On March 17, 2020, the Italian Government issued a new decree-law (the “Decree”)1 introducing a package of measures to mitigate the effects of the ongoing Coronavirus Disease 2019 (“CoViD-19”) outbreak on the national economy.
The measures envisaged by the Decree consist of various forms of financial support to companies and households, including tax deferrals, relief and state-backed guarantees for certain borrowers, and broader access to temporary layoff schemes for employees in most business sectors. The Decree also updates certain measures set forth in previous Government decrees (e.g., concerning judicial proceedings during the outbreak) and enables companies to hold virtual annual shareholder meetings to mitigate health risks.
The actions set forth in the Decree have been reported to entail a Euro 25 billion expenditure.
This memorandum follows up on our prior alert memoranda outlining certain legal considerations on the key legal issues for businesses arising from the virus outbreak.2
The Decree introduces a number of urgent tax measures, generally (i) easing tax-related administrative, payment and enforcement deadlines, (ii) converting certain deferred tax assets into tax credits, and (iii) enabling special allowance for CoViD-19-related charitable contributions.
A. Tax and Social Security Payment and Reporting Deadlines’ Deferral
Payment of income taxes, VAT, social security and compulsory insurance premiums due between March 8 and March 31, 2020 may be postponed until May 31, 2020, and made thereafter in one instalment or spread interest-free on a straight-line basis over a five-month period as of May 2020.
The measure applies to any business or professional located in Italy3 and having 2019 revenues not exceeding Euro 2 million. However, regardless of 2019 revenues, the deferral applies to all taxpayers located (i) in the 11 municipalities initially quarantined4 and (ii) only with respect to VAT, in the provinces of Bergamo, Lodi, Piacenza and Cremona.
Moreover, taxpayers located in Italy having 2019 revenues not exceeding Euro 400,000 may opt not to be subject to withholding taxes with respect to payments received between March 18 and March 31, 2020, if they have not incurred any employment-related expenses in the previous month. Such deferred taxes will be due no later than May 31, 2020 and paid in one instalment or spread interest-free on a straight-line basis over a five-month period as of May 2020.
All tax and social security-related reporting obligations5 due between March 8 and May 31, 2020 are postponed to June 30, 2020.
B. Tax Administration and Enforcement Deadlines’ Deferral and Statute of Limitations Postponement
All administrative and enforcement actions to be performed by the tax authorities, such as rulings, audits, assessments, collections, and litigation,6 are suspended from March 8, 2020 through May 31, 2020. Collections due during such period are postponed through June 30, 2020 (penalties and interest are waived).
Any tax statute of limitations expiring on December 31, 2020 is postponed to December 31, 2022.
C. Certain DTAs Converted into Tax Credits
Upon payment of a 1.5% fee,7 deferred tax assets (“DTAs”) arising from tax losses or allowances for corporate equity may be converted into tax credits for an amount not exceeding 20% of the face value of non-performing loans8 transferred to a third party9 in exchange for consideration no later than December 31, 2020. A Euro 2 billion receivable face value cap applies to third-party transfers made by companies members of the same corporate group.
The conversion of the DTAs into tax credits occurs upon the receivables’ transfer. Such tax credits can be used to pay current taxes and any excess can be refunded.
This measure does not apply to companies in distress.
D. CoViD-19 Charitable Contributions
Businesses may entirely deduct cash or in kind charitable contributions made in 2020 to public institutions or not-for-profit organizations to finance the CoViD-19 emergency. Individuals are entitled to a 30% tax credit, up to Euro 30,000.
II. Financial support to affected companies and lenders
In particular, SMEs owing debt to banks, financial intermediaries or other entities authorized to grant credit in Italy may obtain the following relief (provided they self-certify to have suffered a temporary shortage of liquidity as a direct consequence of the CoViD-19 pandemic):
- outstanding lines of credit (used or unused) to become irrevocable until September 20, 2020;
- bullet loans with contractual maturity before September 30, 2020 to be automatically extended (together with any security or guarantee) until September 30, 2020 on the same terms;
- with respect to mortgages and other loans repayable in instalments, the payment of instalments or lease payments falling due before September 30, 2020 to be deferred until that date, and the repayment schedule to be extended without additional costs for either parties; SMEs may also opt to request the suspension of principal payments only.
In turn, lenders are entitled to obtain (free of charge) a guarantee by the Central guarantee fund for SMEs (Fondo centrale di garanzia per le PMI) covering 33% of the additional drawdowns on credit lines, of loans whose maturity is extended, or of the instalments that are suspended, as a consequence of the above-mentioned measures.13
III. Labor support measures
Along with prior Government decrees,14 the Decree introduces measures supporting employers in the re-organization of their activities throughout the duration of the state of emergency.
In particular, the Decree enables eligible employers to apply for Ordinary Wage Guarantee Fund (Cassa Integrazione Guadagni Ordinaria - “CIGO”)15 in a simplified and expedited manner, for up to nine weeks, from February 23, 2020 and until the end of August 2020. The Decree also introduces for the first time a general temporary layoff scheme applicable to every employer for the same time period. This scheme will have to be implemented by regional governments.
Moreover, the Decree affords employees with children up to 16 years of age various forms of support, including a partly-paid leave or an unpaid leave, protected against dismissal.16 Other benefits are provided for quarantined employees.17
In addition, for a period of 60 days after March 17, 2020, any ongoing lay-off procedure is suspended and all employers are prohibited from proceeding with individual dismissals of any employee for “justified objective reasons”.18
Finally, the Decree includes certain income-protection measures for self-employed workers and certain categories of employees (e.g., seasonal employees in the tourism sector, agricultural employees and entertainment business employees). These indemnities are in general awarded and payable by the national social security agency.
IV. Shareholder meetings
The Decree allows all Italian companies to approve the 2019 financial statements within 180 days after the end of the financial year (even if their by-laws provide for a shorter term).
The Decree also facilitates holding this year’s annual shareholder meetings without the physical attendance of shareholders, even if not provided in the company’s bylaws.19 Specifically:
- all companies may allow their shareholders to vote electronically or by mail and/or to attend the shareholder meetings through telecommunication means; companies are also permitted to hold their shareholder meeting in fully virtual mode;
- all limited liability companies (società a responsabilità limitata) may adopt shareholder resolutions by written consent or written consultation; and
- all listed companies (whether on a regulated market or a multilateral trading facility) and other widely-held companies are entitled to appoint a designated representative to whom shareholders may grant proxies and hold shareholder meetings with the attendance only of the designated representative.
V. Judicial proceedings
The Decree further impacts the organization of judicial proceedings and related deadlines during the outbreak.
All civil and criminal hearings scheduled between March 9 and April 15 have been adjourned and will be re-scheduled to a date after April 15, 2020.
In addition, all procedural deadlines for civil and criminal proceedings are suspended until April 15, including deadlines to start ordinary and enforcement judicial proceeding as well as to challenge court decisions. The suspension also applies to out-of-court settlement procedures governed by specific legal provisions (e.g., mandatory mediation).
The Decree also confirms that the above-mentioned provisions do not apply to certain urgent matters. As regards civil proceedings, hearings continue to be held in the following cases: (i) family and personal rights and status (such as adoption, minors, and alimony obligations); (ii) interim measures to protect fundamental human rights; and (iii) all cases where a delay could cause a serious harm to the parties, and where this harm is established by the judge by a specific decision.
Finally, until June 30, 2020, courts are allowed to: (a) adopt measures limiting access to the courts, with the exception of urgent activities; (b) postpone future hearings to a date after June 30, exception for the urgent proceedings outlined above; and (c) replace in-person hearings with video or audio-conference hearings and/or written submissions and out-of-court decisions by the judge.
Under the Decree, compliance with the restrictive measures thereunder is to be taken into account for purposes of reducing or excluding debtors’ liability for non-performance of contracts with government entities (including as to the application of forfeiture deadlines and liquidated damages provisions).
1 Under Italian law, a decree-law is adopted by the Italian Government and has the force of law. However, it lapses unless it is ratified by the Italian Parliament within 60 days. Parliament may also introduce amendments.
2 A first memorandum focused on capital markets issues was published on March 10, 2020: https://www.clearygottlieb.com/nsiderazioni-e-impatti-sulla-disclosure-degli-emittenti-pdf.pdf. A subsequent memorandum on a broader set of CoViD-19 related topics was published on March 12, 2019: https://www.clearygottlieb.com/news-and-insights/publication-listing/italy-and-covid-19-practical-and-legal-guidance-on-key-business-issues
3 Namely, businesses or professionals, regardless of whether they are operating individually, as partnerships or corporations, having a tax domicile, legal or operating seat in Italy.
4 Namely, Casalpusterlengo, Codogno, Castiglione d’Adda, Fombio, Maleo, Somaglia, Bertonico, Terranova, Castelgerundo, San Fiorano and Vò Euganeo.
5 Other than any reporting obligations relating to tax and social security payments that are made during that period.
6 The litigation activities to be performed by taxpayers are instead postponed to April 15, 2020 under the Decree.
7 This fee is deductible for corporate income tax purposes.
8 I.e,. financial or commercial receivables resulting from a 90-day payment delay.
9 Intra-group transfers are excluded.
10 In particular, under the Orders issued by the Head of Protezione Civile on February 29 and March 9, 2020, borrowers are entitled to defer (until the end of the state of emergency) the payment of principal installments of loans granted by “credit and banking institutions” in connection with (i) real estate properties or (ii) commercial and business (including agricultural) activities. By April 1, 2020, lenders are required to inform borrowers of the right to request the deferment and the related terms and conditions (failure to do so would result in the automatic deferment until November 14, 2020 at no additional cost for the borrower).
11 Certain private initiatives have also been taken in this respect. For instance, the Italian banking association (ABI) has announced an agreement with certain trade associations pursuant to which small-medium undertakings affected by the virus outbreak may request a moratorium (of up to 270 days for short-term loans and up to 120 days for agricultural loans) on the payment of principal repayment installments due under loans granted to them until January 31, 2020.
12 These are defined under the European Commission Recommendation of May 6, 2003, as such companies or other enterprises having fewer than 250 employees and meeting one of the following requirements: (a) annual revenues not exceeding Euro 50 million or (b) balance sheet assets not exceeding Euro 43 million.
13 In parallel, the Decree provides for a temporary enhancement (for a period of nine months) of the support measures that may be granted by this fund, in terms of: percentage of coverage by the guarantee, access to the coverage, extension of the term of the guarantee in case of deferment or suspension of loans, and amount of the fund.
14 Notably, two prior Government decrees adopted in connection with the outbreak entitle (and recommend) employers to make use of smart working modes, regardless of a written agreement with each of the employees involved, and encourage employers to promote the use of vacation and accrued leave during the current state of emergency.
15 CIGO is a temporary lay-off measure grounded on specific business needs for a limited period of time, during which employees in certain eligible business sectors do not work and meanwhile receive a portion of their salary (around 80% up to certain caps) from a fund managed by the National Social Security Authority. Executives (dirigenti) are not eligible for CIGO.
16 In particular, employees with children aged up to 12 are granted a parental leave for a maximum period of 15 days (continuous or fractioned) during which they receive from the employer 50% of their monthly salary. Likewise, employees with children aged between 13 and 16 are generally entitled to abstain from work for the period of suspension of educational services for children and teaching activities in schools of all levels; during this leave, employees are not entitled to receive the salary, but employers are prevented from terminating their employment relationships.
17 In particular, the period spent in quarantine or permanently at home due to exposure to certain identified sources of risk infection qualify as sickness for the purposes of the employee’s economic treatment provided for in the relevant legislation.
18 Under Italian labor laws, a dismissal grounded on “justified objective reasons” is a dismissal based on reasons related to the employer’s operations, work organization and the regular functioning thereof.
19 These provisions apply until July 30, 2020 or the longer period in which the state of emergency relating to CoViD-19 is in force on national territory.
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.