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  • Tag Archive: Italy

    1. Italy and Reshoring of Economic Activities

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      Italy and Reshoring of Economic Activities – Introduction

      On 16 October 2023, the Council of Ministers preliminarily approved a legislative decree proposing significant reforms to international taxation in Italy.

      This decree is currently undergoing review by relevant parliamentary committees before it officially becomes law.

      An interesting proposal is a relief for the so-called ‘reshoring’ of economic activities.

      Let’s look at this in some more detail.

      Implementation and Timeline

      Expected to come into force after final approval of the legislative decree (anticipated by December 31, 2023), the ‘reshoring’ provisions aim to rejuvenate Italy’s economic landscape.

      However, their actual enactment hinges on authorization from the European Commission.

      Reshoring of Economic Activities

      Article 6 of the draft legislative decree outlines a specialized tax incentive designed to incentivize the transfer of ‘economic activities’ to Italy.

      Unlike similar measures in other nations, Italy’s decree extends beyond specific sectors, aiming to encompass ‘economic activities’ regardless of industry.

      Under the proposed measure, income derived from business activities transferred from non-EU or non-EEA countries to Italy will enjoy a 50% exemption from income tax and IRAP (Regional Production Tax) for a designated period:

      The relief spans the tax period during the transfer and the following five tax periods. However, ‘economic activities’ already conducted in Italy within the preceding 24 months are excluded from eligibility. Interpretive Challenges and Scope The decree poses several questions for stakeholders, primarily concerning its application scope.

      What are economic activities?

      The term ‘economic activities’ casts a wide net, referencing income from business activities conducted in non-EU/EEA countries and relocated to Italy.

      This suggests potential application scenarios, including the relocation of non-EU/EEA companies’ registered offices to Italy.

      Consequential matters?

      Though the draft decree doesn’t explicitly mention the combined application of ‘reshoring’ relief and tax basis adjustment provisions, such as Article 166-bis of the Consolidated Income Tax Law (TUIR), experts opine that these could complement each other.

      This combination might lead to higher depreciation or lower capital gains, further reducing the taxable base.

      Complexities and Considerations

      Determining the application of ‘reshoring’ relief, along with compliance with other provisions like ‘Pillar 2’ and ‘Qualifying Domestic Minimum Top-Up Taxes,’ poses intricate challenges.

      The definition of ‘economic activity’ under European Union law highlights the complexity of identifying eligible activities.

      Moreover, entities already established in Italy undergoing functional changes might potentially qualify for ‘reshoring’ benefits.

      This includes transformations within the value chain, such as a distributor evolving into a manufacturing entity.

      Compliance Requirements and Forfeiture Conditions

      To benefit from the incentive, taxpayers must maintain meticulous accounting records to verify income determination and eligible production values.

      The legislation stipulates forfeiture conditions, triggering the recovery of unpaid taxes in case of activity transfer out of Italy within specific periods following ‘reshoring.’

      Conclusion

      Italy’s proposed tax incentive for ‘reshoring’ economic activities presents opportunities and complexities for businesses.

      The legislation’s interpretation and application nuances warrant thorough understanding, and compliance measures are crucial to harness the benefits while navigating the regulatory landscape effectively.

       

      If you have any queries around Italy and reshoring of economic activities, or Italian tax matters in general then please get in touch. 

       

      The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.

    2. New capital gains regime for real estate companies proposed in Italian Budget

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      Introduction

      Parliament is currently discussing the draft 2023 Budget Law. Although this is yet to be approved, the draft signals a potential change to the taxation of rela estate companies in Italy. Specifically, the tax treatment of shareholdings in such companies.

      What’s the proposal?

      Article 23 of Presidential Decree no. 917/1986 proposes new provisions regarding the ‘alienation’ of shareholdings in real estate companies by certain persons.

      Specifically, the proposals relate to disposals by:

      • non-resident shareholders;
      • in respect of non-resident “real estate entities and companies”

      In other words, companies and entities that derive their value mainly from real estate situated within the Italian territory.

      It is a provision aimed at taxing capital gains on foreign shareholdings that result, de facto, the transfer of real estate properties located in Italy.

      OECD ‘land rich clause’

      Undoubtedly, the proposal has got its inspiration fromArticle 13, paragraph 3, of the OECD Model Tax Treaty. This is often referred to as the “land rich clause”.

      The proposals could have an immediate impact on cases where the shareholder realising the capital gain:

      • is tax resident in a State not having an in-force tax treaty with Italy; or
      • does not meet the requirements to apply the tax treaty.

      The proposals do not apply to shares listed on a stock exchange.

      Conclusion

      Where there is a tax treaty in force, the change could apply where the tax treaty with the shareholder’s state of residence grants Italy rights of taxation in respect of capital gains on shareholdings in real estate companies.

      In this respect, Italy may tax such capital gains in accordance with provisions set forth by over twenty tax treaties including the land rich clause. It is likely that the number of tax treaties that reflect this position will increase over the coming years.

      If you have any queries about this article on Italy real estate companies, Italian tax matters or capital gains in general then please do not hesitate to contact us.

      The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.