Italy: The Tax Regimen For Corporate Gifts - Income Tax, Regional Tax (IRAP) And VAT

Last Updated: 20 December 2011
Article by Batini Colombo Saottinis' Tax Team

The Tax Regimen For Corporate Gifts - Income Tax, Regional Tax (Irap) And Vat

SUMMARY

1 Introduction

2 Income Tax and Local Tax (IRAP)

2.1 Corporate gifts to Clients

2.2 Corporate gifts to employees

2.3 IRAP (Regional Tax)

2.3.1 Gifts to Clients

2.3.2 Gifts to employees

2.4 Artists and Professionals

2.4.1 Gifts to Clients

2.4.2 Gifts to employees

3 VAT

3.1 Gifts of goods produced by the enterpri

3.1.1 Coveyance's documentation

3.1.2 Free samples

3.2 Gifts of goods not produced by the enterprise

3.3 Gifts to employees

4 Gifts made by "purchase's vouchers"

1 INTRODUCTION

The awareness of gifts by enterprises and professionals represents an usual habit, particularly under festivities and anniversaries.

Here below we summarize the most important aspects of the tax regimen of those transfers within the area of income, regional taxes and VAT.

2 INCOME AND REGIONAL TAXES

Costs suffered for gifts' distribution can assume a different income nature if goods are delivered to:

  • clients;
  • employees or workers assimilated to employees.

2.1 GIFTS TO EMPLOYEES

In general, costs suffered for gifts delivered to clients are deductible:

  • entirely, if the unitary value of gifted goods addressed to a single subject doesn't exceed Euro 50,00 (limit increased by the Financial Law for 2008 starting from the fiscal year following the one ending on December 31st 2007; until that date the limit was fixed at Euro 25,82).
  • within the year in which costs are suffered under the limits foreseen by the Ministry Decree dated November 19th 2008, if the value of the gift exceed Euro 50,00 or substitutive vouchers are distributed (since they are considered representation expenses).

In order to determine the "unitary value" of the delivered gift, the following rules must be respected:

  • the gift must be evaluated in its whole (i.e. Christmas Box), and not with reference to single items included in the gift;
  • the purchasing cost includes accessorize costs (transportations, un-deductible VAT, etc.).

In particular, considering that VAT is not deductible just for gifts with a unitary value exceeding Euro 25,82, the amount paid for gifts is totally deductible only if the amount taxable for VAT is:

  • 48,08 euro, if VAT rate is 4%;
  • 45,45 euro, if VAT rate is 10%;
  • 41,67 euro, if VAT rate is 20%;
  • 41,32 euro, if VAT rate is 21%.

2.2 GIFTS TO EMPLOYEES

In general, the cost suffered by the employer to purchase goods to be gifted to employees is deductible from corporate income according to the rules applicable to employment's costs.

2.3 REGIONAL TAX (IRAP)

The financial law for year 2008 has repealed the rule under which revenues and costs that concur to form the Regional Taxable Income have to be considered adding or subtracting taxable income or non deductible costs has happens for income taxes.

Although the Tax Authority has several times clarified that the general principle to be considered is the absolute connection with corporate activity (really difficult to demonstrate for all types of gifts).

2.3.1 Gifts to Clients

With reference to the calculation of taxable income for Regional Tax (IRAP) for Share Capital Companies, corporate gifts are deductible for the amount accrued in the P&L.

While for Unlimited Liability Companies and individual entrepreneurs, corporate gifts are not deductible for Regional Tax (IRAP). According to Tax Return's form instructions, the nondeductibility is limited to gifts' values exceeding Euro 50,00.

2.3.2 Gifts to employees

With reference to the calculation of taxable income of Regional Tax (IRAP) for Share Capital Companies, corporate gifts are:

  • deductible, if are functional to the corporate activity and are don't have a remunerative nature for the employee;
  • non-deductible, if they are included in employment expenses ad are salary for the employee.

For Unlimited Liability Companies gifts to employees are non-deductible for Regional Tax (IRAP).

2.4 ARTISTS AND PROFESSIONALS

2.4.1 Gifts to Clients

They are deductible as representation costs within the limit of 1% of revenues generated during the fiscal year. The same treatment is applicable for Regional Tax (IRAP).

2.4.2 Gifts to employees

The cost suffered by professionals for gifts to be delivered to employees is not specifically ruled.

These costs should be totally deductible as all other expenses related to employees suffered by the professional, since they can't be classified as representation expenses under the definition provided by the Ministry Decree dated November 19th 2008 (applicable even to self-employment income).

For Regional Tax those costs are non-deductible costs, as all other employment expenses, saved the case when those gifts become taxable income for the employee.

3 VAT

The free exchange of goods delivered to Clients follows the general rules provided by VAT law, with the exemption of those goods not produced directly by the enterprise, without regards to its previous deduction, that depends on the unitary cost of goods gifted (over or under Euro 25,82).

3.1 GOODS PRODUCED BY THE ENTERPRISE

Purchases of goods intended to be gifted, produced directly by the enterprise, are not considered representation's expenses. Therefore VAT paid to the supplier is entirely deductible.

In order to determine the taxable amount, the value to be considered is the purchase's price and not the market value.

3.1.1 Conveyance's documentation

VAT payment's requirement to the gifted subject is not compulsory for gifts.

If no compensation is applied, the exchange can be certified alternatively:

  • issuing a self invoice, including the purchase price, the VAT rate applicable, the VAT charged and specifying that it is a "self-invoice for corporate gifts". This document, that must be entered in VAT Book, can be issued once a month for all gifts delivered or one for each gift.
  • Recording all gifts in a specific "Gifts Book" all purchases' prices of goods gifted, for every single day and divided according to the applicable VAT rate.

VAT not charged to the gifted subject is not deductible from corporate income tax.

3.1.2 Free samples

Free samples' sales are VAT exempted if they are:

  • Of a non relevant value;
  • Duly and permanent countersigned;
  • Gifted to promote the good and in order to improve their knowledge among consumers, present and potential.

3.2 GOODS NOT PRODUCED BY THE ENTERPRISE

Goods purchased and not directly produced or commercialized by the enterprise and gifted, are always considered representation expenses, despite the unitary cost of the same.

Their donation is always considered VAT exempted. VAT on representation expenses, instead, is deductible only if their unitary cost is not higher than Euro 25,82.

Therefore VAT on those purchases is:

  • deductible, if the unitary cost of the good gifted is not higher than Euro 25,82;
  • not deductible if the unitary cost of the good gifted is higher than Euro 25,82.

3.3 GIFTS TO EMPLOYEES

Goods purchased to be gifted to employees, are always considered not pertaining the corporate business and can't neither been qualified as representation expenses; therefore the connected VAT is never deductible, while their gift is VAT exempted.

If gifts are represented by goods produced or commercialized by the enterprise, VAT is deductible and their gift is VAT taxable.

4 GIFTS MADE BY PURCHASE VOUCHERS

It is a consolidated habit to gift the so called "purchase vouchers", that allow to purchase goods and services in affiliated shops and providers.

The Italian Tax Agency has analysed this matter only regarding VAT aspects, without giving any clarification on their direct taxation treatment. We can consider the case where a company organizes, for its Clients, a supplying service of goods or services issuing vouchers that can be used only in affiliated shops by vouchers' owners.

The operation can be divided into four different relationships:

  • relationship between the issuing company and affiliated shops, ruled by a supplying agreement, with whom the affiliate grants the supplying of specific goods and/or services;
  • relationship between the issuing company and Client company, characterized by the sale of vouchers for a certain price including VAT;
  • relationship between the Client company and the final user, characterised by the free distribution of vouchers to final
  • beneficiaries, who can use the same among the affiliated net of providers;
  • relationship between the final users and affiliates, characterised by the delivery of those vouchers to obtain the good or service chosen.

According to the Italian Tax Agency, vouchers can't be considered as titles representing goods, but documents legitimating subjects that allow the identification of subjects entitled to purchase the good or the service.

The above mentioned qualification of vouchers as simple legitimating documents implies the exemption from VAT of relationships between:

  • the issuing company and affiliated shops;
  • the issuing company and the Client company;
  • the Client company and the final user.

In all three relationships, in fact, vouchers' circulation doesn't form a goods' or services' exchange, but just a mere financial movement.

On the contrary the relationship between the affiliated shops and the final users, even if the price paid is partially all whole absorbed by the vouchers' value, is always VAT taxable.

Therefore the affiliated shops has to deliver an invoice or a fiscal receipt charging VAT on the entire price of the good or the service, even if partially or totally paid with a voucher.

Direct taxation treatment

On the other hand vouchers' direct taxation is still not clear.

In case their qualification as simple legitimating documents operate also for income taxes, vouchers' purchasing cost seems to be not deductible, since they are not included in the definition of representation costs under the Ministry Decree dated November 19th 2008.

If, otherwise, they could be represent the purchased good, no doubts should rise about their deductibility.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
Batini Colombo Saottinis' Tax Team
 
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