On 30 April 2019, Law Decree No. 34 (the “Law Decree”) was published in the Official Gazette (https://bit.ly/2DH0lSZ). The Law Decree, which entered into force on 1 May 2019, provides urgent measures for economic growth, including amendments to the following tax regimes:
- bonus for business acquisitions;
- patent box regime
- temporary enhanced depreciation regime; and
- deductibility of the municipal property tax for income tax purposes.
1. Bonus for business acquisitions.
Under Italian laws, M&A transactions such as mergers, demergers and business contributions are tax neutral (non-recognition).
As a general rule, the resulting/beneficiary company may elect to step up the tax basis of both the fixed tangible assets and fixed intangible assets, including goodwill. To do so, the company must pay a substitute tax at the following rates: (i) 12% on the portion of the step-up value up to EUR 5 million, (ii) 14% on the portion of the step-up in value between EUR 5 million and 10 million, and (iii) 16% on the portion of the step-up in value that exceeds EUR 10 million.
There is also an alternative regime providing the possibility to step-up only the tax value of goodwill, trademarks and other intangibles by paying a 16% substitute tax. This election allows the company to amortize the stepped-up portion of the tax basis of goodwill and trademarks in a reduced timeframe (e.g. only 5 years for M&A transactions occurred as from fiscal year 2016) as opposed to the standard 18-year period.
In this scenario, the Law Decree provides for the possibility for resident companies being part of business acquisitions to step-up (as from 1 May 2019) the tax basis of certain assets without the payment of any substitute tax provided that the following main conditions are met:
- the business acquisitions do not involve companies pertaining to the same group, or anyhow companies with a 20% participation’s relationship or indirectly controlled by the same person;
- the companies participating to the business acquisitions are incorporated by at least two years.
This “free step-up” is eligible up to 31 December 2022 and relates only to the portion of the step-up value related to the goodwill and fixed tangible and intangible assets up to EUR 5 million.
2. Patent box.
The Law Decree introduces amending provisions to the patent box regime. In particular, as from fiscal year 2019, taxpayers applying for the patent box regime may opt (alternatively to reach an agreement with the Italian tax authority under the relevant ruling procedure) to directly determine the eligible income for income tax and regional tax purposes.
Specific procedural rules will be published by the Italian tax authority within 90 days as from 1 May 2019 (entry in force of the Law Decree).
In any case, please note that under this option taxpayers will be obliged to spread the negative adjustment related to the eligible income in three yearly installments (i.e. same amount per fiscal year) and to show it in the tax returns for income tax and regional tax purposes.
3. Temporary enhanced depreciation regime.
The Law Decree provides for an extra 30% depreciation deduction for income tax purposes (i.e. total depreciation of up to 130% of the cost) to tangible assets (excluding vehicles and other means of transport) purchased from 1 April 2019 to 31 December 2019. The extra deduction does not apply to the part of the investment exceeding EUR 2.5 million.
The measure is also extended to purchase of tangible assets effected within 30 June 2020, provided that by the date of 31 December 2019 (i) the relevant order is accepted by the seller, and (ii) at least 20% of the entire value is paid through advance payments.
The same benefit also applies for new tangible assets leased under a finance lease agreement, in which case the relevant lease payments are increased by 30%.
4. Deductibility of the municipal property tax for income tax purposes.
The Law Decree provides for the increase from 40% (in force from 1 January 2019) to:
- 50% for fiscal year 2019;
- 60% for fiscal years 2020 and 2021; and
- 70% for fiscal year 2022;
of the deductibility from business income and self-employment income of the municipal property tax (“IMU”) relating to immovable properties qualifying as capital assets (i.e., not trade assets).
Although the issue is not expressly covered by the Law Decree, it seems that there is reasonable ground to file a refund application to the Italian tax authority requesting the higher IMU paid in the previous fiscal years based on the former 20% of deductibility applicable up to fiscal year 2018.