Edited by Claudio Valz, Fabio Mastropasqua, Guglielmo Ginevra
On July 9, 2024, the decree of the Deputy Minister of Economy and Finance dated July 1, 2024 (hereinafter referred to as the “Decree”) was published in the Official Gazette.
This decree contains the implementing provisions regarding the so-called “national minimum tax” (or “Domestic Minimum Top-up Tax” according to OECD terminology) provided for by Article 18 of Legislative Decree 209/2023, implementing the OECD agreement on the global minimum taxation of multinational enterprises (Pillar 2) and Council Directive (EU) 2022/2523 of December 15, 2022, aimed at ensuring a global minimum level of taxation for multinational enterprise groups and large-scale national groups in the Union (Pillar 2 Directive).
As a premise, it is recalled that, by means of the aforementioned national minimum tax, the Italian legislator has exercised the option provided by the relevant international legislation to collect any Top-up Tax (“TuT”) related to low-taxed entities located in the Italian territory with priority over the Top-up Tax due based on the application of the so-called “Income Inclusion Rule” (IIR) and the “Undertaxed Payment Rule” (UTPR).
The national minimum tax has been designed by the Italian legislator to be “qualified,” meaning it can be deducted from the overall additional tax due in Italy and serve as a “Safe Harbor,” allowing, groups that wish to use the OECD’s simplification, to assume the amount paid as the national minimum tax equivalent to the overall additional tax due in Italy.
Regarding the specifics of the Decree, the national minimum tax follows the framework of the relevant international legislation.
From a subjective point of view, the national minimum tax applies to constituent entities[1] and joint ventures[2] located in Italy, as well as stateless entities[3] established under Italian law (“taxable persons” – see Article 2, paragraph 1 of the Decree) that are part of multinational or national groups with annual consolidated revenues of €750 million or more, as shown in the consolidated financial statements of the ultimate parent entity, in at least two of the four fiscal years immediately preceding the considered year.
The national minimum tax is due from the multinational enterprise groups or national groups when the effective tax rate (“ETR”) for a particular fiscal year for the taxable persons is lower than the minimum tax rate set at 15%.
The starting point for verifying the ETR and the consequent computation of the national minimum tax, if due, is represented by the financial statements or reports of the Italian entities of the group prepared in accordance with the accounting principles accepted by Italian tax or corporate law (OIC or IAS/IFRS).
If the taxable persons do not adopt the same set of accounting principles, the calculations for the national minimum tax must be performed using the reporting package prepared according to the accounting principles of the consolidated financial statements. The Decree, further, specifies that the verification regarding the adoption of the same set of accounting principles must be carried out independently in relation to constituent entities and subgroups of entities (joint ventures, minority-owned constituent entities, investment entities, stateless entities, etc.) for which it is provided a separate calculation of the national minimum tax (see below).
In line with the relevant international legislation, taxable persons can deduct the income arising from substantial economic activities (Substance Based Income Exclusion Rule – SBIE) from the GloBE income to obtain the excess profit to which the Top-up tax percentage applies. The group can choose not to use the SBIE by exercising the option provided by Article 35, paragraph 2 of Legislative Decree 209/2023.
Regarding the calculation of the national minimum tax, the Decree specifies, among others, that:
- it is calculated for a fiscal year in relation to the taxable persons regardless of the ownership interest held in those persons by any controlling parent entities (UPE, IPE, and POPE) of the multinational or national group;
- it is equal to the product of the excess profit related to the taxable persons and the Top-up Tax percentage, increased by the additional Top-up Tax related to the same taxable persons determined under Article 36 of Legislative Decree 209/2023.
In accordance with the relevant international legislation, the Decree clarifies that the Top-up Tax percentage, excess profit and national minimum tax are determined each fiscal year for all constituent entities of the group located in the Italian territory but “separately” for each joint venture, entities belonging to the same joint venture group, investment entities, investment insurance entities, each minority owned constituent entities that is not a member of a minority owned group and for each stateless entity under Italian law.
The Decree also provides that the national minimum tax due for constituent entities and joint ventures located in Italy is assumed to be zero for a given fiscal year if:
- the de minimis exclusion option under Article 37, paragraph 1 of Legislative Decree 209/2023 is exercised;
- the option under Article 2, paragraph 1 of the Decree on simplified transitional safe harbours (De Minimis test, Simplified Effective Tax Rate test, Routine Profit test) under Article 39 of Legislative Decree 209/2023 is exercised.
Article 10 of the Decree further points out the obligations and responsibilities for the payment of the national minimum tax.
Concerning the obligations for the payment of the national minimum tax, the Decree specifies that the group must identify, on a priority basis, a constituent entity located in Italy for the payment of national minimum tax if due in a fiscal year by the Italian entity of the group.
Joint ventures, on the other hand, pay the national minimum tax due for each fiscal year autonomously. However, if the joint venture located in Italy belongs to a JV group, it is required to pay the national minimum tax due for a fiscal year for itself and its JV subsidiaries.
The constituent entity elected for the payment of the national minimum tax and all entities of the group located in Italy are jointly and severally liable for the correct fulfilment of the tax obligation.
The Decree allows the multinational or national group to establish the allocation of the burden arising from the national minimum tax among the Italian entities of the group, specifying that any amounts received and paid by constituent entities and joint ventures as a result of the allocation of the national minimum tax are not relevant for tax purposes.
In the final provisions, the Decree reiterates that the national minimum tax applies from fiscal years starting from December 31, 2023 (thus from January 1, 2024, for “calendar year” taxpayers) for both multinational and domestic groups, without excluding the five fiscal years provided for in Article 56 of Legislative Decree 209/2023 for groups in the early stages of their international activity or in the initial phase of applying the OECD rules.
Following the issuance of the Decree, both Italian companies and permanent establishment of foreign entities localised in Italy are called to conduct a careful analysis aimed at evaluating the tax impacts arising from the national minimum tax and managing the related compliance obligations, for which the publication of a forthcoming decree is expected.
[1] The Legislative Decree n. 209/2023, Attachment A, n. 34 defines “constituent entity” as: “a) any entity that is part of a multinational or national group; and b) any permanent establishment of a parent company that is part of a multinational group referred to in letter a)”; Attachment A, n. 25 defines “group” as: “a) a set of entities interconnected by ownership or control relationships that are included in the consolidated balance sheet of the controlling parent company, as well as any company that is excluded solely because of its size, the principle of relevance or because it is held for sale; […]”.
[2] The Legislative Decree n. 209/2023, Attachment A, n. 14 defines “”joint venture” as: “an entity whose economic, asset and financial results are accounted for using the net equity method in the consolidated financial statements of the controlling parent company, provided that the latter holds in it, directly or indirectly, a stake equal to or greater than 50 percent. […]”.
[3] For the definition of the stateless entity, reference is made to explanatory statements to the Legislative Decree n. 209/2023 according to which: “A flow-through entity is considered not having a location (i.e. it is stateless), unless it is the ultimate parent entity of an MNE group or of a large-scale domestic group or it is required to apply an IIR or equivalent IRR in accordance with Articles 13, 14 and 15 of the Legislative Decree […]”.
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