NEWSLETTER NO. 5 - 2021

  • TAX COLLECTION

    EXTENDED DEADLINE FOR THE PAYMENT OF TAX RECOVERY NOTICES

    The deadlines for the payment of tax recovery notices is-sued by tax collection agents due between 8 March 2020 and 28 February 2021 are suspended. Payments must be made by 31 March 2021. Payments already made are not reimbursed (Italian law-decree no. 7 as of 30 January 2021).

  • DIRECT TAXES

    TAX CREDIT FOR LEASES AND RENTALS

    Tourism and accommodation businesses may benefit from the tax credit for non-residential property rentals and business leases pursuant to section 28 of the Italian law-decree no. 34/2020, regardless of the proceeds and income recorded in the previous tax period.

    If a business carries out more than one activity, i.e. hotel and restaurant business, in order to benefit from the time extension of the tax credit for leases and rentals pursuant to section 77 of the Italian law-decree no. 104/2020, the "tourist accommodation" activity must prevail as main activity over all other activities carried out by the business (i.e. the ones that generated the highest proceeds or income in the last tax period for which an income tax return has been filed). As a consequence, if the proceeds earned through the restaurant activity prevail over the tourist accommodation activity, no tax credit can be used (Telefisco 2021, answer by the Italian tax authority).

    If a tax credit is transferred and accepted in 2020 and not used for set offs by 31 December 2020, the transferee may report the tax credit in the 2021 income tax return (relating to 2020) and set it off against the tax liabilities resulting from such income tax return (Telefisco 2021, answer by the Italian tax authority).

    The tax credit for rentals and leases must be in line with the rental payment. Such rental payment must be determined according to the regular criteria used to set forth the cost of goods under section 110 of the Italian Tax Code (TUIR), regardless of how the taxpayer's income is determined (regular taxation, flat-tax scheme). Consequently, cost components include:

    • any contingent wholly non-deductible VAT pursuant to section 19-bis (1) of the Italian DPR no. 633/1972,
    • any contingent VAT which becomes non-deductible due to the option under section 36-bis of the Italian DPR no. 633/1972.

    On the contrary, given that partially non-deductible VAT under the pro rata arrangement cannot be deemed a cost relating to the single purchases, but is a global mass (...) to be included amongst overall costs, it is impossible to calculate partially non-deductible VAT as cost under the pro rata arrangement (Telefisco 2021, answer by the Italian tax authority).

    Tax credits offsetting, as amended under the Italian law-decree no. 104/2020, prior to the EU Commission’s authorization, constitutes an infringement under section 13 (4) of the Italian legislative decree no. 471/1997 <<If higher excess amounts or tax credits than the ones applicable are used, or if they are used in breach of the use set forth for under current legal provisions, a penalty of thirty percent of the tax credit used applies, unless special legal provisions apply>>. Voluntary remedial measures (voluntary disclosure) may apply to the infringement concerned (Telefisco 2021, answer by the Italian tax authority).

     

    REVALUATION OF SHARES AND SUBSEQUENT TRANSFER OF REVALUED SHARES

    The revaluation of shares held in a company and their subsequent transfer by an individual to other shareholders does not constitute a tax avoidance transaction (Italian tax authority, answer to request for advance ruling no. 4 as of 5 January 2021).

     

    WITHHOLDING TAX ON CONTRACTED WORKS

    The rules on withholding tax on contracted works under section 17-bis of the Italian legislative decree no. 241/1997 do not apply in the event of measures aimed at the replacement of goods with new goods purchased by the contracting party. Indeed, in such event, the requirement that assets used for the purpose of business must be owned by the contracting party is not fulfilled, since the assets concerned do not qualify as "assets used for the purpose of business" but as "supplied assets" (Italian tax authority, Consulenza giuridica no. 1 as of 14 January 2021).

     

     

    SEISMIC HAZARD TAX DEDUCTION - PURCHASES

    The seismic hazard tax deduction under section 16 (1-septies) of the Italian law-decree no. 63/2013 for the purchase of properties subjected to building measures

    • carried out in municipalities located in the seismic hazard zones 1, 2 and 3
    • through the demolition and reconstruction of entire buildings
    • in order for them to be classified under 1 or 2 lower classes of seismic hazard, as confirmed by a specific sworn report,

    cannot be cumulated with the tax deduction pursuant to section 16-bis (3) of the Italian Tax Code (TUIR), since the two tax benefits are alternative incentives (Italian tax authority, answer to request for advance ruling no. 19 as of 8 January 2021).

    The seismic hazard tax deduction for purchases pursuant to section 16 (1-septies) of the Italian law-decree no. 63/2013 is applicable, even if the Region decided seismic hazard sub-zones (called 2A, 2B, 3A and 3B), provided that they have the same features as zones 2 or 3 (Italian tax authority, answer to request for advance ruling no. 25 as of 8 January 2021).

    The sworn report for property units located in the seismic hazard zones 2 and 3, on which building measures subject to authorization procedures started between 1 January 2017 and 1 May 2019 are carried out, must be filed at the date of signature of the notary deed at the latet (Italian tax authority, answer to request for advance rulino no. 26 as of 8 January 2021).

     

    TAX DEDUCTION FOR BUILDING STOCK UPGRADING

    Tax deductions for:

    • energy-saving measures pursuant to sections 14 (1), 14(2), 14 (2-bis) and 14 (2-quater) of the Italian law-decree no. 63/2013,
    • concomitant energy-saving and earthquake-resistant construction measures pursuant to section 14 (2-quater 1) of the Italian law-decree no. 63/2013;
    • measures aimed at the reduction of the seismic hazard pursuant to section 16 (1-bis - 1-sexies) of the Italian law-decree no. 63/2013,

    are not applicable, if the authorization procedures started before 1 January 2017. This conclusion is true, even in the event of a subsequent request to supplement the authorization application in order to carry out measures for the prevention of seismic hazards, unless the Municipality's technical office confirms a different (compared to the original building authorization) and subsequent (after 1 January 2017) starting date of the authorization procedure or a new procedure is started (Italian tax authority, answer to request for advance ruling no. 36 as of 11 January 2021).

     

    PARTICIPATION EXEMPTION SCHEME

    Case:

    • BETA is wholly owned (100 percent) by the holding company ALFA.
    • The sub-holding company BETA has taken holdings in companies used for property management purposes only and owns 10 percent of GAMMA.
    • Subsequently, the property development company GAMMA proves to be an empty box and an instrument of fraud used by third parties.

    The sale of BETA is subject to the participation exemption scheme, since BETA did not carry out holding management activities only, but filed a series of legal actions aimed at claiming and collecting the sums from the fraud. As specified by the Italian tax authority, this activity satisfies the commerciality requirement (Italian tax authority, answer to request for advance ruling no. 33 as of 11 January 2021).

     

    REDETERMINATION OF FISCAL COST OF UNLISTED EQUITY AND LAND

    The Italian tax authority provided clarifications on how to re-determine the fiscal cost of equity held in unlisted companies and land pursuant to section 5 and to section 7 of the Italian law no. 448/2001, as subsequently extended. More specifically, as to land, the Italian tax authority supports the guidelines provided by the Italian Supreme Court (Joint Divisions), according to which: <<if the consideration contained in a deed of sale of a property is lower than the asset's value beforehand determined by the taxpayer based on a sworn report pursuant to section 7 of the Italian law no. 448/2001, this shall not disqualify the taxpayer from the substitute tax payment made in previous years nor shall it prevent the tax authorities from ascertaining the capital gain according to the asset's initial acquisition value>>.

    Indeed, once the legal requirements for the use of a substitute tax are satisfied, <<this mechanism does not allow to claim the asset's initial value established before the one contained in the sworn report for the purpose of calculating the capital gain, even if such value is not contained in the sale and purchase deed or the commercial value contained therein is lower than the one contained in the sworn report, and as such inappropriate to determine the occurrence of a taxable income vis-à-vis the higher value in the sworn report>>.

    Hence, according to the Italian tax authority any previous guidelines contrary to the above contained in newsletters no. 15/2002 and no. 1/2013 must be refuted (Italian tax authority, newsletter no. 1 as of 22 January 2021).

     

    NON-FINANCIAL HOLDING COMPANIES

    In order to identify non-financial holding companies it must be verified, based on the balance sheet data of the business year that coincides with the tax period of the income tax return, whether the main activity is the holding of equity in taxable persons other than financial intermediaries.

    If the sum of equity held in taxable persons other than financial intermediaries and those held in financial intermediaries exceeds 50 percent of the assets, the "holding of equity" under section 162-bis of the Italian Tax Code (TUIR) is the main activity, since the elements concerned exceed 50 percent of the balance sheet assets. This is true even if the same items relating to financial holdings and to those relating to non-financial holdings, analysed separately, are not prevailing over the balance sheet total assets. Moreover, whenever the amount of holdings in taxable persons other than financial intermediaries exceed the one of the holdings in financial intermediaries, the company belongs to the taxable persons under section 162-bis (1c) of the Italian Tax Code (TUIR), i.e. to non-financial holding companies (Italian tax authority, answer to request for advance ruling no. 40 as of 13 January 2021).

  • VAT

    VAT ADJUSTMENT NOTICE

    If a sale and purchase agreement sets forth that the final evaluation of the goods is to be made by a third party/auditor, any contingent VAT adjustment notices - issued pursuant to section 26 of the Italian DPR no. 633/1972 in order to claim higher sums already invoiced than those finally due - do not fall within the agreement reached by and between the parties and, hence, are not subject to the time-limit of one year (Italian tax authority, Principio di diritto no. 1 as of 11 January 2021).

     

    VAT CEILING IN CONTRACTS FOR THE CARRIAGE OF GOODS

    The VAT ceiling rules apply even vis-à-vis non-resident taxable persons established in the UK and directly identified for VAT purposes in Italy, provided that they act as regular exporters (Italian tax authority, answer to request for advance ruling no. 1 as of 4 January 2021).

     

    VAT DEDUCTION

    Financing transactions, and the other transactions specified under section 10 (1-4) of the Italian DPR no. 633/1972, performed by Italian taxable persons vis-à-vis:

     

    1. non-EU taxable persons, even though not subject to VAT, are deemed as taxable transactions for deduction purposes and, thus, entitle to deduct VAT paid on purchases (pursuant to section 19 (3a-bis) of the Italian DPR no. 633/1972);
    2. EU taxable persons do not entitle to deduct VAT paid on purchases and non-deductible VAT must be specified on the basis of objective criteria (pursuant to section 19 (2) and 19 (4) of the Italian DPR no. 633/1972);
    3. Italian taxable persons do not entitle to deduct VAT paid on purchases and non-deductible VAT must be specified under the pro rata arrangement (Italian tax authority, answer to request for advance ruling no. 2 as of 4 January 2021).

     

    10 PERCENT VAT RATE ON INFRASTRUCTURE WORKS

    The 10 percent VAT rate on <<the performance of services based on contracts for works relating to the construction of the infrastructures, plants and buildings specified under no. 127- quinquies>> as provided for under the Italian DPR no. 633/1972, Part III, Table A, no. 127-septies, does not apply to planning services for the infrastructure works pursuant to no. 127-quinquies, unless these services are performed based on a single contract for works including the above works (Italian tax authority, decision no. 53 as of 21 January 2021).

     

    VAT ADJUSTMENT NOTICE

    If a sale and purchase agreement sets forth that the final evaluation of the goods is to be made by a third party/auditor, any contingent VAT adjustment notices - issued pursuant to section 26 of the Italian DPR no. 633/1972 in order to claim higher sums already invoiced than those finally due - do not fall within the agreement reached by and between the parties and, hence, are not subject to the time-limit of one year (Italian tax authority, Principio di diritto no. 1 as of 11 January 2021).

     

    VAT CEILING IN CONTRACTS FOR THE CARRIAGE OF GOODS

    The VAT ceiling rules apply even vis-à-vis non-resident taxable persons established in the UK and directly identified for VAT purposes in Italy, provided that they act as regular exporters (Italian tax authority, answer to request for advance ruling no. 1 as of 4 January 2021).

     

    VAT DEDUCTION

    Financing transactions, and the other transactions specified under section 10 (1-4) of the Italian DPR no. 633/1972, performed by Italian taxable persons vis-à-vis:

    1. non-EU taxable persons, even though not subject to VAT, are deemed as taxable transactions for deduction purposes and, thus, entitle to deduct VAT paid on purchases (pursuant to section 19 (3a-bis) of the Italian DPR no. 633/1972);
    2. EU taxable persons do not entitle to deduct VAT paid on purchases and non-deductible VAT must be specified on the basis of objective criteria (pursuant to section 19 (2) and 19 (4) of the Italian DPR no. 633/1972);
    3. Italian taxable persons do not entitle to deduct VAT paid on purchases and non-deductible VAT must be specified under the pro rata arrangement (Italian tax authority, answer to request for advance ruling no. 2 as of 4 January 2021).

     

    10 PERCENT VAT RATE ON INFRASTRUCTURE WORKS

    The 10 percent VAT rate on <<the performance of services based on contracts for works relating to the construction of the infrastructures, plants and buildings specified under no. 127- quinquies>> as provided for under the Italian DPR no. 633/1972, Part III, Table A, no. 127-septies, does not apply to planning services for the infrastructure works pursuant to no. 127-quinquies, unless these services are performed based on a single contract for works including the above works (Italian tax authority, decision no. 53 as of 21 January 2021).

  • REGISTRATION FEES

    SERVITUDE OVER AGRICULTURAL LAND

    Deeds of servitude rights over agricultural land established in favour of other persons than farmers and professional agricultural entrepreneurs are subject to registration fees at 9 percent (and not at 15 percent as applicable to the transfer of agricultural land) (Italian tax authority, decision no. 4 as of 15 January 2021).

  • DONATION TAX

    The criteria of "automatic" or "tabular" evaluation, as provided for under section 34 (5) of the Italian legislative decree no. 346/1990 (Italian Inheritance and Donation Tax Code - Testo Unico sulle successioni e donazioni) applies even with reference to the value of the share held in a civil partnership (società semplice), that prepares neither a financial statement nor an inventory of the properties other than building land included in the company's assets, and declared at time of donation or inheritance (Italian tax authority, answer to request for advance ruling no. 5 as of 5 January 2021).

  • TAX CREDITS

    TAX CREDIT FOR RENTALS AND LEASES

    The tax credit for rentals of properties other than those used for the purpose of business pursuant to section 28 of the Italian law-decree no. 34/2020 applies even to indemnities paid in the absence of a valid tenancy-at-will agreement (occupazione sine titulo) after termination of the lease agreement (Italian tax authority, answer to request for advance ruling no. 34 as of 11 January 2021).

     

    Yours sincerely,

    HAGER & PARTNERS

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