing to offset a credit of over €15,000 must have the return confirmed by an authorized professional. For companies subject to the mandatory audit procedure under Article 2409(2) of the Civil Code, the return can be signed by the auditors.
The government has enacted a new tax measure to allow Italian individuals and partnerships to repatriate foreign assets held abroad illegally and to regularize foreign operations. A legislative amendment introduces an extraordinary tax on financial activities and assets - including money, shares, bonds, offshore assets, real estate and works of art.
A new law has made wide-ranging changes to the tax system that particularly affect new companies, banks, insurance companies and real estate investment funds. Among other measures, it introduces a rollover exemption system for start-up capital gains realized on qualified and non-qualified participations.
The government's report on the 2008 Budget includes significant changes to the tax system, particularly with respect to corporate income tax and regional income tax. This update reviews the new provisions in these and other areas, including interest expenses, tax consolidation and accounting standards.
Measures introduced by Finance Bills 2005, 2006 and 2007 require financial operators to facilitate the tax authorities' monitoring of taxpayers by filing an electronic notification with the authorities detailing all business links with their clients - such as bank accounts, loans and deposits - established since January 1 2005, even if such links no longer exist.
The tax authorities have recently revised their position on the early repayment of medium and long-term loans, returning to the position held before 2006. Ordinary transfer taxes are not levied on bank loans with a term of over 18 months and a more favourable substitute tax at 0.25% of the loan applies, regardless of whether the borrower has the right to repay the loan before the end of the 18-month period.
Newly issued legislation introduces a number of new provisions which affect various aspects of tax law, including dormant companies, tax residency of foreign holding companies, dividends from tax havens and the capital gains tax treatment of employee stock options.
The EU Savings Tax Directive has now been incorporated into Italian law and the tax authorities recently issued provisions which lay down practical rules for its application. These relate to the taxation of savings income paid or secured by economic operators - or 'paying agents' - in one EU member state in favour of individuals resident in another member state.
The Italian thin capitalization rules apply to the extent that a loan is granted or pledged to a taxable enterprise by its qualified holders or their related parties. A permanent establishment in Italy and its foreign parent are considered to be a single entity for thin capitalization purposes. The owners of the parent are regarded as the qualified holders.
The EU Interest and Royalties Directive was due to be implemented by January 1 2004, but as yet, Italy has not yet issued the necessary decree to implement it. However, this is not expected to take too long, especially since the European Commission recently prompted the Italian government to fulfil its obligations in relation to the directive's implementation.
Italian companies with international activities and permanent establishments of foreign companies are now entitled to apply for the international ruling procedure. This allows for a binding agreement to be reached between the company and the Italian tax authorities on a number of tax-related issues.
The Italian Revenue has released some official forms for the refund of tax on dividends, interest and royalties under Italian tax treaties. Residents in the United States, Germany, Switzerland, the United Kingdom, Sweden and Portugal may use the forms in order to claim Italian tax refunds.
A recent government decree implements the domestic consolidated tax regime set out in the Income Tax Law. Taxpayers which opt for consolidated taxation must adopt the regime for at least three financial years. Advantages include the opportunity to give tax effects to the losses of companies in the group, and the total tax exemption of dividends paid within the group.
The first part of the ongoing Italian tax reform, which relates to corporate income taxation, is now in force. For companies whose fiscal year is in line with the calendar year, the effective date is January 1 2004. Key features include a participation exemption regime for dividends and capital gains, and new rules on group taxation.