Italy: Italy announces tax measures for internationalisation purposes
On April 21 2015, the Italian Cabinet approved a package of draft legislative decrees as the first phase of a broader tax reform which, as anticipated, is in progress in Italy. In this context, the government issued a first draft decree – 'Internationalisation Decree' – which introduces several amendments to international tax measures aimed at providing a framework of definite, stable and simpler tax legislation, to attract foreign investors. In brief, the first measures affecting cross-border and international tax regimes may be summarised as follows.
The draft decree expands the scope of advanced tax rulings for companies with international transactions to cover not only transfer pricing matters and tax treaty application issues but also to determine asset tax bases in case of inbound and outbound migrations and attribution of profits to permanent establishments. The new ruling will be valid for five years. Under the new international tax ruling programme, taxpayers shall be allowed to roll the outcome of a ruling back to the tax year in which the relevant application was made, to adjust tax returns in light of the principles set forth by the ruling, without penalties. Furthermore, a specific advance ruling shall be available for new investments of at least €30 million ($34 million), with a positive and long-lasting impact on employment. Through such new procedure, the Italian Government intends to provide foreign investors with the chance to obtain certainty on several material tax issues, including applicable tax regime, transfer pricing and the absence of abusive issues.
To comply with recent ECJ case law, the draft decree amends the fiscal unit regime, introducing the so-called 'horizontal consolidation'. Subject to certain circumstances, two or more Italian resident sister companies may now apply the fiscal unit regime if they are controlled by a common parent company resident in an EU member state or in a qualifying European Economic Area (EEA) country. Similarly Italian permanent establishments of EU and qualifying EEA entities can be part of such horizontal consolidation.
Also interest expense deduction rules applicable to Italian groups controlling foreign subsidiaries will be subject to rationalisation by the draft decree, with effects presumably as from year 2016. For the purposes of determining the threshold of deductible interest expenses (30% EBITDA), the Italian parent company (i) on one hand will now include dividends received from foreign controlled subsidiaries in the relevant EBITDA and (ii) on the other hand, as a counterbalance, will no longer take into consideration foreign companies' EBITDA, as is now permitted under certain circumstances.
In the next issues we will explore other important international tax measures introduced by the decree, including changes to, inter alia, 'black-list' costs, CFC rules, permanent establishment legislation, inbound and outbound migration tax rules. Further highlights will be provided on additional measures included in another draft decree approved by the government to regulate the discipline of the statute of limitations for tax assessments in case of criminal law exposure, a review of abuse-of-law and tax avoidance rules, as well as the introduction of a cooperative compliance programme to enhance relationships between taxpayers and tax authorities.
Tremonti Vitali Romagnoli Piccardi e Associati
Tel: +39 06 3218022 (Rome); +39 02 58313707 (Milan)