International Tax Newsletter - Spring/Summer 2012 - Italy

1. Utilisation of tax losses
Significant changes have been introduced to carry forward tax losses. Previously, it was possible to:

  • carry forward tax losses generated in a particular tax year for the five following tax years 
  • offset the entire amount of tax losses against the amount of taxable income of each subsequent fiscal year.

The new rules now allow companies to:

  • carry forward the losses without any time limit 
  • offset the losses up to only 80% of the taxable income of each successive fiscal year
  • carry forward losses exceeding 80%, to offset the taxable income of subsequent years.
  • Tax losses incurred in the first three tax periods from the date of the company’s incorporation can still be carried forward without any time limit and the entire taxable income of any subsequent years can be offset, provided they have resulted from the start-up phase of a new business.

These changes are likely to result in a different approach to prioritizing the use of the losses.  Whereas previously it was more convenient for a company to use the “ordinary” losses first (that otherwise would have expired after five years), now, it would be more appropriate to utilise those made at the beginning of its activity (i.e., in the 3 first years).

The new regime applies to tax losses produced during the tax year in progress at 6 July 2011. Companies whose tax period matches the calendar year (1 January – 31 December) must calculate their tax burden for 2011 in accordance with the new rules. In other words, only the tax losses generated in fiscal years 2006, 2007, 2008, 2009 and 2010 can be offset against the abovementioned threshold of 80% of the taxable income for 2011. Losses generated in 2005 and before are not allowed to be carried forward.

2. Non-operating and loss-making companies  

An increase of 10.5% will be applied to the tax rate effective as of 2012, resulting in an overall corporate tax rate of 38.0%, in the case of the following:

  • Non-operating companies
  • Companies whose revenues exceed the minimum threshold governing non-operating companies, which declare a loss for corporate tax purposes for three consecutive financial years
  • Companies that, in a three-year time-frame, made tax losses in two years and in the other year declared profits lower than the minimum established by the rules governing non-operating companies.

These companies can file for a ruling by the Tax Authorities to claim non-applicability of the rule, either fully or partially, on the basis of specific facts and circumstances.

3. Exit tax
Generally, Italian companies that transfer their tax residence abroad are assumed to have realised their assets at “fair value” unless they maintain a permanent establishment in Italy.

Under the new rules, if the tax residence is transferred to European Union countries or to States included in a specific “white list,” without leaving a permanent establishment in Italy, the companies are allowed to request suspension of such taxation up to the time when taxable income relating to the business transferred abroad has been produced.

More information on these developments can be provided by Walter Bonzi, PKF Italy, through the EisnerAmper contacts listed at the end of this Newsletter. 

International Tax Newsletter - Spring/Summer 2012 Issue 

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