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Italy Tax Alert Hlbi Cyprus Def

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The document summarizes key tax measures and issues in Italy's tax system. Some of the major changes include an increase in the standard VAT rate from 21% to 23% by October 2012, a new deduction for corporate equity allowing companies to deduct a percentage of increased equity, and the abolition of time limits for carrying forward tax losses. A new 20% flat tax rate was also introduced on income from financial investments.

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ITALYTAXAlert2012 HLBInternationalEuropeanConference Limassol,Cyprus January13,2012 FrancescoMarconi HLBConsultantsItalia StudioAssociato DeVecchi Milan
ITALYTAXAlert2012 Italys Tax System DirectTaxes (1) Corporate Income Tax (IRES) Companies resident in Italy for IRES tax purposes are subject to IRES for income earned in Italy and abroad. Companies not resident in Italy for tax purposes are subject to IRES only for income earned in Italy. Taxable income is taxed at a 27.50 % rate. TheRegionalBusinessTax(IRAP) The Regional Business Tax (IRAP) is a local tax levied on the value of production generated in each tax period in Italian Regions by subjects engaged in business activities. Nonresident companies are subject to IRAP only on the value of production generated by permanent establishments in Italian territory. IRAP is currently applied at the 3.9% rate, possibly increased by a regional surcharge of up to 0.92%.
ITALYTAXAlert2012 Italys Tax System DirectTaxes (2) IndividualIncomeTax(IRPEF) A progressive scale is applied to successive portions of taxable income under IRPEF. Personal Tax rates range from 23% to 43% (2011). In addition, a solidarity surcharge (Contributo di Solidariet) of 3% will be levied on the portion of annual personal income exceeding EUR 300,000 for the fiscal years 2011, 2012 and 2013. Taxpayers, however, will be entitled in the year of payment to a tax deduction for the amount of solidarity surcharge paid. In addition, a regional surcharge ranging from 0.9% to 1.4% is levied under IRPEF depending on the level of income and region of residence, together with a municipal surcharge of up to 0.8% depending on the municipality of residence.
ITALYTAXAlert2012 Italys Tax System Newmeasures On 14 September 2011, the Italian Parliament approved the austerity package (Law Decree 138/2011) and on 29 December 2011, approved the Law Decree 216/2011 containing a set of extraordinary measures to address the financial crisis and stabilize public finances. The most significant tax measures can be summarized as follows.
ITALYTAXAlert2012 Italys Tax System Key Issues (1) VAT The standard tax rate increased from 20% to 21% starting from September 17 2011 New increase in the standard rate of VAT from 21% to 23% and the reduced rate from 10% to 12%. The increased rates will be effective from 1st October 2012. The decree also envisages a further increase in the standard rate of 0.5% from 1st January 2014
ITALYTAXAlert2012 Italys Tax System Key Issues (2) AllowanceforCorporateEquity(ACE) Decree allows a new deduction ("ACE Deduction") in the computation of the taxable profits of certain entities and individuals. The ACE Deduction will be available to Italian resident corporations, public and private commercial entities, commercial trusts and Italian permanent establishments of nonItalian resident entities, resident individuals, general partnerships and limited partnerships. The ACE Deduction will be equal to a certain percentage of the equity increase accrued after the financial year as at 31 December 2010 (the "Eligible Equity"). The applicable percentage, to be calculated on the average return rate of public bonds, will be determined by a Ministerial Decree on a yearly basis. For the fiscal year as at 31 December 2011 and for the two subsequent fiscal years, the applicable rate will be 3%.
ITALYTAXAlert2012 Italys Tax System Key Issues (3) AllowanceforCorporateEquity(ACE) As to the first fiscal year of application of ACE Deduction, the Eligible Equity will be calculated as the difference between: i. the amount of equity existing at the end of the relevant financial year; and ii. the amount of equity existing at the end of the financial year as at 31 December 2010, which will be equal to the net equity reported in the relevant balance sheet; the profit or loss realized in the financial year will not be taken into account in the calculation. With respect to newly incorporated companies, the Eligible Equity will be equal to the net equity reported in the balance sheet of the first financial year, excluding the relevant profit or loss realized in such a year. In case the ACE Deduction is higher than the net business income, the excess will be available for carryforward to increase the ACE Deduction in the subsequent fiscal years.
ITALYTAXAlert2012 Italys Tax System Key Issues (4) Carryingforwardtaxlosses Abolitionoftimelimits The new feature essentially consists of the abolition of the time limit for carrying them forward, a maximum of 5 years in the past, in favor of a new quantitative time limit. The new features will be applicable from 2011. Losses may be carried forward in future years, in fact, but only up to a limit of 80% of the profit produced. In essence, a change of course which will, nevertheless, entail subjecting a quota of 20% of the profit realized by companies, even with large previous losses, to taxation. EXCEPTION The exception for losses realized in the first three years of the startup of a new company remains unaffected (indefinitely deductible ).
ITALYTAXAlert2012 Italys Tax System Key Issues (5) RegionalBusinessTaxIRAPtaxable income Taxable income for IRAP purposes is equal to the net value of production generated in each Italian Region and calculated as the difference between the macrocategories A and B (with the exception of a number of items) of the income statement as drawn up on the basis of Italian National Accounting Standards (for entities drawing up their financial statements in accordance with International Accounting Standards IAS, the corresponding items are considered). Forindustrialandcommercialenterprises: Positivecomponentsincludeallincome,withtheexceptionof: a. capitalgainsgeneratedbythedisposalofcompaniesandequityinvestments); b. specifiedextraordinaryincomecomponents; c. financial income (dividends,interest) Negativecomponentsincludeallcostsandexpenses,withtheexceptionof: a. labour costs(withsomeexceptions); b. interestandfinancecharges; c. specifiedcapitallossesandnegativecomponentsofextraordinaryincome.
ITALYTAXAlert2012 Italys Tax System Key Issues (6) DeductionofIRAPonemploymentcostsandnewdeductionsfromIRAPtaxablebasis Decree allows deduction from business income of the portion of the Regional Tax on Business Activities ("IRAP") relating to employment costs. The IRAP portion relating to employment costs is deductible from the Corporate Income Tax ("IRES") and the Income Tax ("IRPEF") taxable basis and applies from the fiscal year as at 31 December 2012. Furthermore, starting from the fiscal year following the fiscal year as at 31 December 2011, the deduction from IRAP taxable basis allowed on each openterm employee employed in the relevant fiscal year, will be increased from 4,600, on a yearly basis, to: i. 10,600, on a yearly basis, with respect to each female employee and to each employee under the age of 35. This deduction is not available to companies operating under concessions and tariffs in the following sectors: energy, water, transport, infrastructure, postal services, telecommunications, wastewater collection and purification and waste collection and disposal; and ii. 15,200, on a yearly basis, with respect to each female employee and to each employee under the age of 35 employed in the following Regions: Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sardegna and Sicilia. This deduction is not available to banks, insurance companies and other financial institutions and to companies operating under concessions and tariffs in the following sectors: energy, water, transport, infrastructure, postal services, telecommunications, wastewater collection and purification and waste collection and disposal.
ITALYTAXAlert2012 Italys Tax System Key Issues (7) IntroductionofanewPropertyTax(IMU) Decree replaces the existing municipal tax (Imposta Comunale sugli Immobili, "ICI") with a new property tax (Imposta Municipale Propria, "IMU"). ICI was a property tax applicable yearly on the value of the relevant property, as determined by the local land office, at a rate ranging from 0.4% to 0.7%, depending on the municipalities. The home residence was excluded. IMU is a property tax applicable yearly on the value of the relevant property, as determined by the local land office. Decree set the standard IMU rate at 0.76%. However, such ordinary rate can be either increased to 1.06% or decreased to 0.46% depending on the municipalities. Municipalities can also determine an ordinary 0.4% IMU rate for either properties having a function within an enterprise (i.e. beni strumentali) or rented properties. Decree also set a 0.2% IMU rate, which could be decreased to 0.1% by the municipalities, for rural properties having a function within an enterprise (i.e. fabbricati rurali ad uso strumentale).
ITALYTAXAlert2012 Italys Tax System Key Issues (8) NewFlattaxrateonincomefromfinancialinvestments(1) The Italian Government has introduced a 20% flat rate of tax on income from financial investments. The following measures will be effective as of January 2012: Tax on dividends from nonqualified shareholdings will increase from 12.5% to 20%. Tax on dividends from listed companies located in blacklisted countries will increase from 12.5% to 20%. No increase has been levied in respect of dividends received from nonlisted companies located in blacklisted countries. Tax on bank interest will be reduced from 27% to 20%.
ITALYTAXAlert2012 Italys Tax System Key Issues (9) NewFlattaxrateonincomefromfinancialinvestments(2) Interest from bonds with a duration greater than 18 months will be taxed at an increased rate of 20%, compared with the previous 12.5% rate. Interest from bonds with a duration of less than 18 months will be taxed at a reduced rate of 20% compared with the previous 27% rate. Interest from Government bonds and post bonds will continue to be taxed at 12.5%. Capital gains tax on nonqualified shareholdings will be increased from 12.5% to 20%. Maturing life insurance investments will be taxed at an increased rate of 20%. No amendments have yet been made to the tax rates applicable to dividends and capital gains arising from companies and qualified shareholdings.
ITALYTAXAlert2012 Italys Tax System Key Issues (10) ImportantSentenceonbeneficialowner(1) The sentence 124/09/10 issued by Turin Tax Commission on the beneficial owner of a foreign company is an important reference document on nonfulfillment of international treaties. Within the dispute between the Italian Tax Authority and an Italian company accused of paying royalties to a Luxembourgian company with a concessionary tax 10% deduction (instead of the ordinary 30% tax deduction), the Turin Tax Commission has stressed that no evidence was presented that the beneficiary company was the final royalties beneficiary.
ITALYTAXAlert2012 Italys Tax System Key Issues (10) ImportantSentenceonbeneficialowner(2) The sentence has dismissed the appeal by the Italian society for the following reasons: on the basis of article 12 of the Italian convention, a 10% subsidized tax deduction is applicable in Luxembourg; the supplying company has to prove that the beneficial owner is actually the final and effective beneficiary the formal interpretation of the concept of beneficial owner is incorrect, only the substantive interpretation has to be taken into account. The Luxembourgian company lacks substance and is owned by a Bermudian company, it has received patents from other societies of the group it belonged to for free, therefore it was considered to be a money collector and not the final royalties beneficiary.
ITALYTAXAlert2012 FORMOREINFORMATION f.marconi@studiodevecchi.com
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Italy Tax Alert Hlbi Cyprus Def

  • 1. ITALYTAXAlert2012 HLBInternationalEuropeanConference Limassol,Cyprus January13,2012 FrancescoMarconi HLBConsultantsItalia StudioAssociato DeVecchi Milan
  • 2. ITALYTAXAlert2012 Italys Tax System DirectTaxes (1) Corporate Income Tax (IRES) Companies resident in Italy for IRES tax purposes are subject to IRES for income earned in Italy and abroad. Companies not resident in Italy for tax purposes are subject to IRES only for income earned in Italy. Taxable income is taxed at a 27.50 % rate. TheRegionalBusinessTax(IRAP) The Regional Business Tax (IRAP) is a local tax levied on the value of production generated in each tax period in Italian Regions by subjects engaged in business activities. Nonresident companies are subject to IRAP only on the value of production generated by permanent establishments in Italian territory. IRAP is currently applied at the 3.9% rate, possibly increased by a regional surcharge of up to 0.92%.
  • 3. ITALYTAXAlert2012 Italys Tax System DirectTaxes (2) IndividualIncomeTax(IRPEF) A progressive scale is applied to successive portions of taxable income under IRPEF. Personal Tax rates range from 23% to 43% (2011). In addition, a solidarity surcharge (Contributo di Solidariet) of 3% will be levied on the portion of annual personal income exceeding EUR 300,000 for the fiscal years 2011, 2012 and 2013. Taxpayers, however, will be entitled in the year of payment to a tax deduction for the amount of solidarity surcharge paid. In addition, a regional surcharge ranging from 0.9% to 1.4% is levied under IRPEF depending on the level of income and region of residence, together with a municipal surcharge of up to 0.8% depending on the municipality of residence.
  • 4. ITALYTAXAlert2012 Italys Tax System Newmeasures On 14 September 2011, the Italian Parliament approved the austerity package (Law Decree 138/2011) and on 29 December 2011, approved the Law Decree 216/2011 containing a set of extraordinary measures to address the financial crisis and stabilize public finances. The most significant tax measures can be summarized as follows.
  • 5. ITALYTAXAlert2012 Italys Tax System Key Issues (1) VAT The standard tax rate increased from 20% to 21% starting from September 17 2011 New increase in the standard rate of VAT from 21% to 23% and the reduced rate from 10% to 12%. The increased rates will be effective from 1st October 2012. The decree also envisages a further increase in the standard rate of 0.5% from 1st January 2014
  • 6. ITALYTAXAlert2012 Italys Tax System Key Issues (2) AllowanceforCorporateEquity(ACE) Decree allows a new deduction ("ACE Deduction") in the computation of the taxable profits of certain entities and individuals. The ACE Deduction will be available to Italian resident corporations, public and private commercial entities, commercial trusts and Italian permanent establishments of nonItalian resident entities, resident individuals, general partnerships and limited partnerships. The ACE Deduction will be equal to a certain percentage of the equity increase accrued after the financial year as at 31 December 2010 (the "Eligible Equity"). The applicable percentage, to be calculated on the average return rate of public bonds, will be determined by a Ministerial Decree on a yearly basis. For the fiscal year as at 31 December 2011 and for the two subsequent fiscal years, the applicable rate will be 3%.
  • 7. ITALYTAXAlert2012 Italys Tax System Key Issues (3) AllowanceforCorporateEquity(ACE) As to the first fiscal year of application of ACE Deduction, the Eligible Equity will be calculated as the difference between: i. the amount of equity existing at the end of the relevant financial year; and ii. the amount of equity existing at the end of the financial year as at 31 December 2010, which will be equal to the net equity reported in the relevant balance sheet; the profit or loss realized in the financial year will not be taken into account in the calculation. With respect to newly incorporated companies, the Eligible Equity will be equal to the net equity reported in the balance sheet of the first financial year, excluding the relevant profit or loss realized in such a year. In case the ACE Deduction is higher than the net business income, the excess will be available for carryforward to increase the ACE Deduction in the subsequent fiscal years.
  • 8. ITALYTAXAlert2012 Italys Tax System Key Issues (4) Carryingforwardtaxlosses Abolitionoftimelimits The new feature essentially consists of the abolition of the time limit for carrying them forward, a maximum of 5 years in the past, in favor of a new quantitative time limit. The new features will be applicable from 2011. Losses may be carried forward in future years, in fact, but only up to a limit of 80% of the profit produced. In essence, a change of course which will, nevertheless, entail subjecting a quota of 20% of the profit realized by companies, even with large previous losses, to taxation. EXCEPTION The exception for losses realized in the first three years of the startup of a new company remains unaffected (indefinitely deductible ).
  • 9. ITALYTAXAlert2012 Italys Tax System Key Issues (5) RegionalBusinessTaxIRAPtaxable income Taxable income for IRAP purposes is equal to the net value of production generated in each Italian Region and calculated as the difference between the macrocategories A and B (with the exception of a number of items) of the income statement as drawn up on the basis of Italian National Accounting Standards (for entities drawing up their financial statements in accordance with International Accounting Standards IAS, the corresponding items are considered). Forindustrialandcommercialenterprises: Positivecomponentsincludeallincome,withtheexceptionof: a. capitalgainsgeneratedbythedisposalofcompaniesandequityinvestments); b. specifiedextraordinaryincomecomponents; c. financial income (dividends,interest) Negativecomponentsincludeallcostsandexpenses,withtheexceptionof: a. labour costs(withsomeexceptions); b. interestandfinancecharges; c. specifiedcapitallossesandnegativecomponentsofextraordinaryincome.
  • 10. ITALYTAXAlert2012 Italys Tax System Key Issues (6) DeductionofIRAPonemploymentcostsandnewdeductionsfromIRAPtaxablebasis Decree allows deduction from business income of the portion of the Regional Tax on Business Activities ("IRAP") relating to employment costs. The IRAP portion relating to employment costs is deductible from the Corporate Income Tax ("IRES") and the Income Tax ("IRPEF") taxable basis and applies from the fiscal year as at 31 December 2012. Furthermore, starting from the fiscal year following the fiscal year as at 31 December 2011, the deduction from IRAP taxable basis allowed on each openterm employee employed in the relevant fiscal year, will be increased from 4,600, on a yearly basis, to: i. 10,600, on a yearly basis, with respect to each female employee and to each employee under the age of 35. This deduction is not available to companies operating under concessions and tariffs in the following sectors: energy, water, transport, infrastructure, postal services, telecommunications, wastewater collection and purification and waste collection and disposal; and ii. 15,200, on a yearly basis, with respect to each female employee and to each employee under the age of 35 employed in the following Regions: Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sardegna and Sicilia. This deduction is not available to banks, insurance companies and other financial institutions and to companies operating under concessions and tariffs in the following sectors: energy, water, transport, infrastructure, postal services, telecommunications, wastewater collection and purification and waste collection and disposal.
  • 11. ITALYTAXAlert2012 Italys Tax System Key Issues (7) IntroductionofanewPropertyTax(IMU) Decree replaces the existing municipal tax (Imposta Comunale sugli Immobili, "ICI") with a new property tax (Imposta Municipale Propria, "IMU"). ICI was a property tax applicable yearly on the value of the relevant property, as determined by the local land office, at a rate ranging from 0.4% to 0.7%, depending on the municipalities. The home residence was excluded. IMU is a property tax applicable yearly on the value of the relevant property, as determined by the local land office. Decree set the standard IMU rate at 0.76%. However, such ordinary rate can be either increased to 1.06% or decreased to 0.46% depending on the municipalities. Municipalities can also determine an ordinary 0.4% IMU rate for either properties having a function within an enterprise (i.e. beni strumentali) or rented properties. Decree also set a 0.2% IMU rate, which could be decreased to 0.1% by the municipalities, for rural properties having a function within an enterprise (i.e. fabbricati rurali ad uso strumentale).
  • 12. ITALYTAXAlert2012 Italys Tax System Key Issues (8) NewFlattaxrateonincomefromfinancialinvestments(1) The Italian Government has introduced a 20% flat rate of tax on income from financial investments. The following measures will be effective as of January 2012: Tax on dividends from nonqualified shareholdings will increase from 12.5% to 20%. Tax on dividends from listed companies located in blacklisted countries will increase from 12.5% to 20%. No increase has been levied in respect of dividends received from nonlisted companies located in blacklisted countries. Tax on bank interest will be reduced from 27% to 20%.
  • 13. ITALYTAXAlert2012 Italys Tax System Key Issues (9) NewFlattaxrateonincomefromfinancialinvestments(2) Interest from bonds with a duration greater than 18 months will be taxed at an increased rate of 20%, compared with the previous 12.5% rate. Interest from bonds with a duration of less than 18 months will be taxed at a reduced rate of 20% compared with the previous 27% rate. Interest from Government bonds and post bonds will continue to be taxed at 12.5%. Capital gains tax on nonqualified shareholdings will be increased from 12.5% to 20%. Maturing life insurance investments will be taxed at an increased rate of 20%. No amendments have yet been made to the tax rates applicable to dividends and capital gains arising from companies and qualified shareholdings.
  • 14. ITALYTAXAlert2012 Italys Tax System Key Issues (10) ImportantSentenceonbeneficialowner(1) The sentence 124/09/10 issued by Turin Tax Commission on the beneficial owner of a foreign company is an important reference document on nonfulfillment of international treaties. Within the dispute between the Italian Tax Authority and an Italian company accused of paying royalties to a Luxembourgian company with a concessionary tax 10% deduction (instead of the ordinary 30% tax deduction), the Turin Tax Commission has stressed that no evidence was presented that the beneficiary company was the final royalties beneficiary.
  • 15. ITALYTAXAlert2012 Italys Tax System Key Issues (10) ImportantSentenceonbeneficialowner(2) The sentence has dismissed the appeal by the Italian society for the following reasons: on the basis of article 12 of the Italian convention, a 10% subsidized tax deduction is applicable in Luxembourg; the supplying company has to prove that the beneficial owner is actually the final and effective beneficiary the formal interpretation of the concept of beneficial owner is incorrect, only the substantive interpretation has to be taken into account. The Luxembourgian company lacks substance and is owned by a Bermudian company, it has received patents from other societies of the group it belonged to for free, therefore it was considered to be a money collector and not the final royalties beneficiary.