NEWSLETTER N. 10 - 2019

The decision on the rectification of formal infringements made before 24 October 2018 through the payment of a fixed amount of EUR 200 was published. To this purpose, formal infringements are <<irregularities, infringements and breaches of obligations or formal duties that have no impact on the determination of the tax base for income tax, VAT and tax on productive activities (IRAP) purposes and on the payment thereof>>. Hence, such remedy comprises, inter alia, penalties on the omitted or irregular application of the reverse charge scheme (Italian tax authority, decision no. 62274 as of 15 March 2019)

PARTICIPATION EXEMPTION

The double transformation:

• first from a limited company into a partnership (“trasformazione regressive”),
• and thereafter: from a partnership into a limited company (“trasformazione progressive”),

by the controlling company ALFA that owns a shareholding in the subsidiary BETA does not interrupt the holding period for the application of the participation exemption scheme (Italian tax authority, answer to ruling application no. 70 as of 1 March 2019).

OPTION FOR TAX CONSOLIDATION

If the option for the domestic tax consolidation scheme is not exercised within the legally prescribed deadlines, it may be remedied by exercising the option at the time of filing of the first subsequent tax return (i.e. the tax return to be filed right after the expiry of the deadline originally set forth for exercising such option) and through the payment of the relevant fixed amount penalty (no offset). Even the late filing of the form used to designate the consolidating subsidiary may be remedied within the same deadline (Italian tax authority, answer to ruling application no. 82 as of 25 March 2019). 

NON-PROPORTIONAL DIVISION

A non-proportional division of a general partnership (societá in nome collettiva) into two single-member limited liability companies respectively owned by both shareholders of the divided companies is not deemed abusive. This is true, provided that the economic values of the shareholding to be assigned to both shareholders are proportional to their respective shareholdings in the divided company (Italian tax authority, answer to ruling application no. 87 as of 28 March 2019).

HYPER-DECPRECIATION

The Italian Ministry of Economic Development provides clarifications on the application of hyper-depreciation in the health sector as well as instructions on eligible assets (Italian Ministry of Economic Development, newsletter no. 48160 as of 1 March 2019).

NOTIONAL INTEREST DEDUCTION (NID) AT THE TIME OF TAX ASSESSMENT SETTLEMENT

At the time of tax assessment settlement the company may ask to deduct any exceeding NID still available from the assessed higher tax base (Italian tax authority, newsletter no. 5 as of 21 March 2019).

VAT CHARGED AS OUTPUT TAX

If

• an invoice is issued to a non-resident purchaser,
• and, subsequently, a higher tax is assessed upon the resident supplier,

such resident supplier may charge the assessed higher VAT as output tax under section 60 (7) of the Italian DPR 633/72 to the foreign purchaser's permanent establishment in Italy, even if the original invoice was issued directly to the foreign entity. The permanent establishment may charge such higher VAT as output tax no later than 2 years from the date of payment (Italian tax authority, principio di diritto n. 10 del 18 marzo 2019).

PRINTING PRODUCTS

The reduced VAT rate of 4 percent is applied to available digital content of books and other publications with the characteristics of printing products and with an ISBN or an ISSN number (Italian tax authority, answer to ruling application no. 69 as of 1 March 2019).

PUBLIC CONTRIBUTIONS

The general rules under section 19 of the Italian DPR 633/1972 apply to the deduction of VAT paid on goods and services purchased by using public contributions excluded from VAT: hence, to this end purchases must be related to the business activity exercised and such requirement must be assessed with regard to all taxable output transactions (Italian tax authority, answer to ruling application no. 80 as of 22 March 2019).

TRANSFER OF CUSTOMERS

The termination of a distribution agreement entered into by and between the distributor Y and the seller-grantor X and the concomitant disposal of customer agreements of Y to the seller-grantor X qualifies a sale of business (Italian tax authority, answer to ruling application no. 81 as of 21 March 2019).

NON-TRANSFERABLE TAX CREDIT FOR RESEARCH AND DEVELOPMENT

The tax credit granted for research and development activities under the Italian law 190/2014 can be used through offsetting only. Hence, it cannot be refunded nor transferred (Italian tax authority, answer to ruling application no. 72 as of 8 March 2019).  

EXCLUSIONS

From the provisions on the exclusions from the financial transactions tax  - so called Tobin Tax - it can be seen that the tax is not intended to be of a hindrance to business reorganizations; to this end, not only mergers, divisions and transfers are considered as such - and hence excluded thereof - but also transactions that <<although resulting in a transfer of the ownership of shareholdings, do not alter the ”beneficial ownership” of the shareholding that continues to belong to the same corporate group>> (Italian tax authority, decision no. 38 as of 29 March 2019

CLASSIFICATION OF BALANCE SHEET ITEMS

Despite its public importance due to disclosure in the companies register, the annual accounts form the main document for the company to be used in order to identify the nature of incoming equity. As a consequence, if according to the balance sheet incoming equity qualifies as a loan, the fact that such financing is not supported by shareholder meeting minutes is irrelevant (Italian Supreme Court no. 6104 as of 1 March 2019).

TRANSFER CLAUSE ON TAX CHARGES

A clause under which the tenant provides for the settlement of the duties and/or taxes owed by the owner (such as municipal property taxes) is lawful. The tax charges are deemed paid by the owner anyway and such clause is set forth only that the relevant amount is provided by the tenant to the owner and, hence, is included in the rent owed (Italian Supreme Court, Joint Senate, judgement no. 6882 as of 8 March 2019).

EXCHANGE

The provision of a service against the commitment to provide for a transfer of a good or a provision of a service may form an exchange (Italian Supreme Court, judgement no. 7947 as of 21 March 2019).

GOODWILL

For goodwill adjustment it is enough that the grounds stated in the notice contain abstract criteria according to which a higher value is identified. There is no need to illustrate the factual elements used for their application, since the valuation criteria ar e known to the taxpayer and, therefore, the taxpayer is able to object to them and to document that the taxes claimed are unfounded (Italian Supreme Court, judgement no. 7941 as of 21 March 2019).

VAT CREDIT REFUNDEND NOT SHOWN IN FINAL LIQUIDATION BALANCE SHEET

The Italian Supreme Court confirms the principle establishing that the VAT credit of a company under liquidation must not necessarily be recorded in the company's final balance sheet to be refunded (Italian Supreme Court, judgement 8167 as of 22 March 2019).

Yours sincerely,

HAGER & PARTNERS