1 Basic framework
1.1 Is there a single tax regime or is the regime multi-level (eg, federal, state, city)?
In Italy, corporate profits are generally taxed at both state and regional level, being subject to corporate income tax (‘Imposta sul Reddito delle Società' (IRES)) and to regional tax on business activities (‘Imposta Regionale sulle Attività Produttive' (IRAP)).
1.2 What taxes (and rates) apply to corporate entities which are tax resident in your jurisdiction?
The ordinary IRES rate is 24%; a higher rate of 27.5% applies to certain banks and financial institutions. Furthermore, if a company qualifies as a ‘non-operating company' (‘società di comodo'), the ordinary IRES rate is increased to 34.5%.
The ordinary IRAP rate is 3.9%, but may be increased or reduced by specific regional tax laws based on the business carried out by the taxpayer.
1.3 Is taxation based on revenue, profits, specific trade income, deemed profits or some other tax base?
IRES and IRAP are levied on different taxable bases:
- For IRES taxation purposes, the net profit/loss resulting from the official financial statement of the taxpayer is adjusted according to several tax rules provided by the IRES Law; and
- The IRAP taxable base is determined based on earnings before interest and taxes resulting from the official financial statement of the taxpayer, adjusted taking into consideration specific tax adjustments provided for by the IRAP Law with the purpose of excluding or limiting the deduction of labour costs, depreciation and provisions/accruals.
1.4 Is there a different treatment based on the nature of the taxable income (eg, gains on assets as opposed to trading income or dividend income)?
In principle, income earned by a corporate entity (and assimilated taxpayers) is qualified as business profits and included in the IRES and IRAP taxable bases, notwithstanding the nature of such income (eg, trading income, dividends, capital gains).
However, some specific rules may apply, depending on the nature of such taxable income. For example, for IRES purposes:
- capital gains/losses on shareholdings become tax relevant upon realisation and, if specific requirements are met (according to the Italian participation exemption rule – see question 3.1), are respectively 95% exempt or 100% not deductible; and
- dividends become tax relevant upon realisation and are 95% exempt from taxation.
1.5 Is the regime a worldwide or territorial regime, or a mixture?
Italian resident companies are subject to IRES on their worldwide income, including profits realised abroad through local branches, and to IRAP only on business profits realised in each single Italian region.
Non-resident taxpayers are subject to taxation only as concerns profits realised in the Italian territory.
1.6 Can losses be utilised and/or carried forward for tax purposes, and must these all be intra-jurisdiction (ie, foreign losses cannot be utilised domestically and vice versa)?
As a general rule, tax losses suffered during the first three years of business activity can be carried forward without limitation, while losses suffered in subsequent years can be used to offset future IRES profits up to a limit of 80% of the amount of losses each year.
According to the worldwide taxation principle, tax losses suffered abroad (ie, through a foreign branch of an Italian resident company) can be used to offset domestic taxable profits (if any).
1.7 Is there a concept of beneficial ownership of taxable income or is it only the named or legal owner of the income that is taxed?
As a general rule, the recipient/legal owner of income is subject to taxation. However, the concept of beneficial ownership may assume relevance in Italy where a double tax treaty applies or due to anti-abuse provisions (eg, controlled foreign company rules; anti-abuse provisions concerning tax residence).
1.8 Do the rates change depending on the income or balance-sheet size of the taxpayer?
In principle, the IRES and IRAP rates do not change depending on either the nature of the income or the size of the taxpayer.
1.9 Are entities other than companies subject to corporate taxes (eg, partnerships or trusts)?
For corporate taxation purposes, entities established as cooperative companies, public and private bodies different from corporates, trusts and so on whose principal purpose is the carrying out of business activities are equated to corporates.
2 Special regimes
2.1 What special regimes exist (eg, for fund entities, enterprise zones, free trade zones, investment in particular sectors such as oil and gas or other natural resources, shipping, insurance, securitisation, real estate or intellectual property)?
With some specific and limited exceptions, Italian tax law does not provide for special tax regimes with reference to specific business sectors/zones.
However, Italian law does provide for two ‘extra-customs zones' - the Municipality of Livigno and Campione d'Italia - where value added tax, custom and excise duties are not applied.
In addition, some free trade zones, called ‘Zone Franche Urbane' (ZFUs), have been recognised by the Italian government in order to promote the economic development of specific areas characterised by social and environmental challenges. In such free trade zones, tax exemptions and decontribution programmes are reserved (mainly) to small and micro enterprises.
Italian tax law further provides for a special regime applicable to listed real estate investment companies, based on which income from real estate leased to third parties is not subject to corporate income tax (‘Imposta sul Reddito delle Società' (IRES)) or to regional tax on business activities (‘Imposta Regionale sulle Attività Produttive' (IRAP)).
A special regime called the ‘patent box' is granted to companies investing in intellectual property, under which they benefit from a 50% exemption from IRES and IRAP taxation of income derived from the direct or indirect exploitation of intangibles and intellectual property (see question 3.2).
2.2 Is relief available for corporate reorganisations or intra-group transfers of companies and other assets? Please include details of any participation regime.
As far as corporate reorganisations are concerned, pursuant to Italian law, the following transactions are, in principle, tax neutral:
- capital contributions of ‘control' shareholdings (ie, more than 50% of the voting rights) or ‘connection' shareholdings (ie, more than 20% of the voting rights, reduced to 10% for listed companies);
- capital contributions of going concerns; and
- certain exchanges of shareholdings.
However, companies undertaking such transactions may step up, for IRES and IRAP purposes, the tax basis of certain assets received by paying a substitutive tax ranging from 12% to 16% of the revaluated value.
2.3 Can a taxpayer elect for alternative taxation regimes (eg, different ways to calculate the taxable base, such as revenue-based versus profits based or cash basis versus accounts basis)?
No, in principle, this is not possible for corporate taxpayers.
2.4 What are the rules for taxing corporates with different functional or reporting currency from that of the jurisdiction in which they are resident?
If the functional/reporting currency adopted by the taxpayer is different from euros, the year-end accounting balances should be converted into euros for taxation purposes in Italy.
2.5 How are intangibles taxed?
In Italy, no specific rules apply to the corporate income taxation of intangibles (with the exception of the patent box regime described in question 3.2).
Intangibles which qualify as fixed assets for corporate income tax purposes are subject to depreciation, calculated on the purchase price or on the cost of manufacture, which is tax relevant at rates not exceeding those prescribed by the Ministry of Finance. Depreciation is computed using the straight-line method.
- purchased goodwill may be depreciated over a period of 18 years;
- know-how, copyrights and patents may be depreciated in accordance with financial statements, but over at least two fiscal years;
- trademarks may be depreciated over a period of 18 years;
- research expenses and advertising expenses may be either entirely deducted in the year of sustainment or depreciated in equal instalments in that year of sustainment and the four subsequent years; and
- depreciation allowances of other rights may be claimed with reference to the utilisation period.
Furthermore, the disposal of intangibles may generate a taxable capital gain equal to the difference between the sale price and the tax value of the asset.
2.6 Are corporate-level deductions available for contributions to pensions?
Corporate income taxpayers are ordinarily allowed to deduct, from labour costs, mandatory contributions to employees' pension funds paid according to the law.
Corporate income taxpayers can further deduct:
- voluntary contributions to employees' integrative pension funds; and
- 4% of the ‘employee severance indemnity" (‘Trattamento di Fine Rapporto') paid to integrative pension funds each year.
2.7 Are taxpayers from different sectors (eg, banking) subject to different or additional taxes or surtaxes?
An increased 27.5% IRES rate applies to certain banks and financial institutions (see question 1.2).
2.8 Are there other surtaxes (eg, solidarity surtax, education tax, corporate net wealth tax, remittance tax)?
Other than surtaxes applied to certain banks and financial institutions (see questions 1.2 and 2.7), Italian tax law does not provide for further surtaxes as regards corporate income taxpayers.
2.9 Are there any deemed deductions against corporate tax for equity?
Italian tax law provides for an allowance for corporate equity increases (‘Aiuto alla Crescita Economica' (ACE)), which grants to Italian enterprises (including Italian branches of foreign companies) a deduction from taxable income corresponding to an assumed ‘notional return' on qualifying equity increases occurring from 2010. For Italian permanent establishments of non-resident companies, this benefit is computed on the increase in the relevant endowment fund (for a permanent establishment, the endowment fund is equivalent to equity).
The ACE deduction may be offset against the net taxable base of the taxpayer, but it cannot generate a tax loss. Any excess ACE can be carried forward or converted into tax credits for IRAP purposes. The qualifying equity increase is the result of an algebraic sum of positive and negative equity adjustments occurring after 2010.
The following are positive adjustments:
- cash contributions by shareholders;
- non-distribution of profits; and
- equity increases due to the waiver of credits by shareholders.
The following are negative adjustments:
- dividend distributions; and
- equity reserves assignments to shareholders.
Statutory losses do not qualify as negative equity adjustments for ACE purposes because they do not represent a voluntary act of assignment to the shareholders. However, the value of the qualifying equity for ACE purposes cannot exceed the net equity of the entity at the end of each fiscal year (which is affected by the statutory losses).
For 2018, the rate of the notional return applicable to the equity increase qualifying for ACE purposes is 1 1.5%.
Specific rules apply to domestic tax groups in case of excess ACE at the level of one participant used to offset the income generated by the fiscal unit.
3 Investment in capital assets
3.1 How is investment in capital assets treated – does tax treatment follow the accounts (eg, depreciation) or are there specific rules about the write-off for tax purposes of investment in capital assets?
In principle, the tax treatment of investment in capital assets follows the accounts:
- Yearly depreciation is deductible within the thresholds provided for by the Ministry of Finance; and
- Capital gains (losses) realised on the disposal of capital assets are subject to (and deductible for) IRES and IRAP (purposes), being the taxable base (loss) equal to the difference between the sale price and the tax value. Capital gains on investments regarded as fixed assets in the three financial statements preceding the sale may be electively taxed over a maximum period of five years.
Capital asset write-offs realised for accounting purposes are generally not relevant for tax purposes.
With specific reference to the disposal of participations, Italian tax law provides for a special ‘participation exemption regime', based on which 95% of the capital gain is IRES exempt (it is also outside the scope of IRAP taxation), provided that the following requirements are met:
- The shareholding was classified as a long-term financial investment in the financial statement of the year of acquisition;
- The company held the shareholding for an uninterrupted period of at least 12 months before the disposal;
- The subsidiary v carries out a business activity (real estate companies are assumed not to carry out a business activity; therefore, they can satisfy this requirement only under certain limited circumstances); and
- The subsidiary is not resident in a tax haven.
The last two requirements above should be met uninterruptedly for the three financial years preceding the disposal. If these requirements are not met, the capital gain on the sale of the participation is fully included in the calculation of the tax base for IRES purposes.
Conversely, capital losses on participations eligible for the participation exemption regime are 100% non-deductible.
3.2 Are there research and development credits or other tax incentives for investment?
According to Italian tax law, companies which carry out significant investments in certain research and development (R&D) activities are entitled to benefit from a tax credit of 50%/25% (depending on the kind of expenses) of eligible expenses exceeding the average R&D expenses sustained in the three-year period from 2012 to 2014, up to a maximum of €10 million.
In addition, Italian tax law provides a favourable tax regime (the ‘patent box') for taxpayers carrying out substantial investment in R&D activities aimed at the generation of qualified intangible assets, such as industrial patents, models and designs capable of being legally protected, trademarks, know-how and other intellectual property.
Taxpayers involved in such activities are eligible, upon specific application, for a reduction of their IRES and IRAP taxable base equal to 50% of the income derived from exploitation of the qualifying asset. The exemption applies to income earned both indirectly from licensing the intellectual property and directly from exploitation of the intangibles.
Capital gains derived from the disposal of qualifying assets are tax exempt, provided that at least 90% of the disposal price is used to maintain or develop other qualifying intangible assets before the end of the second fiscal year following that in which the disposal took place.
The patent box regime lasts for five fiscal years after the year of election.
The discipline was recently amended to remove trademarks from eligible assets, in accordance with the recommendations set forth under the Organisation for Economic Co-operation and Development's Base Erosion and Profit Shifting Action 5.
3.3 Are inventories subject to special tax or valuation rules?
Inventory is normally evaluated as the lower of the acquisition/manufacturing cost and market value for both fiscal and accounting purposes. To determine the acquisition/manufacturing cost, the taxpayer may select one of the various methods of inventory valuation specifically provided for by the law, such as first in, first out; last in, first out; or average cost.
3.4 Are derivatives subject to any specific tax rules?
Under Italian tax law, financial gains and/or losses emerging from the year-end valuation at the fair market value of derivative financial instruments, according to the correct accounting principles (Organismo Italiano di Contabilità and International Accounting Standards/International Financial Reporting Standards) are generally recognised for IRES purpose.
Specific rules apply to derivatives subscribed for hedging purposes. With reference to such financial instruments, gains and/or losses deriving from the year-end valuation or realisation are recognised for IRES purposes pursuant to the same rules as apply to the covered assets and/or liabilities.
4 Cross-border treatment
4.1 On what basis are non-resident corporate entities subject to tax in your jurisdiction?
Non-resident corporate taxpayers are subject to corporate income tax (‘Imposta sul Reddito delle Società' (IRES)) Italy on Italian-source income only. In this respect, Italian-source income (ie, business profits, royalties, dividends, capital gains) should be considered separately (as for physical persons) and taxed accordingly (‘trattamento separato dei redditi').
Business profits are subject to IRES taxation in Italy only if the non-resident recipient has a permanent establishment in the state. In such case, business profits are also subject to the regional tax on business activities (‘Imposta Regionale sulle Attività Produttive' (IRAP)).
For taxation purposes, the permanent establishment must prepare proper statutory accounts. Its taxable income is calculated based on the net profit/loss of the year, adjusted taking into consideration the IRES/IRAP adjustments applicable to domestic corporations.
The profits of a local branch are determined pursuant to the so-called ‘separated entity' approach, whereby the branch is considered a functionally segregated entity from the head office. Transactions with the head office are subject to transfer pricing rules.
4.2 What withholding or excise taxes apply to payments by corporate taxpayers to non-residents?
Pursuant to the Italian principle of ‘trattamento separato dei redditi' (see question 4.1), applicable to non-resident recipients, outbound payments of dividends, interest and royalties by Italian corporates to non-resident recipients are generally subject to withholding tax.
In principle, the payment of dividends to a non-resident recipient is subject to a final 26% withholding tax (a lower rate may apply under an applicable double tax treaty). The foreign recipient may claim a partial refund (up to 11/26 of the withholding tax levied) by proving, through proper documentation issued by the foreign tax authorities, that the same dividends were taxed in its state of residence.
A reduced rate of 1.2% may apply if the recipient:
- is a company or an entity (with no permanent establishment in Italy) which is resident in a member state of the European Union or the European Economic Area that allows for adequate exchange of information with Italy; and
- is liable to corporate income tax in its country of residence.
According to the EU Parent-Subsidiary Directive (2011/96/EU), no withholding tax is levied on dividends paid by an Italian subsidiary to its foreign parent company, provided that the latter:
- is tax resident in an EU member state;
- meets the requirements set out in the Directive to be considered as ‘qualified' for the purpose of the directive;
- is subject to corporate income tax in its state of residence; and
- has held at least 10% of the capital of the Italian subsidiary for an uninterrupted period of at least one year.
In principle, the payment of royalties to a non-resident recipient is subject to a final 30% withholding tax (a lower rate may apply under an applicable double tax treaty). However, according to the EU Interest and Royalties Directive (2003/49/EU), no withholding tax is levied on royalties paid to foreign companies, provided that the following requirements are met:
- The recipient is tax resident in another EU member state;
- The recipient meets the requirements set out in the directive to be considered as ‘qualified' for the purposes of the directive;
- The recipient is liable to corporate income tax in its state of residence;
- The flow of royalties is subject to corporate income tax in the recipient's state of residence; and
The recipient and the payer qualify as ‘associated companies' - that is, either:
- one of them has continuously held directly at least 25% of the voting rights of the other for at least one year; or
- a third EU company has continuously held directly at least 25% of the voting rights of both companies for at least one year.
In principle, the payment of interest to a non-resident recipient is subject to a final 26% withholding tax (a lower rate may apply under an applicable double tax treaty).
However, according to the EU Interest and Royalties Directive (2003/49/EU), no withholding tax is levied on interest paid by an Italian company to an EU ‘associated' company, provided that the same requirements as apply to royalty payments are met.
4.3 Do double or multilateral tax treaties override domestic tax treatments?
Double tax treaties signed by the Italian government generally follow the Organisation for Economic Co-operation and Development Model Convention. Generally, treaty provisions override domestic provisions (regardless of whether they were enforced before or after the domestic provisions), unless the domestic provisions are more favourable for the taxpayer.
4.4 In the absence of treaties, is there unilateral relief or credits for foreign taxes?
Italian domestic tax law provides for autonomous foreign tax relief with reference to foreign source income earned by Italian taxpayers.
The Italian foreign tax credit is equal to the amount of tax paid abroad by the taxpayer on the specific foreign source income. However, this amount cannot exceed the IRES quota attributable to the same foreign source income, according to the following formula:
IRES x foreign source income / total income
If the income comes from more than one foreign country, a ‘per country' limitation mechanism applies. Any excess foreign tax credit may be carried forward or back for eight years.
4.5 Do inbound corporate entities obtain a step-up in asset basis for tax purposes?
Under Italian tax law, foreign companies which transfer their tax residence to Italy from a whitelisted jurisdiction are entailed to step up for tax purposes assets and liabilities at fair market value.
Conversely, the tax value of assets (liabilities) belonging to companies which transfer their tax residence to Italy from a blacklisted jurisdiction is deemed to be equal to the lower (higher) value of the acquisition cost, the book value and the fair market value. However, such companies may apply for a tax ruling from the Italian tax authorities on the relevant tax values to be attributed to their assets and liabilities.
4.6 Are there exit taxes (for disposed-of assets or companies changing residence)?
An Italian company which transfers its tax residence outside Italy triggers a taxable event in Italy.
In such case any unrealised capital gains, calculated on the basis of the fair market value of its assets, is subject to IRES, unless the relevant assets are attributed to an Italian permanent establishment of the company.
However, according to recent amendments to the law, Italian companies that transfer their tax residence to other white-listed countries which are members of the European Union or the European Economic Area are entitled to request the deferral of the exit tax to the moment of actual realisation of the relevant assets or, alternatively, for payment of the exit tax in six annual instalments.
If taxation is deferred to the moment of actual realisation, the taxpayer should file periodic information with the Italian tax authorities, to allow them to monitor the migrated assets. In any case, the capital gains relating to the assets are deemed to be realised for exit tax purposes10 years after the transfer of residence.
Mergers and acquisitions and other corporate restructurings do not interrupt the deferral of exit tax payment, as long as both the company and the assets remain in the white-listed country following the transaction.
5.1 Are there anti-avoidance rules applicable to corporate taxpayers – if so, are these case law (jurisprudence) or statutory, or both?
The Italian tax system provides a general anti-abuse regime (‘abuse of law'), also applicable to corporate taxpayers, which was initially developed by the jurisprudence but is currently regulated by specific provisions of law.
5.2 What are the main ‘general purpose' anti-avoidance rules or regimes, based on either statute or cases?
According to the Italian anti-avoidance regime, the tax authorities can disregard the tax consequences of transactions that are devoid of economic substance and exclusively tax driven.
Such tax avoidance behaviour arises when a transaction (or a sequence of transactions, facts, actions or agreements) is not aimed at generating significant economic consequences, but rather - despite apparent compliance with the tax law - at achieving an undue tax benefit. Tax benefits are undue when they conflict with the purpose of the relevant tax provisions and the principles of the tax system.
The regime applies to all direct and indirect taxes, excluding custom duties.
5.3 What are the major anti-avoidance tax rules (eg, controlled foreign companies, transfer pricing (including thin capitalisation), anti-hybrid rules, limitations on losses or interest deductions)?
The Italian tax system includes several anti-avoidance provisions, which primarily concern controlled foreign companies, dividends from blacklisted countries and limitations to the carry-forward of losses.
Under the controlled foreign company regime, the income of (directly and indirectly) controlled foreign companies is ascribed to the Italian parent company (and taxed in Italy accordingly), as long as the controlled foreign company is resident in:
- a ‘privileged tax regime' country, other than a member state of the European Union and the European Economic Area, which provides for adequate exchange of information with Italy;
- a qualifying ‘privileged tax regime' country - that is, a state which applies a nominal corporate income tax rate which is less than 50% of the Italian rate (calculated taking into consideration both corporate income tax (‘Imposta sul Reddito delle Società' (IRES)) and the regional tax on business activities (‘Imposta Regionale sulle Attività Produttive' (IRAP)); or
a different country (including a member state of the European Union or the European Economic Area), where both of the following conditions are satisfied:
- the company is subject to effective taxation in the state of residence at a rate which is less than 50% of the Italian rate; and
- more than 50% of its revenue is represented by ‘passive income' and fees from the provision of intercompany services.
The controlled foreign company regime may be avoided if a tax ruling is filed and accepted by the Italian tax authorities.
As a general rule, foreign dividends paid to Italian companies are taxed for IRES purposes (no IRAP taxation) at a rate of 5%, in the same way as domestic dividends. However, if the dividends are distributed by a company which is resident in a ‘privileged tax regime' country (as outlined above), they are taxed on the whole amount upon receipt.
According to a specific anti-abuse provision, changes in the control of a company may affect the carry-forward of tax losses if the business activity of the company changes in the year in which the change in control is realised or in the following two years.
Furthermore, anti-abuse provisions which aim to prevent tax losses suffered by one entity from being used to offset taxable income of another also apply in the case of M&A transactions.
5.4 Is a ruling process available for specific corporate tax issues or desired domestic or cross-border tax treatments?
Italian tax law provides for several tax ruling procedures. These were significantly reorganised in recent years; effective from 2016, the main categories of rulings are as follows:
- Ordinary ruling (‘interpello ordinario'): This concerns the application of tax provisions with objectively unclear interpretations. According to the specific measure, a taxpayer may seek advance clarification from the tax authorities on the application of specific tax provisions to actual cases, provided that there is objective uncertainty in their interpretation. These types of rulings are not binding on the taxpayer, but only on the tax authorities, which cannot disregard the taxpayer's behaviour as long as it complies with the content of the ruling. The tax authorities must reply within 90 days of filing of the request by the taxpayer (or within a further 60 days of filing by the taxpayer of additional documents sought); if not, this implies that the tax authorities agree with the interpretation provided by the taxpayer (‘silenzio assenso').
- Probative ruling (‘interpello probatorio'): This concerns the valuation and fulfilment of the requirements needed to qualify for a specific tax regime. According to the specific measure, a taxpayer can request the tax authorities to confirm that the facts and circumstances, as well as the factual evidence presented, are such that it is eligible for a specific tax regime. The tax authorities must reply within 120 days of filing of the request by the taxpayer (or within a further 60 days of filing by the taxpayer of additional documents sought); if not, this implies that they agree with the interpretations provided by the taxpayer.
- Anti-abuse ruling (‘interpello antiabuso'): This concerns the application of the abuse of law legislation to actual cases. According to the specific measure, a taxpayer may request the tax authorities to confirm in advance that a specific transaction does not qualify as abusive under the general anti-abuse provision. The tax authorities must reply within 120 days of filing of the request by the taxpayer (or within a further 60 days of filing by the taxpayer of additional documents sought); if not, this implies that they agree with the interpretations provided by the taxpayer.
- Exemption ruling (‘interpello disapplicativo'): This concerns relief from the application of specific anti-avoidance rules. According to the specific measure, a taxpayer may request the tax authorities to confirm an exemption from specific anti-avoidance rules by proving that in the specific case, no tax avoidance effects are realised. The tax authorities must reply within 120 days of filing of the request by the taxpayer (or within a further 60 days of filing by the taxpayer of additional documents sought); if not, this implies that they agree with the interpretations provided by the taxpayer.
In addition, an international ruling may be requested from the tax authorities in order to deal with specific international issues such as transfer pricing matters (advance pricing agreements), cross-border payments (interest, dividends and royalties), permanent establishment issues (including the determination of the existence of a permanent establishment) and the patent box regime. The international ruling is binding for the fiscal year in which it is issued and for the following four fiscal years, unless material changes to the legal or economic circumstances of the transaction arise.
Finally, a new type of ruling was recently introduced with reference to investments exceeding €30 million that have a significant and durable impact on employment with respect to particular business activities. The ruling provides the taxpayer with advance confirmation of the tax treatment of the whole investment plan (including the various envisaged transactions needed to realise the plan), as well as assurance on whether a going concern is formed, if needed. In addition, the ruling may confirm the absence of any abusive behaviour by the taxpayer, the existence of the necessary prerequisites to exclude the application of anti-avoidance provisions and/or the existence of the necessary prerequisites to access specific tax regimes.
5.5 Is there a transfer pricing regime?
Italy has enforced a specific transfer pricing regulation, compliant with Article 9 of the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention, the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations and the outcome of Base Erosion and Profit Shifting Actions.
Italian law grants protection from penalties (in case of a challenge raised by the tax authorities), provided that the taxpayer prepares and makes available in case of a tax inspection a study prepared following the guidelines provided for by the law.
5.6 Are there statutory limitation periods?
Under Italian tax law, a corporate taxpayer may be subject to a tax assessment by the tax authorities up to the end of the fifth year following that in which the tax return was filed, extended to seven years in case of failure to file a tax return.
Taxpayers can file an amended tax return, before the statute of limitations has expired, in order to correct mistakes or omissions, including those relating to increased or reduced taxable income, tax debts or tax credits. In such case any tax credits that arise can be offset against other amounts due, subject to certain conditions.
6.1 What are the deadlines for filing company tax returns and paying the relevant tax?
Income tax returns must be filed by 31 October each year with reference to the previous fiscal year.
Corporate income tax (‘Imposta sul Reddito delle Società') and regional tax on business activities (‘Imposta Regionale sulle Attività Produttive') due based on the tax return should be paid in accordance with the following schedule:
- The balance payment due for the preceding fiscal year should be made by the last day of the sixth month following the end of such fiscal year;
- The first advance payment due for the subsequent year should be made by the deadline for the balance payment for the preceding fiscal year (ie, the last day of the sixth month following the end of such fiscal year); and
- The second advance payment due for the subsequent year should be made by the last day of the 11th month following the end of the preceding fiscal year.
6.2 What penalties exist for non-compliance, at corporate and executive level?
In Italy, breach of tax duties triggers the application of administrative penalties and, in specific cases, of criminal penalties.
The most common administrative penalties applicable in case of non-compliance by a corporate taxpayer are as follows:
- failure to file a tax return is punishable by the application of a penalty ranging from 120% to 240% of the taxes that were not declared;
- filing of an incorrect tax return is punishable by the application of a penalty ranging from 90% to 180% of the higher taxes; and
- failure to pay or delay in paying taxes is punishable by the application of a penalty equal to 30% of the taxes not paid or paid late.
Penalties may be reduced (according to the ‘ravvedimento operoso' rule) if the taxpayer corrects the mistake or omission, paying taxes, interest and (reduced) penalties, before a tax assessment is carried out by the tax authorities.
As mentioned, the most serious administrative breaches may also attract criminal penalties, including imprisonment if specific thresholds are overcome. For example, this may arise in case of:
- use of false invoices (imprisonment from 18 months to six years, with no thresholds applicable);
- failure to pay declared withholding taxes or the annual advance value added tax payment (imprisonment from six months to two years); or
- offset of non-existent tax credits (imprisonment from one year and six months to six years).
6.3 Is there a regime for reporting information at an international or other supranational level (eg, country-by-country reporting)?
In compliance with Base Erosion and Profit Shifting Action 13, in 2017 Italy introduced a country-by-country reporting regime, based on which Italian parent companies of multinational groups with a consolidated turnover exceeding €750 million must communicate to the tax authorities, on a yearly basis, a wide range of information concerning the group (eg, tax residence of all group members, revenues, profits, taxes paid, intangibles, employees).
Italian parent companies are subject to this regime if:
- they are mandatorily required to prepare a group consolidated financial statement;
- regardless of the existence of a (higher-level) group holding company, such a (higher-level) holding company is not requested to prepare a country-by-country report in its state of residence; or
- regardless of whether such a (higher-level) holding company prepares a country-by-country report, its state of residence does not guarantee an adequate exchange of information with the Italian tax authorities.
7.1 Is tax consolidation permitted, on either a tax liability or payment basis, or both?
Two different tax consolidation regimes are optionally applicable in Italy:
- a domestic consolidation regime, including only Italian controlled companies; and
- a worldwide consolidation regime, including both Italian and foreign controlled companies.
In both cases, the tax group determines a single taxable basis for corporate income tax (‘Imposta sul Reddito delle Società') purposes, determined the sum of the taxable bases of the companies included within the tax consolidation perimeter. In this respect, while the domestic tax consolidation regime implies that not all Italian subsidiaries must be consolidated (‘cherry-picking' mechanism), the worldwide tax consolidation regime implies that all subsidiaries must be consolidated (‘all-in' mechanism).
8 Indirect taxes
8.1 What indirect taxes (eg, goods or service tax, consumption tax, broadcasting tax, value added tax, excise tax) could a corporate taxpayer be exposed to?
The principal indirect taxes to which a corporate taxpayer may be subject in Italy are as follows:
- Value added tax (VAT): This applies to the sale of goods and services at different rates (depending on the kinds of goods/services sold), ranging from an ultra-reduced rate of 4% (eg, applicable to sales of specific food products, books and newspapers) to the standard rate of 22% (applicable to the large majority of transactions).
- Registration tax: This is generally levied on transactions which must be registered in the Public Register (eg, transfer of assets, corporate documents). Registration tax may apply at a fixed rate of €200 (ie, if the transaction is subject to VAT) or proportionally, with rates generally ranging from 0.5% to 3% (increasing to a maximum of 15% for the transfer of real estate), depending on the kind of deed, certificate or document that is subject to registration.
- Stamp tax: Certain deeds, certificates and documents, expressly indicated in the tax law, are further subject to stamp tax, which may be applied at a fixed rate (ranging from €1 to €300) or proportionally (with rates generally ranging from 0.01% to 0.12%).
- Mortgage and cadastral taxes: These are applied to the transfer of real estate at a fixed rate (€50 or €200) or proportionally (with rates ranging from 0.5% to 3%), depending on the kind of transaction.
- Excise duty: The sale of certain goods - such as oil and gas products, electricity and alcohol - are subject to excise taxes at different rates, depending on the characteristics and quantity of the goods sold, as well as the purpose for which they are bought (eg, civil uses or industrial uses).
8.2 Are transfer or other taxes due in relation to the transfer of interests in corporate entities?
The transfer of shares and participating financial instruments in Italian companies is generally subject to a financial transaction tax (at a rate of 0.2% or 0.1% in case of quoted companies), which is due by the purchaser regardless of the tax residence of the seller and the purchaser, and regardless of the territory in which the transfer is carried out. Several exemptions and exclusions are available (eg, in case of the transfer of quotas of limited liability companies or intercompany transactions).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.