Italy: Parliament sets forth guidelines for broad tax reform

Giuliano Foglia		Marco Emma

A new project for an extensive reform of the tax system has been officially launched in Italy. With Law no. 23 of March 11 2014, in fact, the Italian Parliament appointed the government with the responsibility to significantly reform and reorganise within one year the overall Italian tax system according to certain guidelines set forth therein. The envisaged tax reform is wide and grounded on purposes and principles which generally can be agreed with.

On one hand it is aimed at combating tax evasion strategies and reducing tax base erosion, through (i) stronger assessment measures in respect of, inter alia, transfer pricing, carousel frauds and fictitious residences and (ii) a wider cooperation with foreign tax authorities. Such measures should be implemented together with a reorganisation of certain cross-border and international tax regimes (for example, tax residence determination, CFC legislation, permanent establishment rules, black-listed countries' costs deduction, withholding taxes, tax losses of non-Italian resident group companies and so on).

On the other hand the reform intends to address the urgent need to (i) widely simplify and rationalise Italian tax system (for example, dropping useless formalities and obligations) and (ii) improve considerably certainty and stability of Italian fiscal legislation in order to attract foreign investors. In this respect, the Italian Government is empowered, inter alia, to deeply reform assessment procedures (based on the pillars of simplification, efficacy and guarantees for taxpayers) and tax litigation (for example, improving the technical skills of tax judges), and to rebalance the tax criminal penalties according to proportionality criteria. Moreover, decrees should be adopted to simplify and speed up the tax ruling procedures and introduce an effective cooperative compliance among certain selected departments of tax authorities and large enterprises (to be incentivised by a reduction of tax formalities and penalties).

In this scenario, probably the most anticipated measure is the review of the current anti-avoidance rules on the basis of the so-called "abuse of law" principle so far developed by the European Court of Justice (for example, the Halifax and the Cadbury Schweppes cases) and the Italian Supreme Court (Corte di Cassazione). In a nutshell, the Italian Government is now appointed to codify in an ad hoc provision the abuse-of-law principle which currently remains uncertain and subject to interpretative instability. The envisaged general anti-avoidance rule should basically consist in a prohibition to obtain undue tax advantages from a distorted use, even if not in breach of any specific provision, of juridical instruments which are suitable to grant a tax saving, provided there is a lack of sound economic reasons, not merely marginal, other than the expectation of that tax saving. The possibility for the taxpayer to select the less onerous alternative among various transactions equally practicable should, in any case, be granted.

In conclusion, a quite ambitious reform providing for several measures which, if correctly blended, could effectively lead to a more efficient, simple and steady tax system, which foreign investors could definitely appreciate.

Giuliano Foglia (foglia@virtax.it) and Marco Emma (emma@virtax.it)

Tremonti Vitali Romagnoli Piccardi e Associati

Tel: +39 06 3218022 (Rome) +39 02 58313707 (Milan)

Website: www.virtax.it