NEWSLETTER NO. 7 - 2021

NON-DOMICILED RESIDENT

As it is known, those becoming resident in Italy may opt for a substitute tax on foreign income.

These rules may apply to capital gains earned from the sale for consideration of holdings in foreign companies or securities not representing an ownership interest, provided that such assets are not held in a deposit account with an Italian intermediary.

However, the income continues to be deemed foreign sourced, if one of the following agreements is executed:

• an agreement on the provision of individual portfolio management services with an Italian intermediary, whereby the Italian intermediary is given a discretionary management mandate for the financial assets deposited abroad;
• a financial asset management agreement (including management agreements without registration by Italian trust companies), whereby the Italian intermediary manages the assets deposited abroad and executes client orders, without any discretionary power;
• a financial consulting agreement, whereby the Italian intermediary offers financial consultancy and investment monitoring services, without being authorized to directly move the assets (Italian tax authority, decision no. 12 of 18 February 2021).

TAX DEDUCTION FOR EARTHQUAKE-RESISTANT CONSTRUCTIONS - PURCHASES

The tax deduction for earthquake-resistant constructions relating to purchases of buildings that are demolished and re-built in order to reduce the seismic hazard, as provided for under section 16 (1-septies) of the Italian law-decree no. 63/2013, is granted even to companies, but limited to 75 percent/85 percent. Indeed, holders of business income are excluded from the 110 percent superbonus. In any case, the tax benefit is granted provided that works are concluded and notary deeds executed before 31 December 2021.

If the purchaser also intends to benefit from the energy saving tax incentive pursuant to section 14 of the Italian law-decree 63/2013, the expenses relating solely to the works that allow to achieve a higher energy efficiency class must be recorded separately from those that allow to reduce the seismic hazard by at least due classes. If not, the general rule according to which it is not allowed to benefit from two tax incentives for one and the same expense would not be complied with (Italian tax authority, answer to request for advance ruling no. 70 of 2 February 2021).

The tax deduction for earthquake-resistant constructions relating to purchasers of properties that are demolished and rebuilt in order to reduce the seismic hazard, as provided for under section 16 (1-septies) of the Italian law-decree 63/2013, is granted even if the new construction exceeds the area of ground covered by the demolished building (Italian tax authority, answer to advance ruling no. 71 of 2 February 2021).

The above tax deduction for earthquake-resistant constructions is granted even if an existing building is owned by two property construction companies that, subsequently, intend

• to divide the area on which the building stood into two parts,
• to acquire each the exclusive ownership of one of the areas,
• to build two new buildings separately (Italian tax authority, answer to request for advance ruling no. 82 of 3 February 2021).

CAPITALIZATION TAX CREDIT

The tax credit under section 24 of the Italian law-decree 34/2020 aimed at encouraging the capitalisation of businesses incorporated as corporations is not precluded if a partnership is transformed into a corporation before the capital increase required to benefit from the tax incentive is made. Even if a partnership is transformed into a corporation for the purpose to benefit from such tax incentive, the adoption of the legal form of a corporation is not contrary to the rational of the provision, which indeed is to encourage the capitalisation of businesses (Italian tax authority, answer to request for advance ruling no. 74 of 2 February 2021).

INDUSTRY 4.0 INVESTMENT TAX INCENTIVES

An agricultural company producing and trading products that purchases a photovoltaic plant used for its purpose of business may benefit both from a capital contribution and from the industry 4.0 investment tax credit, as provided for under section 1 (185-197) of the Italian law no. 160/2019, limited to the amount of costs actually incurred (Italian tax authority, answer to request for advance ruling no. 75 of 2 February 2021).

EXEMPTION FROM WITHHOLDING TAX ON INTEREST RECEIVED FROM MEDIUM-TERM AND LONG-TERM FINANCING GRANTED BY CERTAIN FOREIGN ENTITIES

The withholding tax exemption on interest received from medium-term and long-term financing granted by certain foreign entities, as provided for under section 26 (5-bis) of the Italian DPR no. 600/1973, does not apply to beneficiaries of interest that <<are not “also” the direct recipients of such interest>> (Italian tax authority, answer to request for advance ruling no. 125 of 24 February 2021).

MEAL ALLOWANCES FOR SMART WORKING EMPLOYEES

Meal allowances in the form of meal vouchers granted to smart working employees do not add to taxable income from employment, as provided for under section 51 (2c) of the Italian Tax Code (TUIR). Hence, the employer must not withhold tax on paper meal vouchers of up to EUR 4 (or electronic meal vouchers of up to EUR 8) to which smart working employees are entitled to (Italian tax authority, answer to request for advance ruling no. 123 of 22 February 2021).

TAX CREDIT FOR RENTAL LEASES OF NON-RESIDENTIAL PROPERTY

The tax credit under section 28 of the Italian law-decree no. 34/2020 is due even for the share of "compensation" attributable to March, April, May and June 2020 paid for the occupation of a non-residential property without authorization (in the absence of a valid concession agreement) after termination of the concession agreement (Italian tax authority, answer to request for advance ruling no. 120 of 18 February 2021).

REVALUATION OF BUSINESS ASSETS

As provided for under section 110 of the Italian law-decree 104/2020, business assets may be revalued even separately (whereas previously, except for intangible assets, it was necessary to group them into specific categories). In the event of revaluation of a property, including the underlying or appurtenant land, the land and the building may still be revalued separately, just like in the past, when it was assumed that land and buildings belonged to two different specific categories.

The Italian tax authority has always evidenced that in the event of revaluation through

• concomitant increase of the historical cost and of (accumulated) depreciations or through
• the increase of the historical cost only,

the cost of purchase after revaluation may not exceed the asset's cost of replacement. Such cost refers to the cost of purchase of a new asset of the same kind or to the current value of the asset, increased by the cost to be incurred in order to regain its original functionality.

Finally, each single asset may be re-valued "also" for tax purposes. However, such choice can be made for the entire amount of revaluation only, since a partial recording of higher amounts in the balance sheet is not possible (ASSONIME, newsletter no. 6 of 5 March 2021).

DOWNWARD ADJUSTMENTS

In the event of contracts for services to be performed permanently or recurrently that provide for termination as a result of the customer's default, the prerequisite for a downward adjustment is contract termination or an actual breakdown in the contractual relationship and in the supply which gives rise to the subsequent notice to the defaulting customer.

If supply is broken down in 2019, the downward adjustment notice must be issued no later than 30 June 2020, i. e. the regular deadline for tax return filings. Once the downward adjustment notice is issued without any delay, the tax deducted is taken into account, when periodic VAT is settled or when the relevant annual VAT tax return is filed at the latest (i.e. in this case, the 2021 VAT tax return relating to the 2020 tax period) (Italian tax authority, answer to request for advance ruling no. 119 of 1 February 2021).

BENEFICIAL OWNERS OF COMPANIES AND TRUSTS TO BE REPORTED TO THE COMPANIES REGISTER, UNLESS A FURTHER POSTPONEMENT IS GRANTED BY 15 MARCH 2021

The set-up of a Register of beneficial owners, as provided for under the Italian anti-money laundering provisions since 2017, could become a reality as of next month.

Indeed, the expiry of the deadline for the first reporting of data and information on beneficial owners of companies with legal personality, private legal persons, trusts that produce legal effects relevant for tax purposes and legal arrangements similar to trusts by directors to the companies register is approaching.

Data submission would need to occur by 15 March 2021, but so far the implementing decree by the Italian Ministry of Economy and Finance and the Italian Ministry for Economic Development (MEF-MiSE) has not been issued yet, despite favourable opinion by the Italian Data Protection Authority. The draft decree by the Italian Ministry of Economy and Finance regulates how to access and to store data contained in the Registry of Beneficial Owners.

• The first reporting must occur by 15 March 2021.
• All entities incorporated after such date must provide for reporting within 30 days from incorporation.
• Any contingent amendments must be reported within 30 days.

In order to comply with the above deadline, the Italian government must issue the final decree as soon as possible. Otherwise, the deadline will be inevitably further postponed.

Yours sincerely,

HAGER & PARTNERS