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July 19, 2019
Italian Parliament converts Growth Decree into law and introduces new tax measures
The Italian Parliament converted the Growth Decree1 into law with Conversion Law n. 58/2019 (the Conversion Law).2
The Conversion Law, published in the Official Gazette on 29 June 2019 and in force as of 30 June 2019 has confirmed, with some amendments, the main provisions contained in the Growth Decree and also introduced new tax measures. The original rules introduced by the Growth Decree were immediately in force as of 1 May 2019.
The main tax provisions included in the Conversion Law concern the following:
Changes to the reduced CIT rate regime on qualifying income
As of fiscal year (FY) 2019, Italian resident companies and Italian permanent establishments of foreign enterprises may benefit under certain circumstances from a reduction of the 24% standard CIT on a portion of taxable income (Qualifying Income). Broadly speaking, the Qualifying Income is equal to the net increased retained earnings (generated as of FY 2018) within the limit of the overall increase of adjusted equity as compared to that of FY 2018.3
This provision, introduced by the Growth Decree,4 has been partially amended by the Conversion Law. In particular, the amendments concern the percentages applied for the reduction of the 24% standard CIT, which now are set out as follows:
The following high-level example shows how the Qualifying Income is computed:
In such a case, the Qualifying Income for FY 2019 should be equal to €200 (the lower of the net retained earnings and the increased adjusted equity). As a consequence:
The Conversion Law provides that an implementing Ministerial Decree should be issued within 90 days as of the entry into force of the Conversion Law (i.e., by the end of September 2019).
Introduction of new deadline for filing of CIT and IRAP returns
The Conversion Law introduces a new deadline for the filing of the CIT and IRAP returns.
As of FY 2018 tax returns, filings are due by the end of the 11th month following the end of the relevant fiscal year (e.g., 30 November for calendar entities).
The old nine-month deadline remains generally applicable to the case of winding up of companies.
Changes to the deduction of Municipal Tax (MT) on immovable properties for CIT purposes
The Conversion Law provides for a full deduction of the MT on Immovable Property for CIT purposes as of FY 2023.
In particular, according to the amendments to the Growth Decree, the MT is now deductible by the following rates:
Extension of the tax regime applicable to the contribution of control shareholdings to the contribution of (non-control) substantial shareholdings
The Conversion Law extends the CIT regime5 for domestic contributions of control shareholdings to the contribution of non-control but substantial shareholdings.
Such regime provides that if the receiving company ends up holding a control participation in the other Italian company (the Target), the value of the shares received in exchange by the contributor is deemed to be, for the purpose of determining the contributor’s taxable gain, equal to the increase in the receiving company’s net equity as a result of the contribution.
Pursuant to the Conversion Law, the said tax regime is now also applicable to the contribution of non-control investments (i.e., in the case of a contribution of a participation whereby the receiving company does not end up with a control participation in the Target), provided that the following conditions are met:
Specific rules apply for the contribution of holding companies and to compute the participation exemption for taxable gains at the level of the contributor.
1. See EY Global Tax Alert, Italian Parliament introduces urgent measures for economic growth, dated 20 May 2019.
2. Issued on 28 June 2019.
3. Adjusted equity means the accounting equity at the end of a given FY without considering same FY’s profits or losses, net of the amount equal to any taxable income already subject to reduced CIT rates (e.g., a company computing the adjusted equity in FY 2020 will have to deduct the amount of any portion of 2019 taxable income that benefitted from the favorable regime).
4. See EY Global Tax Alert, Italian Parliament introduces urgent measures for economic growth, dated 20 May 2019.
5. Article 177 (2) of the Income Tax Code.
For additional information with respect to this Alert, please contact the following:
Studio Legale Tributario, International Tax and Transaction Services, Milan
Studio Legale Tributario, International Tax and Transaction Services, Rome
Studio Legale Tributario, International Tax and Transaction Services, Bologna
Ernst & Young LLP (United Kingdom), Italian Tax Desk, London
Ernst & Young LLP (United States), Italian Tax Desk, New York