Italy: Stability Law 2011 (Law No. 220 Dated December 13th 2010) - Main Tax News

Last Updated: 30 August 2011

1 INTRODUCTION

Law no. 220 date December 13th 2010 constitutes the Stability Law 2011 (former known as Financial Bill), effective from January 1st 2011.

The new Stability Law 2011 provides for a limit number of measures, since most relevant ones had already been included in the Legislative Decree no. 78 dated May 31st 2010, converted into the Law no. 122 dated July 7th 2010 (called "collective operation").

This update intends to make an analysis of the most important tax news set by the stability law 2011 while new labor and social security measures will be the object of a separate update.

2 PENALTIES' INCREASES FOR UNSOLICITED REGULARIZATION AND ACCESS TO LITIGATION'S REDUCTION INSTRUMENTS

The law 220/2010 has increased the amount of reduced penalties that have to be applied by the tax payer in case of unsolicited regularization of missed tax's payments and to access to tax litigation's reduction instruments.

2.1 UNSOLICITED REGULARIZATION

In order to regularize potential violation trough the "spontaneous regularization process", the tax payer must apply a reduced penalty as follows:

  • 1/10 (1/12 in the past) of the minimum level, in case of taxes missed or delayed payment, if the regularization is submitted with 30 days;

  • 1/8 (1/12 in the past) of the minimum level, if the regularization of omission or mistake takes place:

  • Within the deadline for submitting the tax return related to the relevant tax period;

  • Or within one year if no periodical return is foreseen for the specific tax or contribution;

  • 1/10 (1/12 in the past) of the minimum penalty foreseen for missed tax return, if this last one is submitted to the relevant Authority with a delay exceed 90 days.

2.1.1 Effective date

New measures for reduced penalties are applied to violations made starting from February 2nd 2011.

To violations made within January 31st 2011, therefore, preceding reduced penalties measures remain valid although the unsolicited regularization is put in place after that date.

I.e.: the unsolicited regularization related to the delayed or missed payment of income tax second prepayment 2010 (due within November 30th 2010) is still subject to "old" reduced penalties, that are 1/10 of the minimum level (3%) and not to 1/8 of the minimum level (3,75%).

2.1.2 Legal interests' increase

The unsolicited regularization for delayed/missed payment implies also the payment of additional interests, calculated at the legal rate.

With relation to this matter, we underline that, starting from January 1st 2011, the legal interest rate has been increased to 1.5%, from 1% enforced until December 31st 2010.

2.2  ADHESION TO TAX AUDITS' RECORDS

Within 30 days from tax audit's records to the tax payer, drafted by auditors at the end of a tax audit process, the tax payer can adhere to records' contents (adhesion must be in full).

In case of adhesion penalties are reduced to 1/6 of the minimum level (1/8 in the past).

Effective date

The new measure for reduced penalties is applied with reference to settable records issued starting from February 1st 2011.

2.3  ADHESION TO TAX CROSS-EXAMINATION INVITATIONS

Before issuing the tax audit record, the Italian Revenue Office (Tax Agency) can notify to the tax payer a cross-examination invitation, aiming for a possible agreed tax audit.

The tax payer can adhere to the invitation's contents, with a penalties' reduction benefit to 1/6 (1/8 in the past) of the minimum level.

Effective date

The new measure for reduced penalties is applied to cross-examination invitations issued starting from February 1st 2011.

2.4 AGREED TAX AUDIT

If the tax payer receives a tax audit's record not preceded by tax cross-examination invitation, the same can submit a request for an agreed tax audit.

The agreed tax audit implies penalties reduction to 1/3 (1/4 in the past) of the minimum level.

Effective date

The new measure for reduced penalties is applied to agreed tax audit issued starting from February 1st 2011.

2.5  ACQUIESCENCE

Alternatively, when admitted, to the submission of an adhesion's request, the tax payer who has received a tax audit record can make full acquiescence to the same.

Acquiescence implies penalties' reduction related to the type of procedure that preceded the tax audit's record. In particular:

  • If the tax audit has been preceded by a tax record or by a tax agreement invitation, reduction is equal to 1/3 (1/4 in the past) of penalties applied;

  • If the tax audit hasn't been preceded by the above mentioned instruments, reduction will be equal to 1/6 (1/8 in the past) of the applied penalties.

Effective date

The new measure for reduced penalties is applied with reference to settable records issued starting from February 1st 2011.

2.6  TAX PENALTIES' FAVOURED AGREEMENT

When a tax payer receives a tax audit record or for penalties claim, penalties can be agreed with the Tax Authority.

Agreement implies penalties' reduction to 1/3 (1/4 in the past) of the applied ones.

Effective date

The new measure for reduced penalties is applied with reference to settable records issued starting from February 1st 2011.

2.7  JUDICIAL AGREEMENT

If the tax payer appeals to the Tax Court for any measure issued by Financial Authorities, it can meet a preemptive judicial agreement with the same Authority.

The agreement implies a 40% reduction (1/3 in the past) of those penalties applicable according to the amounts included in the agreement itself.

Effective date

The new measure for reduced penalties is applied with reference to settable records issued starting from February 1st 2011

2.8  PRE-AUDIT WARNINGS' DEFINITION

We'd like to bring to your attention that Law no. 220/2010 hasn't changed the amount of reduced penalties due for the so called "pre-audit warnings" definition.

Therefore the same reduction is fixed at:

  • 1/3 for warnings related to returns' automatic control;

  • 2/3 for warnings related to returns' formal control.

3  NEWS FOR REAL ESTATE LEASING CONTRACTS

Some news have been introduced for real estate leasing contracts, concerning:

  • Taxation applicable to the leasing agreement;

  • Taxation applicable to the purchasing agreement signed by the leasing company;

  • Taxation applicable to the purchase's option exercise by the user;

  • Substitutive taxation applicable to leasing contracts in due course at January 1st 2011.

3.1 LEASING CONTRACT

Starting from January 1st 2011 the leasing contract is subject to registration just in case of "use".

This implies that staring form January 1st 2011 is not mandatory to register leasing contracts within the usual 30 days and therefore register taxation will not become immediately applicable.

Register tax's payments from January 1st 2011 becomes mandatory just if:

  • The contract is voluntary registered by parties;

  • The so called "use" is configured (the leasing contract is deposited in any judicial office to be acquired by the Administrative Authority under a particular law or rule).

3.2 PURCAHSING AGREEMENTS FOR PROPERTIES TO BE LEASED

Contracts signed from January 1st 2011 with whom the leasing company purchases the property to be leased (homebuilding or instrumental), are subject to indirect taxes.

Therefor on those purchases, in addition to the ordinary registration and VAT taxes (nothing has changed) will be due:

  • Mortgage tax 3% (or 2% in case the seller is an individual – NOT VAT subject - )

  • Cadastral tax 1%.

Hence, starting from January 1st 2011, the reduction (50%) applicable under Legislative Decree no. 223/2006 is no more valid for instrumental building purchases, with the sole exemption related to closed real estate investment funds.

In case of homebuilding's purchase, in addition to register tax and VAT, the following taxes are applicable:

  • Mortgage tax 2% (in case the sale & purchase agreement is subject to VAT, mortgage taxi s applied with a fixed amount);

  • Cadastral tax 1% (in case the sale & purchase agreement is subject to VAT, mortgage taxi s applied with a fixed amount).

Nothing has changed for homebuildings' taxation.

Tax payments' liability

The Law no. 220/2010 has stated that the leased building's user is liable together with the owner (leasing company) for register, mortgage and cadastral taxes payments, also when the building is still not built or is under construction.

Therefore register, mortgage and cadastral taxes due for building's purchase can be required also to the user although it is a third part with respect of the building's purchasing agreement.

3.3  PROPERTY'S REDEMPTION

If at the end of the leasing period, the user decides to buy the property, becoming the new owner, starting from January 1st 2011, register, mortgage and cadastral taxes are due for a fixed amount.

Therefore in case of leasing contract taxes on property's exchanges are due:

  • For the entire amount by the leasing company at purchasing;

  • For a fixed amount when the property is bought by the user.

3.4  AGREEMENTS IN PLACE PER JANUARY 1ST 2011

All real estate leasing contracts in place per January 1st 2011 are subject to a substitutive tax of mortgage and cadastral taxes payable in just one installment within March 31st 2011.

Payment's rules will be set by a subsequent measure of the Italian Tax Agency.

The substitutive taxi s calculated applying to mortgage and cadastral taxes applicable under the previous discipline a 4% reduction for each of the agreement's remaining year.

Example

Leasing contract of 10 years signed in 2007 for a building purchased by the leasing company at € 500,000.00

At redemption's date under the former rules:

  • Mortgage and cadastral taxes were applicable for a total of 2%, therefore equal to € 10,000.00

  • To this amount the register tax paid until December 31st 2010 had to be deducted (supposing € 8,000.00): therefore € 8,000.00.

Under the new rules the substitutive taxes due within March 31st 2011 will be: € 8,000.00 - (6 years x 4% of € 8,000.00) = € 6,080.00.

4  VAT ON HOME-BULDINGS SOLD BY BUILDERS OR RENOVATORS

The time limit starting from work's end, leaved to builders or renovators to sell home properties applying VAT has been increased from 4 to 5.

Effective date

The new time limit is effective starting from January 1st 2011.

Therefore the new time limit is applicable to sales and purchases incurred from that date even if the old limit (4 years) was expired per December 31st 2010.

4.1  HOME BUILDINGS RENTED UNDER A CONVENTIONAL PROGRAM

VAT is applied also to sales and purchases of homebuildings made by builders and renovators after the 5 years time-limit, provided that within 4 years from building or operations' end the same building has been rented:

  • For a period not lower than 4 years;

  • Under a conventional residential program.

The increase from 4 to 5 years, foreseen by Law no. 220/2010, doesn't concern the minimum period for conventional renting, actually equal to 4 years.

4.2 INSTRUMENTAL BUILDINGS

The 4 year time-limit (from works' end) allowed to builders and renovators to invoice instrumental buildings applying VAT, hasn't changed.

The different time-limit foreseen with respect of the building's type (instrumental or homebuilding) hasn't any substantial effect, since, a part from the other chances where the instrumental building is in any case taxable, the seller has the chance to choose, in the SPA agreement, for VAT taxation. In this case VAT will be paid by the purchaser trough the reverse-charge principle.

5 TAX CREDIT FOR R&D EXPENSES

The tax credit, already available in the past, for companies investing in Research and Development has been reintroduced with significant modifications.

In particular the relief is recognized in percentage to investments made by:

  • Companies entrusting R&D activity to Universities and Public Research entities;

  • In the period starting from January 1st 2011 to December 31st 2011.

5.1 SUBJECTS

Making the law a generic reference to "enterprises", the tax relief seems to be addressed to all subject having "enterprise's incomes".

Nevertheless a separate Ministry Decree is expected for a better specification.

5.2 R&D ACTIVITIES

Are admitted to the tax relief only those R&D activities ordered by enterprises to Universities or Public Research Entities.

Consequently, with difference from the measure enforced in the past, R&D activity made directly by the enterprise (internal research) is excluded.

Nevertheless a separate Ministry Decree is expected for a better specification on admitted activities.

5.3 TAX CREDIT

The relief consists of a tax credit measured on R&D expenses suffered by enterprises under agreements signed with Universities or Public Research Entities during the relevant period.

The percentage of the tax credit will be set by a separate Ministry's Decree.

5.4  TAX CREDIT'S FISCAL REGIMEN

The said tax credit:

  • Do NOT concur to taxable income (personal or corporate), neither for regional tax (IRAP);

  • Do NOT concur to negative interests and general expenses indeductibility pro-rata;

  • Must be indicated in the income tax return.

5.5 TAX CREDIT USE

The above mentioned tax credit can be used exclusively for compensating tax debts in the F24 form.

Nevertheless a separate Ministry Decree is expected for a better specification on tax credit use in order to respect the maximum compensation's limit set 100 Ml euro.

To this regard, we underline that, being provided a maximum amount for available resources:

  • The tax relief will not be automatic but will presumably subject to a specific application to be submitted to the Italian Tax Agency;

  • In order to avoid any claim from tax payers connected to the procedure known as "click-day", a proportional share of available resources among applicants could be foreseen.

6  NEW EXTENSION FOR 55% TAX ALLOWANCE ON PERSONAL AND CORPORATE INCOME TAX (IRPEF/IRES)

The tax allowance (on personal and corporate income tax – IRPEF and IRES) equal to 55% of expenses suffered on home and corporate buildings for energy requalification can be applied also to those expenses:

  • Paid by individuals with the specific bank transfer's form in 2011;

  • Referable to the tax year per December 31st 2011, for corporate tax payers, with renovations works pertaining the same financial year.

All the others rules related to this tax allowance haven't been changed excepting the number of installments to be divided in.

Installments

For expenses suffered (and paid) in 2011 or referable to the financial year per December 31st 2011, the 55% allowance can be divided into 10 annual equal installments (5 in the past).

7  TRANSPORTATION TAX RELIEFS' EXTENSION

With reference to transports sector the following tax reliefs have been confirmed and extended:

  • The forfeit expenses' deduction for transport's expenses suffered by the individual entrepreneur in the same city where the enterprise has its legal address;

  • A tax credit equal to a percentage of the property tax for specific vehicles;

  • A tax credit for personnel's update and education investments;

  • Compensation's availability for healthcare tax paid on vehicles;

  • Working injury insurance (INAIL) payments reduction;

  • Motorways' tolls reduction.

The above mentioned measures will be defined with:

  • Subsequent Ministry Decrees;

  • Within the maximum expense limit of 124 Ml euro.

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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