Italy's new R&D Tax credit

Italy is in the process of introducing a new tax credit on research and development activities.

The draft of the law decree, called Destinazione Italia, which is currently in the process of being approved by the Italian government, proposes to introduce a series of measures seeking to encourage inward investment in Italy. These measures include a tax credit for the period 2014 – 2016 on R&D expenses sustained by Italian resident companies (as well as subsidiaries of foreign groups and Italian branches of foreign companies).

The new tax credit is expected to be substantially different from similar incentives previously used in Italy. The tax credit in the previous law provision was equal to 10 percent of the cost related to designers, up to a maximum of €5 million per year. The new benefit is now expected to be recognised in the form of a tax credit on 50 percent of the increasing R&D costs registered during the three-year period, with a maximum amount of €2.5 million per year and a minimum amount of €50,000. The tax credit is expected to be exempt from direct taxes.

Moreover, eligible companies may choose whether the proposed credit will be reimbursed from the authorities or set off against the payment of other taxes. In practice, this means that the credit may become an immediate benefit on a company's cash position. This offers a significant tax advantage for businesses involved in design and manufacture. In particular, the new version of the tax credit is expected to have a positive impact on the level of investment in R&D equal to €600 million in 2014. Future plans to expand the level of funds invested in R&D are also anticipated.

The underlying idea of the proposals is that R&D activities are not only those relating to the "invention" of a new product/material, but also those seeking to improve the shape/exterior of an existing product (in other words, its style or design). DLA Piper's team in Italy is already verifying with the relevant ministry whether it is possible to include under the R&D activity either design costs incurred for in-house design activities or similar costs related to external activities provided by third parties. Our team was also extensively involved in a similar project in 2008 that resulted in similar advantages for players in the fashion market.

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