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Italy: Companies migrating to Italy: New ‘internationalisation’ decree introduces rules to determine assets and liabilities’ tax basis

Foglia-GiulianoEmma-Marco
Giuliano FogliaMarco Emma

The 'internationalisation' decree (formally, legislative decree No 147 of September 14 2015) has been recently published on the Official Gazette and is now effective.

The decree introduced different measures aimed at removing uncertainties and providing a more definite and stable tax legal framework, with a view to attracting foreign investors. Above all, the decree introduced, for the first time, a clear provision in relation to the corporate income tax effects for foreign companies migrating to Italy. Italian tax law did not previously cover such case.

According to article 12 of the decree, the transfer of tax residence from a white-list country to Italy involves the step-up of the tax basis of foreign company's assets and liabilities at fair market value, regardless of the application of an 'exit tax' in the state from which assets are transferred. In case of 'inbound' migration from a non-white listed country, the above mentioned step up is subject to the conclusion of an international ruling (APA) with the Italian tax authorities. If no ruling is obtained, the 'non-white list' company shall assume the lower between the acquisition cost, the book value or the market value as tax basis of the assets 'relocated' to Italy, while the tax basis of the liabilities will be the higher among such values.

Such provision, effective from fiscal year 2015, represents an impressive step forward, compared with the previous situation of uncertainty. Due to the lack of any provision in this respect, in fact, it was widely debated before the internationalisation decree whether transferred assets had to be valuated according (i) to the market value or alternatively (ii) to the acquisition cost method. Even if the market value principle seems to prevail (as implicitly confirmed now by the new decree), the Italian Revenue Agency occasionally took the position that the tax step up of assets relocated to Italy was allowed only provided that the state from which the assets were transferred applied an 'exit tax'. Difficulties arose where an exit tax in principle applied but a specific exemption regime was granted by the exit state on certain assets (for example, the participation exemption regime).

In this context, not only does the new provision fill a legislative gap in the Italian tax framework, but it also represents an alluring occasion for foreign investors to step up the tax basis of their assets.

Interesting tax opportunities, in particular, may arise in relation to intellectual properties held by non-Italian resident companies from the combination of the new 'inbound' migration step up possibility with the partial corporate income tax exemption available under the new Italian Patent Box regime. In a nutshell, the Patent Box allows a 50% corporate income tax exemption in relation to income deriving from direct or indirect use of certain IP rights (currently including commercial trademarks). Such optional regime applies, under certain circumstances, on the basis of the ratio of a) R&D expenses borne to maintain, increase and develop the intangible asset, and to b) total expenses sustained for the creation of such IP right.

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

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