Extraordinary Contribution on “Windfall profits”: updated framework after the clarifications published by the Italian Revenue Agency and critical areas

Prepared by Energy Team

Article 37 of the Law Decree no. 21/2022 (“Taglia-prezzi Decree” introduced an Extraordinary Contribution, in the form of a solidarity levy, due by the enterprises operating in the energy and oil&gas sectors that realized windfall profits upon the increase of the energy prices and tariffs that affected the energy sector (hereinafter the “Extraordinary Contribution”). It is important to point out that the Law Decree no. 50/2022 (“Decreto Aiuti”) provided for some amendments to the law provision including, inter alia, the increase of the Extraordinary Contribution rate. The Italian Revenue Agency (“IRA”) published several clarifications (i.e. Regulation n. 221978 of 17 June 2022, Resolution n. 29/E of 20 June 2022, Circular Letters n. 22/E of 23 June 2022 and 25/E of 11 July 2022) as detailed below.

The main features of the Extraordinary Contribution

The subjective scope of such a new Extraordinary Contribution includes:

  • enterprises carrying out in Italy, for the subsequent sale of goods, the activity of electricity power production;
  • enterprises engaged in the methane gas production or natural gas extraction;
  • resellers of electricity power, methane gas and natural gas;
  • enterprises engaged in the production, distribution and trade of petroleum products;
  • enterprises which permanently import electricity power, natural gas or methane gas, petroleum products or which introduce in Italy such goods from other EU states.

On the other hand, enterprises which manage and operate platforms for the exchange of electricity, gas, environmental certificates and fuels are excluded from the subjective perimeter of the Extraordinary Contribution.

The taxable base the Extraordinary Contribution is equal to the increase of (i) the balance of VAT sales and purchases carried out between October 1, 2021 and April 30, 2022 compared to (ii) the balance of VAT sales and purchases carried out between October 1, 2020 and April 30, 2021 (the “Increase”). If the balance under point (ii) is lower than zero, for the purpose for the taxable base computation it is assumed equal to zero.

The balances of VAT sales and purchases that are relevant for the computation of the Increase are those resulting from the VAT transactions included in the Communication of the VAT settlements (“LIPE”) (i.e. net of VAT) that are filed with the Italian Revenue Agency by each enterprise on a quarterly basis. Specific provisions are provided for entities that opted for the VAT Group regime (governed by article 70-quater of Presidential Decree no. 633/1972).

The Extraordinary Contribution is due only if the Increase exceeds both the following thresholds i.e. it is greater than €5 million and higher than 10%. As long as both the thresholds are exceeded, the Increase is presumed to represent the Windfall profit of the enterprise and, thus, subject to the extraordinary levy.  Where the Increase is lower than €5 million or, alternatively, not higher than 10%, there will be no Windfall profit and no Extraordinary Contribution will be due.

The Extraordinary Contribution rate applicable to the Windfall profit, originally set at 10%, was raised to 25% by the “Aiuti Decree”.

As a result of the amendments made by article 55 of the “Aiuti Decree”, the payment of the Extraordinary Contribution is due in two installments: first installment equal to 40% of the overall amount is due by June 30, 2022 and the balance (equal to 60% of the overall amount) is due by November 30, 2022.

It is also provided by the law that the Extraordinary Contribution is not deductible from the income and regional tax basis.

For the purposes of assessment, penalties and collection of the Extraordinary Contribution, the same provisions provided for VAT will apply insofar as they are compatible. Specific provisions are provided in order to prevent that the Extraordinary Contribution will unduly affect consumer prices of energy products and electricity.

Focus on Regulations no. 221978 and Resolution no. 29/E issued by IRA

On 17 June 2022, IRA published the enacting provisions with the Regulation no. 221978 (the “Regulation”).

The Regulation provides that the specific details and figures on the Extraordinary Contribution shall be reported in the VAT return to be filed for fiscal year 2022 (i.e. deadline for submission is on 30 April 2023). The same applies to those who have opted for the regime referred to art. 70-quater of D.P.R. no. 633/1972 (“VAT Group”) with the clarification that in this case the obligation has to be fulfilled by the representative of the VAT Group.

The Regulation also provides that the payment of the Extraordinary Contribution has to be executed by the F24 Form. In this regard, it should be noted that the Resolution n. 29/E issued the operative instructions to execute the payment.

The Regulation also provides the modalities for the exchange of the data and information between IRA and the Italian Tax Police.

Circular Letters no. 22/E and no. 25/E published by IRA

On 23 June 2022, IRA issued the Circular Letter no. 22/E clarifying the application of the Extraordinary Contribution.

The Circular Letter no. 22/E contains a list of the business activities codes (as per the classification defined by the Italian Statics Institute, so called “ATECO”) which fall within the scope of the Extraordinary Contribution. However, the list of the business activities codes provided by IRA is purely for illustrative purposes. It is also clarified that the Extraordinary Contribution is due only if one of the business activities falling under the scope of the Extraordinary Contribution is carried out by the same entity in both relevant periods (i.e. period from 1 October 2020 to 30 April 2021 and period from 1 October 2021 to 30 April 2022).

As regards the computation of the taxable base, Circular Letter no. 22/E states that the sales not subject to VAT due to a lack of the territorial requirement (pursuant to Articles 7 to 7-septies of D.P.R. no. 633 of 1972) are not relevant for the calculation of the Extraordinary Contribution despite the fact that such transactions are indicated in the ”LIPE”. Moreover, under the principle of “symmetry”, purchases not territorially relevant for VAT purposes (not reported in the “LIPE”) are also irrelevant for the purposes of the taxable base computation.

With the Circular Letter no. 25/E of 11 July 2022, IRA provided further guidance with reference to the computation of the taxable base in order to answer the questions proposed by the Italian associations. In particular, it has been clarified that sales excluded from VAT due to lack of the territorial requirement – which are reported in “LIPE” – are excluded from the calculation of the taxable base to the extent that the purchases relating to these sales are also territorially not relevant for VAT purposes. This is due to the “symmetry” that must exist between purchases and sales for the purposes of calculation the taxable basis. As the Circular Letter was issued after the deadline of the first installment (i.e. 30 June 2022) IRA also clarified that no penalties would be due in case of self-correction.

It is clarified that the Extraordinary Contribution is not due by enterprises that started their business after 30 April 2021, while it is due by those which started operations during the first observation period (i.e. from 1 October 2020 to 30 April 2021). Lastly, Circular Letter no. 22/E clarifies some operational profiles for these taxpayers which are part of a VAT Group (i.e. determining the taxable base and identifying the person liable for the payment).

Main issues related to the Extraordinary Contribution

Firstly, it is not provided whether the Extraordinary Contribution is qualified as a levy having a “tax” nature or not. This represents a key point. If the Extraordinary Contribution from a substantial perspective would qualify as a “tax”, serious concerns raise with regard to the compatibility of the levy with the constitutional principles applicable to tax matters and, in particular, with Articles 3 and 53 of the Italian Constitution. Indeed, an extraordinary levy – imposed on the enterprises of a specific sector and for a limited timeframe – shall be structured in accordance with the principles stated by the Italian Constitutional Court in past judgments (see judgment of n. 10/2015 concerning the so-called “Robin Hood Tax”).

In particular, the Italian Constitutional Court (judgment no. 10/2015) has upheld that the features of the energy and oil sectors can justify a different tax treatment of the enterprises operating in these businesses due to (i) the oligopolistic nature of the sectors (ii) high costs and entry barriers for new enterprises and (iii) the low elasticity of the energy demand. In particular, a different tax treatment of these enterprises is allowed in case of extraordinary public budget expenses aimed to mitigate the energy prices and tariffs applied to the end-customers. From this perspective, there are several points in common between the Robin Hood Tax and the new Extraordinary Contribution. On the other hand, the Italian Constitutional Court itself held that a different tax treatment for enterprises operating in a specific business is compatible with the principles of the Italian Constitution to the extent that it supported by a proper and objective rationale and such a rationale is reflected in a “coherent, proportionate and reasonable” structure of the tax law measure.

Indeed, the tax burden imposed on operators of a given sector complies with the principles of equality and ability to pay only to the extent that it does not trigger discriminatory effects and the “structure” of the new tax is linked with its rationale and with the economic rational that it is intended to be taxed (i.e. the Windfall profits of the energy sector in the case at hand).

By analyzing the “structure” of the new levy, the determination of the taxable base raises serious doubts as to the legislator’s ability to identify in an appropriate way a tax base that can be considered an expression of Windfall profit. A further critical element, which seems to be motivated solely by public budget reasons, is that the Extraordinary Contribution is not deductible for income tax purpose. Such a provision seems to conflict also with the past orientation of the Constitutional Court which considered contra legem the law provision that denied the deductibility of a real estate tax (i.e. Imposta Municipale sugli Immobili, so called “IMU”), being this latter a tax directly related to the production of income whose deductibility cannot be excluded (judgment of 4 December 2020, no. 262 and judgment of 3 June 2013, no. 116). Furthermore, the new supervisory and intervention role entrusted to the Italian Antitrust Authority (“AGCM”), as per the Extraordinary Contribution law provision, aims to fill that “gap” of operational mechanisms reported by the Constitutional Court in the Robin Hood Tax judgment. It should be emphasized that, whilst the central role of AGCM in the context of the Extra Contribution may represent a step forward, on the other hand such intervention would not prevent the risk of translation of the economic impact of the new levy from the enterprises to the consumers. 

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