Prepared by Team Tax Reporting & Strategy
The Budget Law No. 197/2022 (Budget Law 2023), titled “State budget for the financial year 2023 and multi-year budget for the three-year period 2023-2025“, was published in the Official Gazette on December 29, 2022. This article summarizes some of the main measures in national and international taxation.
Deductibility regime for BlackList costs: Article 1, par. 84-86
The provision introduces s in Article 110 of Presidential Decree No. 917 of December 22, 1986 (“Tax law”) certain deductibility limits to expenses resulting from transactions with companies or professionals resident or located in states or territories considered “non-cooperative” for tax purposes referred to in Annex I to the EU list adopted by Conclusions of the Council of the European Union (i.e. American Samoa, Anguilla, Bahamas, British Virgin Islands, Costa Rica, Fiji, Guam Palau, Marshall Islands, Panama, Russia, Samoa, Trinidad and Tobago, Turks and Caicos Islands, U.S. Virgin Islands, Vanuatu as of February 14 , 2023).
Specifically, it is provided that expenses and negative components resulting from transactions concretely carried out with companies resident or located in countries or territories that are non-cooperative for tax purposes will be allowed for deduction within the limits of their “normal value” (pursuant to Article 9 of the Tax Law). However, in case it is possible to prove the real economic interest and the concrete execution of the transactions carried out by Italian taxpayers, the above limitations will not apply and the ordinary rules for the deduction of negative components will operate.
In addition, the obligation to separately report the costs of the above transactions in the tax return is reintroduced, independent from whether the normal value of the transaction is exceeded.
Substitute tax on profits and earning reserves of subsidiaries resident in State or territories with a privileged tax regime – Article 1 par. 87-95
The provision allows taxpayers who, in the context of the business activity, hold shareholdings in foreign companies and entities located in states or territories with privileged tax regimes, the possibility to enfranchise or repatriate, through the payment of a substitute tax, profits and earning reserves not distributed as of the effective date of the 2023 Budget Law that result from the financial statements closed in the fiscal year prior to the one in progress as of January 1, 2022.
In particular, this option can be exercised in the tax return for the tax period ending on December 31, 2022 and implies the payment, in a lump sum in 2023, of a substitute tax of 9% for holdings held by corporations and 30% for holdings held by individuals.
This provision also introduces a further reduction in the rate by another three percentage points if the controlling entity repatriates the related profits or earning reserves by the deadline for the balance tax payment relating to the 2023 tax period (for “solar” taxpayers by June 30, 2024).
Provisions on the taxation of capital gains realized by non residents – Article 1 co. 96-99
The 2023 Budget Law modifies the discipline on the taxation of income realized by non-residents in Italy provided for in Article 23 of the Tax Law. In particular, it is provided for the taxation in Italy of income deriving from capital gains on the sale of shareholdings in non-resident companies and entities (sale of shares not traded on regulated markets), provided that more than 50 percent of the value of these shareholdings derives, at any time during the 365 days preceding their sale, directly or indirectly, from real estate located in Italy.
In particular, it is provided for the taxation in Italy of income deriving from capital gains on the sale of shareholdings in non-resident companies and entities (sale of shares not traded on regulated markets), provided that more than 50 percent of the value of these shareholdings derives, at any time during the 365 days preceding their sale, directly or indirectly, from real estate located in Italy.
This is a news that, however, originates in Article 13(4) of the OECD Model which , moreover, results already included in several double taxation treaties entered into by Italy.
Amnesty of formal violations – Article1 co. 166-173
The provision states that those irregularities, infractions and omissions of obligations or compliance of a formal nature committed by Oct. 31, 2022, which do not affect the determination of the taxable basis and the payment of the personal income tax, CIT, regional tax and VAT, can be regularized by paying a sum of 200 euros for each tax period.
The completion takes place with the payment of two installments of equal amount (by March 31, 2023, and March 31, 2024) in addition to the need to remove the irregularity or omission, whose deadline, the Internal Revenue Service specifies, coincides with March 31, 2024.
On the other hand, the regulatory perimeter does not include (i) acts of contestation or imposition of sanctions issued under the voluntary cooperation procedure and for the emersion of financial and patrimonial assets established or held abroad, and (ii) violations already contested in acts that have become final as of the date of entry into force of this provision.
In addition, the Statute of limitations term for formal violations committed up to Oct. 31, 2022 and already subjected to a preliminary assessment report is raised to seven years (instead of the ordinary five).
Definable violations include the following:
- The submission of annual returns prepared not in accordance with the approved forms, or the misstatement or incompleteness of data relating to the taxpayer.
- The omission or irregular submission of periodic VAT settlements; indeed, this violation can be defined only when the tax is paid and not also when the violation had an effect on the determination and payment of the tax;
- The omission, irregular or incomplete submission of Intrastat lists;
- The irregular keeping and retention of accounting records, in the case, where the violation did not affect the overall tax due;
- The failure to return questionnaires sent by the Agency or other authorized parties, or the return of questionnaires with incomplete or untruthful answers;
- The communications to the Tax Administration (“Anagrafe Tributaria”).
Special self-remediation of tax return – Article 1, par. 174 – 178
The 2023 Budget Law introduces a special remediation that allows taxpayers to correct tax violations relating to “validly submitted” CIT/Regional tax ,VAT and withholding tax returns relating to the fiscal year 2021 and previous ones; therefore, omitted tax returns and returns submitted more than 90 days late, considered omitted by Article 2, co. 7, of Presidential Decree 322/98, cannot be regularized.
The regularization is completed through the payment of penalties reduced to 1/18th of the minimum amount, plus tax and interest. Specifically, the taxpayer will have the option to pay the amount due in a single payment by March 31st,2023, or alternatively in eight equal quarterly installments (plus interest of 2%).
It should be noted that the possibility of accessing the special self-remediation does not automatically correspond to the non-punishability or other rewarding effects at a criminal level under Legislative Decree 74/2000.
Correction of accounting errors – relevance in the accounting period – Article 1, par. 273 – 275
The extension of the so-called “principle of enhanced derivation,” operating for IAS and OIC adopter entities – according to which the determination of business income for direct tax purposes is consistent with the accounting representation as an exception to the rules of the Tax Law – to the correction of the accounting errors has been limited by the 2023 Budget Law to only those entities whose Statutory Financial Statements are subject to the statutory audit.
The introduced rules apply from the tax period in progress as of June 22, 2022, and, therefore, for entities with a tax period coinciding with the calendar year, from the year 2022. This provision does not apply to negative components for which the assessment term is expired.
A similar amendment is made to Article 8, co.1-bis, of DL 73/2022 (conv. L.122/2022) for regional tax purpose.
For entities that do not apply this principle (i.e., partnerships and microenterprises), the provision about the correction of accounting errors adopted so far, which provides for the submission of supplementary tax returns, remains valid.
Higher amortization rates in retail sectors – Article 1 par. 65-69
The 2023 Budget Law states that, starting from the tax period in progress as of December 31, 2023 and for the following four years, companies operating mainly in the retail trade sectors can deduct the depreciation of the real estate fixed assets used applying an annual coefficient of 6%, regardless of the amortization rate used for statutory purposes.
The following new features are also worth mentioning:
Article 9, Decree Law No. 73/2022 (converted into Law No. 122/2022)
So-called <<systematic dummy companies>>
The rule, effective from the tax period in progress as of December 31, 2022, deleted the rule about the so called dummy companies, which imposed the taxation of a minimum income starting from the following tax period in cases where the taxpayer had declared tax losses in the previous five or a tax loss in the four tax periods and an taxable basis lower than the minimum income in one of the previous five.
The negative provisions provided by the law will, therefore, no longer apply for the 2022 tax period (for “solar” subjects) even if the tax periods 2017 , 2018, 2019, 2020 and 2021 are tax loss-making or four of the same periods are tax loss-making and the remaining have taxable income below the minimum income.
Decree of the Ministry of Economy and Finance (published in Official Gazette No. 292 on 12/15/2022)
Legal interest rate
Ministerial Decree Dec. 13.12.2022 increased the measure of the annual legal interest rate (Article 1284 of the Civil Code) from 1.25% to 5%, effective January 1, 2023.
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