NEWSLETTER NO. 31 - 2020

  • DIRECT TAXES

    EXCHANGE OF EQUITY INVESTMENTS THROUGH CONTRIBUTION

    A contribution under the special tax scheme pursuant to section 177 (2) of the Italian Tax Code (TUIR) - whereby the value realisable by the transferee is given by the net equity increase made by the transferor due to the contribution (realizzo controllato) - occurs only if by comparing

    • the fiscally recognized cost of the contributed equity investment, and
    • the transferor's share of net equity increase,

    the transferee achieves a capital gain. However, in the event of capital losses, the general "fair value" principle under section 9 Italian Tax Code (TUIR) applies (Italian tax authority, Principio di diritto n. 10 as of 28 July 2020). 

    The contribution pursuant to the new section no. 177 (2-bis) of the Italian Tax Code (TUIR), that extended the special tax scheme (realizzo controllato) to contributions of qualified equity investments (20 percent or 25 percent), applies only if such contribution is made to a sole shareholder holding company. Hence, the special tax scheme does not apply, if there are several transferees and neither in the event of a joint contribution (Italian tax authority, answer to advance ruling no. 314 and no. 315 as of 7 September 2020 and no. 309 as of 4 September 2020). 

     

    APPROPRIATION OF INCOME COMPONENTS FURTHER TO A JUDGEMENT

    Positive income components of micro-entities arising from a favourable decision are fiscally relevant in the tax period in which the judgement is legally issued (notwithstanding the further requirement of determinability). Indeed, neither the date on which the ruling becomes final (res judicata effect) nor the course of the proceedings are relevant for tax purposes, since a tax-deductible contingent liability would arise, if the decision is amended by higher courts.

    However, the tax period of appropriation for entities other than micro-entities must be identified based on the correct charging of the item in the financial statements. To this end, the Italian accounting principle OIC 15 provides as follows: <<Claims arising from transactions other than the sale and purchase of goods and services (e.g. financing transactions) must be recorded in the balance sheet, if there is a legal title for the claim, i.e. if they actually form a third-party obligation vis-à-vis the company>>. Hence, it is not required that the obligation is unchangeable (Italian tax authority, answer to request for advance ruling no. 9 as of 4 August 2020). 

     

    STOCK OPTION TAX LIABILITY

    Income from employment in the form of stock options is subject to tax in Italy, if it is derived from an activity carried out in Italy or if the employee worked in Italy at the time of accrual of the right (so-called "vesting period"). In this respect the fact it is irrelevant that the employee is not resident for tax purposes in Italy and does not work in Italy any more at the time of exercise and attribution of the shares (Italian tax authority, answer to request for advance ruling no. 316 as of 7 September 2020). 

     

    SALE OF A BUILDING TO BE DEMOLISHED

    The sale of a building, including the appurtenant land, to a construction company that intends to demolish and rebuild the building, based on a building permit still to be obtained, does not form a sale of land as future development land, but a sale of a building. Hence, any different interpretations previously released have become obsolete (Italian tax authority, answer to request for advance ruling no. 312 as of 4 September 2020). 

     

    SALE OF A BUILDING STILL TO BE COMPLETED

    The sale of a property under construction is deemed a sale of a good still to be included in the production cycle and, hence, "uncompleted". As a consequence, the sale is subject to VAT, whereas mortgage and land register fees are due at a fixed amount. This clarification seems to be in contrast with the interpretation given by the Italian Supreme Court, according to which reference must be made not to the objective state of the property, but to the purchaser's subjective position in order to establish whether a property can be deemed "uncompleted" (Italian tax authority, answer to request for advance ruling no. 241 as of 3 August 2020).

  • VALUE ADDED TAX

    EVIDENCE OF INTRA-COMMUNITY SUPPLY

    It is presumed that a transport of goods within the Community has occurred, if the taxpayer is in possession of the requested documentation, as specified under section 45-bis of regulation (EU) 282/2011. If the documentation requested therein is unavailable, the taxpayer may provide other elements that give evidence of an intra-Community supply. However, if no documentation is available and the taxpayer invoices the supply with VAT, the invoice cannot be rectified by issuing a VAT credit note, not even if the requested documentation is provided afterwards (Italian tax authority, answer to request for advance ruling no. 305 as of 3 September 2020). 

     

    DEADLINE FOR VAT DEDUCTION

    If a VAT debit note is issued, the deadline for the exercise of the right of deduction by the purchaser starts from the date of issuance of the VAT credit/debit note by the seller, and not from the date of the original invoice issued without VAT by error (Italian tax authority, answer to advance ruling no. 267 as of 21 August 2020). 

     

    VAT CREDIT/DEBIT NOTE

    If it is agreed that the failure to pay forms a termination event, the seller/service provider may issue a VAT credit/debit note - with no need to start an enforcement proceeding and to await its outcome - and, hence, claim VAT for all regularly occurred supplies and for unpaid supplies. However, if bankruptcy is declared before the termination clause is exercised due to breach and a VAT credit/debit note is issued, the seller/service provider must file a claim in the insolvency procedure and await its outcome in order to claim VAT (Italian tax authority, answer to request for advance ruling no. 261 as of 11 August 2020). 

  • TAX CREDITS

    TAX CREDIT FOR SHOPS AND STORES

    In the event of a lease agreement for properties registered under different categories, including even C1 properties, the tax credit for "shops and stores", as provided for under the Cure Italy decree, can be claimed for the part relating to C1 properties only and must be determined in proportion to the "cadastral income". Hence, if the total "cadastral income" of all properties is equal to 100 and the income relating to the sole C1 properties is 20, a tax credit of up to 20 percent can be claimed (Italian tax authority, answer to request for advance ruling no. 321 as of 8 September 2020). 

  • CIVIL LAW PRINCIPLES

    SALE OF A PROPERTY WITHOUT OCCUPANY PERMIT

    The Italian Supreme Court returned to dealing with the consequences on the validity and effectiveness of the sale and purchase of a residential property without occupancy permit. The Italian Supreme Court confirmed in its recent ruling no. 17123/2020 that the occupancy permit is an essential legal condition for the legitimate use and the regular saleability of the asset, but that the failure to deliver such occupancy permit is a breach by the seller that does not necessarily impact on the balance of reciprocal services in a nullifying way. Hence, it is excluded that a serious breach (known as "aliud pro alio", i.e. one thing for another) occurs, if the occupancy permit is issued subsequently: Indeed, in the case examined by the Italian Supreme Court, it was unquestioned that the occupancy certificate will be issued subsequently and, hence, it was excluded that the purchased property can be deemed "another" than the one agreed upon (Italian Supreme Court, ruling no. 17123 as of 13 August 2020).

     

    CERTIFICATE ON URBAN DEVELOPMENT AND CONSTRUCTION COMPLIANCE ("CERTIFICATO DI STATO LEGITTIMO")

    The idea of a property's legal compliance in terms of urban development and construction law was introduced under the so-called Simplification Decree no. 76/2020, still to be converted into law, and "is specified in the authorization obtained for construction or in the one that regulated the most recent construction measure on the entire building or on a property unit, including any other subsequent authorizations for partial measures".

    As of 17 July 2020, this new certificate on urban development and construction compliance ("certificato di stato legittimo") may be enclosed to sale and purchase agreements. Such sworn certificate is issued by an authorized technician and confirms that all urban development and construction rules have been complied with, that there are "tolerances" not exceeding 2 percent of the measures and construction volumes specified in the construction authorization obtained or that there are other minor discrepancies with no prejudice on the property's suitability for use.

      The new certificate is not mandatory, but highly recommended: i) in the event of a sale and purchase in order to ensure that the building is free of any unauthorized urban development and in order to avoid future objections; ii) in order to benefit from tax advantages that, on the contrary, are not recognized to buildings with unauthorized urban development; iii) in the event of planned construction measures on buildings, since such certificate confirms that the construction was legally built and makes the approval of new measures easier.

     Prior to the simplifications decree, in order to protect themselves from the risk of illegal constructions, buyers used a similar certificate, the so-called "dichiarazione di conformità edilizia e urbanistica" issued by a technician under his own civil liability. The new certificate ("certificato di stato legittimo") is expressly required by the law and is of significance in the context of public law, since it is a sworn certificate and, hence, false declarations are punishable under criminal law. Concomitantly, despite being issued by an individual professional, it is an official certificate of compliance.

     

    Kind regards

    HAGER & PARTNERS

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