NEWSLETTER N. 6 - 2019

The Italian Tax Authority released a decision containing instructions on the simplified settlement of reports finding infringements pursuant to the Italian law-decree 119/2018.

First of all, taxpayers may now choose to settle even one tax period only (even though entirely) in a simplified manner, if the report finding infringements relates to various tax periods.

Furthermore, reports finding infringements notified before 24 October 2018 may be settled in a simplified manner, even if - after such date - the relevant assessment notice was notified and if an application for tax settlement was filed, provided that such procedure has not been settled yet.

If, however, the assessment notice was notified before 24 October 2018, the report finding infringements cannot be settled in a simplified manner (decision 17776/2019 as of 23 January 2019, Italian Tax Authority).

Employers that hire basic income beneficiaries are exempted from social security contribution payments to be borne by employers and employees (save for labour accident contributions (INAIL)). Such exemption applies up to the monthly amount of basic income held by the employee at the date of employment for a period equal to the difference between 18 monthly payments of basic income and the number of monthly basic income payments already received by the beneficiary. Such amount shall not exceed EUR 780 monthly and shall not be lower than five monthly basic income payments. If the application for basic income is renewed, the exemption is granted for a fixed amount of 5 monthly basic income payments. The maximum amount of monthly benefit shall not exceed the total amount of social security contributions to be borne by the employer and the employed employee for the incentivized months (Italian law-decree 4 as of 28 January 2019, Official Gazette of the Republic of Italy no. 23 as of 28 January 2019).

Refunds of parking expenses incurred by employees outside the municipality are taxed as follows:

• for the entire amount paid in the event of a refund of travel expenses ("rimborso forfetario") and refund of travel expenses and overnight expenses or travel expenses and board expenses and/or travel expenses without board and overnight expenses ("rimborso misto");
• for the amount exceeding EUR 15.49 in Italy and EUR 25.82 abroad in the event of refund for single items ("rimborso analitico") (to be calculated taking into account all other expenses refunded in addition to travel, transport, board and overnight expenses) (answer to the request for legal advice no. 5 as of 31 January 2019, Italian Tax Authority).

A contingent withholding tax incurred by an Italian business in a foreign country does not give rise to a tax credit in Italy, if such tax is not applied in compliance with the double taxation agreement (DTA). In the case under review, the foreign country applied a withholding tax on amounts paid for engineering services performed, even though the Italian business did not have a permanent establishment in such foreign country (answer to request for advance ruling no. 23 as of 1 February 2019, Italian Tax Authority).

If shares in foreign currency that benefit from participation exemption rules are sold, such participation exemption rules shall apply also to foreign currency exchange differences. Indeed, positive or negative foreign exchange differences are not reported autonomously and separately, but are included in the relevant capital gains/losses from disposal (answer to request for advance ruling no. 5 as of 10 January 2019, Italian Tax Authority).

Further to our newsletter no. 5-2019, please be advised that yesterday, after the technical discussions called upon to resolve some critical issues relating to the concomitant deadlines for various fiscal duties, the deadline for filing the report on cross-border transactions (“esterometro”) expiring on 28 February 2019 was extended to 30 April 2019.

To date, it has not be clarified yet, whether this also means, as it would be reasonable, that the submission of the cross-border transaction report set forth at the end of March relating to February data (the “esterometro” is indeed a monthly fiscal duty) is also extended to such date.

Please be advised that the deadline extended to 30 April 2019 also applies to the submission of issued and received invoice data (“spesometro”) relating to the fourth quarter 2018 (or to the second half-year 2018 for all those who opted for half-yearly submission of invoice data).

In any case, in order for the extended deadline to be officially valid and the tax duties falling thereunder to be finally specified, a special decree must be released by the Chair of the Council of Ministers (DPCM).

An Italian company (ALFA) that

• leases goods owned by another company (BETA) originating from outside the EU,
• and, subsequently, subleases such goods in Italy to company (GAMMA),

is entitled to deduct VAT paid at Customs on the import of such goods, even though such goods are and will continue to be owned by BETA. This is because ALFA, though not being the owner, acts as "importer", and the import is directly and immediately linked to the sublease performed by ALFA (answer to request for advance ruling no. 6 as of 11 January 2019, Italian Tax Authority).

If, at the time of renewal of a real estate rental agreement, the landlord

• grants to the tenant an increase of the rental payments that is lower than the increase in the value of the real property;
• against the simultaneous payment of a one-time sum (una tantum) as compensation for the acceptance of a lower rental payment, that is not to be refunded in the event of early termination;

the compensation under review here does not qualify as a rental payment. According to the Italian Tax Authority this is due to the fact that there is no <<direct and immediate link>> between the rental and the compensation. Hence, such compensation is excluded from the scope of VAT and subject to registration fees at 3 percent. Furthermore, the entire amount of such compensation can be deducted from income tax (IRES) and from regional tax on productive activities (IRAP) by the tenant in the tax period in which such duty to pay arises (answer to request for advance ruling no. 16 as of 29 January 2019, Italian Tax Authority).

Please note that the answer provided by the Italian Tax Authority does not seem to be in line with European Court of Justice jurisdiction. Indeed, the European Court of Justice recently pointed out that if a telephone services contract is terminated before the agreed minimum commitment period has expired, the predefined sums withheld by the service provider do qualify in any case as consideration, regardless of the fact that the customer renounces to continue to benefit from the service until the minimum commitment period has expired (European Court of Justice, C-295/17 as of 22 November 2018).

Case:

• contribution of land to a "Consorzio di terreni" by various owners;
• subsequently, subscription of an agreement between the Consorzio and the Municipality on the implementation of a detailed public initiative land-use plan and the disposal of some pieces of land to the Municipality vis-à-vis the execution of infrastructure works;
• re-distribution of the land among the various owners/members of the Consorzio, without additional cash compensation.

The tax incentive under section 32 of the Italian DPR 601/1973 and section 20 of the Italian law 10/1977 - i.e. fixed amount of registration fees and exemption from mortgage and land registry fees - applies to the steps under b) and c) above.

As to step a) above, the tax incentive applies only to those contributed pieces of land that are used for infrastructure works. The remaining pieces of land are subject to regular taxation on real estate transfers: i.e. registration fees at 9 percent, and mortgage and land registry fees of EUR 50 each (decision no. 1 as of 11 January 2019, Italian Tax Authority).

A series of disclosure duties was introduced by the Italian law 124/2017 (Legge annuale per il mercato e la concorrenza) for individuals doing business with public bodies or bodies controlled by such public entities under section 2-bis of the Italian legislative decree 33/2013.

The duty applies to the following two categories:

• the first category includes nation-wide environmental protection associations and environmental protection associations that are present in at least five Italian regions set forth under the decree released by the Italian Ministry for environment, land and sea protection, consumer protection associations and representative users nationwide, associations and foundations and all other non-profit organizations (qualifying as "ONLUS");
• the second category includes businesses.

Taxpayers belonging to the first category must disclose information relating to State aids, grants, paid engagements and any other economic benefit of any kind obtained in the period under review of more than EUR 10,000.00 on their internet sites or on digital portals.

Taxpayers belonging to the second category must disclose such information in the Notes to the financial statements and in the Notes to the consolidated financial statements, if any.

The more detailed anti-corruption and transparency duties (law 190/2012 and Italian legislative decree 33/2013) for companies and entities controlled or owned by public bodies shall remain unaffected.

Primarily, it is the single public body that must provide for the implementation and the control of provisions and activities, as specified under the rules contained in the Italian law 124/2017.

As regards the effectiveness of the new information duties that gave rise to numerous doubts in the course of 2018, now it was confirmed that the new regime is effective as of 2019 in relation to economic advantages obtained as of 1 January 2018. Hence, the duty is effective as of 28 February 2019. This is the deadline for the correct disclosure of the information required under the Italian law 124/2017 may be verified.

The information required from obliged taxpayers other than businesses under such law must be disclosed on internet sites or digital portals of bodies obtaining public aids: If they do not have an internet site, reference may be made to digital portals, which means that the disclosure and transparency duties can be fulfilled also by disclosing the required information on the public entity’s Facebook site. If the public entity does not have a digital portal, the required information may also be disclosed on the internet site of the network of which the entity (“third sector organisations”) is a member (Newsletter no. 2/2019 released by the Italian Ministry of Labour - Italian State Council opinion no. 1449/2018).

TFM is deductible on an accrual basis, provided that it is set forth in a deed with certified date ("data certa") prior to the beginning of the contract relationship. To this end, a generic TFM assignment to each director, without specifying the respective amounts in the deeds, is insufficient; additionally, such amount must be set forth before the beginning of the contract relationship (Italian Supreme Court ruling no. 26431 as of 19 October 2018).

A transaction may be deemed ancillary for VAT purposes, even if it is carried out by a taxpayer other than the one that carried out the main transaction. Under such principle advisory services provided to a company with regard to the sale of a shares are exempted from VAT (Italian Supreme Court ruling no. 351 as of 9 January 2019).

A tax assessment notice issued after a tax access/inspection/assessment is to be deemed void with regard to all harmonized and non-harmonized taxes, if the 60 days deadline under section 12(7) of the Italian law no. 212/2000 for the issuance of such tax assessment notice is not complied with. Hence, no prove that, if there was a hearing, the procedure would have led to a different result, must be provided for VAT purposes (Italian Supreme Court ruling no. 701 as of 15 January 2019).

For registration fee purposes, the value of a business is determined net of business liabilities resulting from the accounts, provided that they can be deemed business-related (Italian Supreme Court ruling no. 888 as of 16 January 2019).

Pursuant to section 6(8) of the Italian legislative decree 471/1997, the purchaser of a good or the beneficiary of a service provided must "regularize" the taxable transaction carried out by the seller or the service provider without issuing an invoice or issuing an invalid invoice. This implies the duty to verify the formal correctness of the invoice only, i.e. the chronological order of receipt within the "statutory time-limit" and its substantial requirements, as specified under section 21 of the Italian DPR 633/1972. However, it does not require a substantial examination as to the correct fiscal treatment of the transaction (Italian Supreme Court ruling no. 1306 as of 18 January 2019).

Yours sincerely,

HAGER & PARTNERS