Answer ... The Italian tax system provides a general anti-abuse regime (‘abuse of law’), also applicable to corporate taxpayers, which was initially developed by the jurisprudence but is currently regulated by specific provisions of law.
Answer ... According to the Italian anti-avoidance regime, the tax authorities can disregard the tax consequences of transactions that are devoid of economic substance and exclusively tax driven.
Such tax avoidance behaviour arises when a transaction (or a sequence of transactions, facts, actions or agreements) is not aimed at generating significant economic consequences, but rather - despite apparent compliance with the tax law - at achieving an undue tax benefit. Tax benefits are undue when they conflict with the purpose of the relevant tax provisions and the principles of the tax system.
The regime applies to all direct and indirect taxes, excluding custom duties.
Answer ... The Italian tax system includes several anti-avoidance provisions, which primarily concern controlled foreign companies, dividends from blacklisted countries and limitations to the carry-forward of losses.
Under the controlled foreign company regime, the income of (directly and indirectly) controlled foreign companies is ascribed to the Italian parent company (and taxed in Italy accordingly), as long as the controlled foreign company is resident in:
- a ‘privileged tax regime’ country, other than a member state of the European Union and the European Economic Area, which provides for adequate exchange of information with Italy;
- a qualifying ‘privileged tax regime’ country - that is, a state which applies a nominal corporate income tax rate which is less than 50% of the Italian rate (calculated taking into consideration both corporate income tax (‘Imposta sul Reddito delle Società’ (IRES)) and the regional tax on business activities (‘Imposta Regionale sulle Attività Produttive’ (IRAP)); or
a different country (including a member state of the European Union or the European Economic Area), where both of the following conditions are satisfied:
- the company is subject to effective taxation in the state of residence at a rate which is less than 50% of the Italian rate; and
- more than 50% of its revenue is represented by ‘passive income’ and fees from the provision of intercompany services.
The controlled foreign company regime may be avoided if a tax ruling is filed and accepted by the Italian tax authorities.
As a general rule, foreign dividends paid to Italian companies are taxed for IRES purposes (no IRAP taxation) at a rate of 5%, in the same way as domestic dividends. However, if the dividends are distributed by a company which is resident in a ‘privileged tax regime’ country (as outlined above), they are taxed on the whole amount upon receipt.
According to a specific anti-abuse provision, changes in the control of a company may affect the carry-forward of tax losses if the business activity of the company changes in the year in which the change in control is realised or in the following two years.
Furthermore, anti-abuse provisions which aim to prevent tax losses suffered by one entity from being used to offset taxable income of another also apply in the case of M&A transactions.
Answer ... Italian tax law provides for several tax ruling procedures. These were significantly reorganised in recent years; effective from 2016, the main categories of rulings are as follows:
- Ordinary ruling (‘interpello ordinario’): This concerns the application of tax provisions with objectively unclear interpretations. According to the specific measure, a taxpayer may seek advance clarification from the tax authorities on the application of specific tax provisions to actual cases, provided that there is objective uncertainty in their interpretation. These types of rulings are not binding on the taxpayer, but only on the tax authorities, which cannot disregard the taxpayer’s behaviour as long as it complies with the content of the ruling. The tax authorities must reply within 90 days of filing of the request by the taxpayer (or within a further 60 days of filing by the taxpayer of additional documents sought); if not, this implies that the tax authorities agree with the interpretation provided by the taxpayer (‘silenzio assenso’).
- Probative ruling (‘interpello probatorio’): This concerns the valuation and fulfilment of the requirements needed to qualify for a specific tax regime. According to the specific measure, a taxpayer can request the tax authorities to confirm that the facts and circumstances, as well as the factual evidence presented, are such that it is eligible for a specific tax regime. The tax authorities must reply within 120 days of filing of the request by the taxpayer (or within a further 60 days of filing by the taxpayer of additional documents sought); if not, this implies that they agree with the interpretations provided by the taxpayer.
- Anti-abuse ruling (‘interpello antiabuso’): This concerns the application of the abuse of law legislation to actual cases. According to the specific measure, a taxpayer may request the tax authorities to confirm in advance that a specific transaction does not qualify as abusive under the general anti-abuse provision. The tax authorities must reply within 120 days of filing of the request by the taxpayer (or within a further 60 days of filing by the taxpayer of additional documents sought); if not, this implies that they agree with the interpretations provided by the taxpayer.
- Exemption ruling (‘interpello disapplicativo’): This concerns relief from the application of specific anti-avoidance rules. According to the specific measure, a taxpayer may request the tax authorities to confirm an exemption from specific anti-avoidance rules by proving that in the specific case, no tax avoidance effects are realised. The tax authorities must reply within 120 days of filing of the request by the taxpayer (or within a further 60 days of filing by the taxpayer of additional documents sought); if not, this implies that they agree with the interpretations provided by the taxpayer.
In addition, an international ruling may be requested from the tax authorities in order to deal with specific international issues such as transfer pricing matters (advance pricing agreements), cross-border payments (interest, dividends and royalties), permanent establishment issues (including the determination of the existence of a permanent establishment) and the patent box regime. The international ruling is binding for the fiscal year in which it is issued and for the following four fiscal years, unless material changes to the legal or economic circumstances of the transaction arise.
Finally, a new type of ruling was recently introduced with reference to investments exceeding €30 million that have a significant and durable impact on employment with respect to particular business activities. The ruling provides the taxpayer with advance confirmation of the tax treatment of the whole investment plan (including the various envisaged transactions needed to realise the plan), as well as assurance on whether a going concern is formed, if needed. In addition, the ruling may confirm the absence of any abusive behaviour by the taxpayer, the existence of the necessary prerequisites to exclude the application of anti-avoidance provisions and/or the existence of the necessary prerequisites to access specific tax regimes.
Answer ... Italy has enforced a specific transfer pricing regulation, compliant with Article 9 of the Organisation for Economic Co-operation and Development (OECD) Model Tax Convention, the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations and the outcome of Base Erosion and Profit Shifting Actions.
Italian law grants protection from penalties (in case of a challenge raised by the tax authorities), provided that the taxpayer prepares and makes available in case of a tax inspection a study prepared following the guidelines provided for by the law.
Answer ... Under Italian tax law, a corporate taxpayer may be subject to a tax assessment by the tax authorities up to the end of the fifth year following that in which the tax return was filed, extended to seven years in case of failure to file a tax return.
Taxpayers can file an amended tax return, before the statute of limitations has expired, in order to correct mistakes or omissions, including those relating to increased or reduced taxable income, tax debts or tax credits. In such case any tax credits that arise can be offset against other amounts due, subject to certain conditions.