NEWSLETTER N. 9 - 2021

  • DIRECT TAXES

    DIGITAL SERVICES TAX

    The Italian tax authority provides clarifications on the digital services tax pursuant to section 1 (35-50) of Law 145/2018 and, more specifically, on the procedures for verifying the threshold exceedances, the concept of group, the digital services subject to tax and the excluded services, the calculation methods of the taxable base and the geolocation methods for the purposes of determining the taxable income. Moreover, the taxpayers' obligations are outlined, with particular regard to the identification, bookkeeping, payment, reporting and request for reimbursement (Italian tax authority, newsletter no. 3 as of 23 March 2021).

     

    USE OF TAX LOSSES AND NID EXCESS UNDER THE TAX CONSOLIDATION SCHEME

    Under the tax consolidation scheme, in case of tax credits, previous year's losses and NID excess first the tax credits, then the tax losses and only subsequently the NID excess shall be taken into account; any NID excess not transferred to the group because of a "shortfall" may be transferred to the consolidated company in the following tax periods (Italian tax authority, principio di diritto no. 7 as of 23 March 2021).

     

    TAX LOSSES AND NID EXCESS ALLOCATION UNDER THE DEMERGER SCHEME

    In the event of a demerger, tax losses shall be allocated between the involved companies in proportion to the book net equity pursuant to section 173(4) of Italian Tax Code (TUIR). Hence, tax losses shall not be analytically attributed to the company to which, following the demerger, the business branch that had produced tax losses has been assigned.

    Moreover, in the event of a demerger, also the NID excess shall be allocated between the demerged company and the beneficiary company in proportion to the book net equity remaining in the former and transferred to the latter respectively (Italian tax authority, answer to request for advance ruling no. 129 as of 2 March 2021).

     

    WITHHOLDING TAX ON DIVIDENDS

    The withholding tax exemption on dividend payments between subsidiaries provided for by the Bilateral Agreement between the EU and Switzerland shall apply also to Swiss holdings which, as of 1 January 2020, are no longer subject to favorable tax schemes but are subject to federal, cantonal and municipal taxes instead (Italian tax authority, answer to request for advance ruling no. 135 as of 2 March 2021).

     

    PROPERTY MANAGEMENT INCOME SECURITISATION COMPANY

    For "immovables and registered movables securitisation companies" pursuant to law 130/1990:

    1. any tax period differences connected with temporary misalignments between the cash flows of the securitised assets (i.e. any sums deriving from their assets and rights) and the income payments to subscribers do not add to the taxable base for Italian corporate tax (IRES) purposes;
    2. however, any income from the management of the portfolio of remaining assets and rights after all creditors of the segregated assets have been paid off adds to the taxable base for Italian corporate tax (IRES) purposes pursuant to section 83 of Italian Tax Code (TUIR).

    For the purposes of Italian regional tax on productive activities (IRAP):

    • any differences pursuant to point (a) above do not add to the net production value as they are not recorded in the profit and loss account;
    • however, any income pursuant to point (b) above adds to the net production value, insofar as it is available to the special purpose vehicle and recorded in the profit and loss account under the relevant item for IRAP purposes (Italian tax authority, answer to request for advance ruling no. 132 as of 2 March 2021).

    As far as the taxation of interests and other income from securities issued in the course of securitisation transaction is concerned, the provisions pursuant to Italian legislative decree 239/1996 shall apply.

     

    RETIREMENT PENSION SUPPLEMENTS PROVIDED BY A GERMAN PENSION FUND IN FAVOUR OF AN ITALIAN TAX RESIDENT

    Retirement pension supplements provided by a German pension fund in favour of an Italian tax resident are subject to taxation in Italy according to the laws of Italy and to the Double Taxation Agreement between Italy and Germany (Italian tax authority, answer to request for advance ruling no. 137 as of 2 March 2021).

     

    IMAGE RIGHTS

    The rights of worldwide use and economic exploitation of an artist's image rights in relation to the performance of an actor in a film shot in Italy are subject to taxation in Italy.

    In this case, the place where economic exploitation of the image right takes place is irrelevant (Italian tax authority, answer to request for advance ruling no. 139 as of 3 March 2021).

     

    DIFFERENCES FROM SHAREHOLDER WITHDRAWAL

    The sums paid by the company to the shareholder in case of withdrawal (in exchange for the recognition of any higher economic value of the company upon dissolution of the relationship with the company compared to the book values of the assets) are deductible for the company in the fiscal year in which the shareholder withdraws (Italian tax authority, answer to request for advance ruling no. 156 as of 5 March 2021).

     

    FREE REVALUATION OF BUSINESS ASSETS

    The free revaluation of hotel business assets pursuant to section 6-bis of Italian Decree Law 23/2020 also applies to company which granted the business branch for lease, if the parties have agreed that the lessor continues calculating the amortisation (Italian tax authority, answer to request for advance ruling no. 200 as of 23 March 2021).

     

    INCOME FROM EMPLOYMENT RECEIVED FURTHER TO A JUDGEMENT

    The indemnity paid additionally or alternatively in order to compensate the lack of income shall be subject to taxation (so-called loss of profit).

    However, the compensation paid to indemnify the employee for the losses actually suffered (so-called actual loss) shall not be subject to taxation since in this case the compensatory aspect of the damage suffered by the injured person is relevant and there is no substitute or supplementary function of any remuneration.

    According to the above principles, the sums paid further to a Court judgement in order to "compensate the plaintiff for the damages suffered" shall be taxable, if they are calculated on the basis of the legal and economic remuneration provided for by the Italian collective agreement and, hence, do not aim at compensating for an actual loss, even if they are estimated on an equitable basis (Italian tax authority, answer to request for advance ruling no. 222 as of 29 March 2021).

     

    "DISCOUNT CARD" FOR EMPLOYEES

    The card granted to employees for the purchase of the company's products at a price corresponding to the normal value net of any discounts is not relevant for tax purposes and does not add to the taxable income of the employee (Italian tax authority, answer to request for advance ruling no. 221 as of 29 March 2021).

  • VAT

    VAT SCHEME FOR COVID-19 SUBSIDIES

    The operating subsidies granted by the Regions and Autonomous Provinces pursuant to section 1 (200) of Italian Legislative Decree no. 34/2020 to public local and regional passenger transport operators subject to public service obligations as compensation for the loss of income are not subject to VAT (Italian tax authority, decision no. 22 as of 31 March 2021).

     

    SETTLEMENT AGREEMENT

    The waiver of the position of beneficiary of a foundation in favour of a third party under a settlement agreement constitutes an obligation subject to VAT  (Italian tax authority, answer to request for advance ruling no. 130 as of 2 March 2021).

    Assuming the obligation to waive pending disputes under a settlement agreement constitutes a supply of services subject to VAT (Italian tax authority, answer to request for advance ruling no. 145 as of 3 March 2021).

     

    EMMISSION ALLOWANCES UNDER A TOLLING AGREEMENT

    The emission allowances provided by the Toller that the Tollee agrees to cancel in accordance with sectoral legislaion:

    • represents a supply of services and
    • adds to the consideration in kind due to the Tollee for transforming fuel into electricity (in addition to the monetary consideration represented by the tolling fee).

    Hence, between the Toller and the Tollee an exchange occurs, where:

    • the Toller shall issue an invoice under the reverse charge scheme to the Tollee for the transfer of the emmission allowances;
    • the Tollee shall issue an invoice subject to VAT to the Toller for the tolling service remunerated in kind.

    In terms of determining the taxable base of the above operation in kind, consisting in the transfer of emmission allowances, the normal value of the emmission allowances shall be determined to an extent corresponding to the value of the emission allowances that may be purchased on the market 20 days prior to 20 April of each year (Italian tax authority, answer to request for advance ruling no. 133 as of 2 March 2021).

     

    PROOF OF INTRA-COMMUNITY TRANSPORT

    The Italian tax authority provides clarification on the proof of transport for the purposes of intra-Community supplies and confirms that in all cases in which the presumption pursuant to section 45-bis of EU Regulation is not applicable, the Italian practice adopted also prior to the entry into force of said section regarding proof of the intra-Community transport of goods shall continue to apply (Italian tax authority, answer to request for advance ruling no. 141 as of 3 March 2021).

     

    RELATIONS BETWEEN PARENT COMPANY AND PERMANENT ESTABLISHMENT WITHIN A VAT GROUP

    Transactions (such as transfers of goods and/or supply of services) carried out between a parent company and a permanent establishment ("from parent company to PE" and "from PE to parent company" respectively) is relevant for VAT purposes if one of the entities is a member of a VAT group. This is due to the fact that being a member of a VAT group leads to the dissolution of the (legal) unity and the (economic) dependence between the PE and its parent company. Hence, services are no longer considered to be rendered for the PE under the tax neutrality scheme, but rather for the VAT group, which represents an autonomous and separate entity subject to VAT (Italian tax authority, answer to ruling application no. 243 as of 3 March 2021).

     

    VAT CEILING

    Non-resident taxpayers who are identified for VAT purposes in Italy and carry out intra-community supplies from Italy to other EU countries may apply the VAT scheme applicable to regular exporters and therefore purchase goods and make use of services without paying VAT within the limits of the so-called VAT ceiling.

     

    TRANSFER OF SINGLE ASSETS

    A transfer carried out by a bank:

    • regarding loans and relevant hedging derivatives, derivative contracts with customers and relevant hedging derivatives, and a share,
    • without there being transferred any employment, project or collaboration agreement, neither any advisory, works or similar agreement, neither any rights to use or compulsory rights concerning any kind of tangible or intangible asset,

    does not constitute a business branch transfer, but rather a transfer of several single assets which are hence subject to VAT.

     

    INVOICING OF RECEIVABLES SUBJECT TO TRANSFER

    Example:

    • Company ALFA provided services to company BETA,
    • company ALFA assigns the receivables to a third party before collecting consideration from company BETA.

    The assignment of receivables does not go hand in hand with the payment of the consideration. Hence, ALFA does not have to issue an invoice.

    ALFA shall issue an invoice for the services provided only upon payment of the consideration to the third-party purchaser of the receivables by BETA. Thus, BETA shall inform ALFA about the date of execution of the payment carried out in favour of the third-party purchaser (Italian tax authority, answer to ruling application no. 163 as of 8 March 2021)

     

    COSTS BORNE WIT RESPECT TO THIRD-PARTY ASSETS

    For VAT purposes, the relatedness of certain costs does not necessarily require a "direct and immediate link" to one ore more taxable transactions, but it shall rather present a direct and immediate link to the "economic activities of the taxpayer as a whole". Hence, the right to deduct might also apply to costs borne for works carried out with respect to third-party assets, if provided by branch-specific regulations (Italian tax authority, answer to ruling application no. 219 as of 26 March 2021).

  • TAX CREDITS

    AGGREGATION OF AMOUNTS

    Tax credit regarding investments 4.0 pursuant to Law 160/2019 section 185 et seq. and tax credit for earthquake-resistant constructions in central Italy pursuant to Law 208/2015 section 98 et seq. may be aggregated if such aggregation does exceed the limit of the investment costs (Italian tax authority, answer to ruling application no. 157 as of 5 March 2021).

     

    ASSIGNMENT OF TAX CREDITS FOR EARTHQUAKE-RESISTANT AND ENERGY-SAVING CONSTRUCTIONS WITHIN GROUP TAXATION

    Tax credits for earthquake-resistant and energy-saving constructions may be assigned to and utilised within group taxation and set off against the Italian Corporate tax due by the group without limitations pursuant to Law 388/2000 (Italian tax authority, answer to ruling application no. 133 as of 2 March 2021).

  • TAX ASSESSMENT

    MULTI-YEAR INCOME COMPONENTS

    In case of an objection regarding a multi-year income component (such as goodwill) for reasons concerning the chargeable event and its constitutive prerequisite, the expiry of Italian tax authority's tax assessment time-limits shall be verified with regard to the tax return in which the single multi-year component is recorded (i.e. goodwill depreciation), and not with regard to the tax return for the tax period in which that component accrued or was recorded for the first time in the financial statements (Italian Supreme Court, ruling no. 8500 as of 25 March 2021).

     

     

    Yours sincerely,

    HAGER & PARTNERS

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