Deduction of depreciation quota for IRAP purposes concerning the areas underlying instrumental buildings – Italian Supreme Court no. 7183, dated 15-3-2021

Prepared by Felice De Lillo, Angelo Conte, Carlo Novello and Luca Varasano

With the decision no. 7183 dated March 15, 2021 of the Italian Supreme Court, an important favorable scenario opens up for taxpayers with respect to the application of article 36, paragraphs 7 and 7 bis of Law Decree no. 223/2006 solely for corporate income tax (IRES) and not  for IRAP purposes.

In order to better understand the terms of the matter under examination, it is necessary to remember  that, for the purposes of calculating the deductible depreciation quota, article 36, paragraph 7, of Law Decree 223/2006 provides that the overall cost of  buildings is assumed net of the cost of the areas occupied by the construction and those pertaining to it.

In the event that the aforesaid areas have not been purchased independently, the cost to be attributed to them is equal to the higher between (i) the value separately recorded in the purchase year’s financial statements and (ii) the value obtained by applying 20% to the total purchase cost of the property, including the value of the area, or 30% in the case of industrial buildings.

The subsequent paragraph 7-bis similarly provides for the non-deductibility of the capital quota of the lease fees relating to the same areas.

On this point, the Italian Revenue Agency (IRA) has always stated that the provisions referred to in Article 36, paragraphs 7 and 7-bis of Legislative Decree 223/2006 should also be relevant for IRAP purposes.

In fact, in the IRA Circular letter no. 36/E/2009 it is stated that “Considering the wording of the law – which makes general reference to “deductible depreciation quotas” – it is believed that the non-deductibility of the areas’ value underlying or pertaining to instrumental buildings also applies for determining the IRAP taxable base”.

This thesis, as well as being confirmed by the subsequent Circular letter no. 38/E/2010, is also actually reaffirmed in  the official guidelines to the “IRAP 2021” return in which, among the up-ward adjustments related to the IRAP taxable base, the depreciation quotas of the areas’ value underlying or pertaining to instrumental buildings, non-deductible pursuant to article 36, paragraph 7, of Law Decree no. 223/2006, are included.

However, this is a regulatory interpretation that is not shared by doctrine: according to Assonime, logical and systematic reasons lead to the conclusion that only the correct criteria for drawing up the financial statements should be applied to identify such values. Assonime reaches this conclusion based on the fact that the IRAP taxable basis should be determined with exclusive reference to the correct accounting standards, i.e. by applying the principle of direct derivation from the financial statements (cfr. Assonime Circular no. 34/2009 and no. 20/2021).

In this context, it is worth highlighting the most recent decision of the Italian Supreme Court (no. 7183 dated March 15, 2021) according to which, for companies calculating the taxable base pursuant to art. 5 of Legislative Decree no. 446/97, the deduction of lease fees is allowed for the amount recorded in the income statement, with the exception of the interest quota stated by the lease agreement, which is non-deductible by law.

In fact, the Italian Supreme Court states that Law 244/2007 introduced “a clear separation between the rules valid for the determination of IRES and those valid for the determination of the IRAP taxable base, and the absence of an express reference to the provisions of Law Decree no. 223 / 2006 implies to consider that, where the leasing fee has been correctly allocated to items relevant for IRAP purposes, by virtue of the derivation principle and application of accounting standards, the deduction must be allowed for the amount allocated to the relevant item in the Income Statement, with the exception of the interest quota stated from the lease agreement, which is non-deductible by law”.

Therefore, in accordance to this principle, also the depreciation of the instrumental buildings would be considered deductible for IRAP purposes for the amount allocated in the income statement without the application of the provisions (and the up-ward adjustment, if any) referred to in the Law Decree no. 223/2006.

In conclusion, the principle outlined by the Italian Supreme Court on this complex matter is certainly to be welcomed with extreme favor. On this point, it is hoped that this interpretation will quickly consolidate itself in the jurisprudence of legitimacy and finally find confirmation also by the IRA.

In the meantime, taxpayers can consider the opportunity of requesting a refund of the higher IRAP paid in previous years – in compliance with the provision at stake – keeping in mind the deadlines set for the submission of the relevant applications.

Let’s Talk

For a deeper discussion, please contact:

Felice De Lillo

PwC TLS Avvocati e Commercialisti


Angelo Conte

PwC TLS Avvocati e Commercialisti


Carlo Novello

PwC TLS Avvocati e Commercialisti

Senior Manager