New Decree Expands the Scope of the International Ruling Procedure
The Decree Law No. 145 of December 23, 2013 (ratified by Law No. 9 of February 21, 2014) broadens the scope of the international ruling procedure. The main area of application is transfer pricing, in particular advance pricing agreements, but it may also apply to (i) the attribution of income or losses to Italian permanent establishments of nonresident taxpayers and to foreign permanent establishments of Italian-resident taxpayers, or (ii) the application of tax treaties to dividends, interest, and royalties. Under the regime as now amended, nonresident taxpayers may request a ruling to obtain an advance assessment of whether their activities in Italy give rise to a permanent establishment. Rulings issued under this procedure are binding on the taxpayer and the tax administration for the tax year in which they are issued and the following four years (two years under the regime applicable before the recent amendment).
Clarifications with Respect to Deductibility of Losses on Receivables
The Finance Act 2014 clarifies the conditions that must be met to deduct losses on receivables. Under the Italian Income Tax Act, companies may deduct these losses only if they are evidenced by certain and precise facts (elementi certi e precisi). The Italian Tax Authorities and the Italian Supreme Court have very often taken a conservative approach and have rarely recognized the existence of such certain and precise facts. In particular, they have denied deduction of the loss deriving from the sale of a receivable for a price lower than its book value if the taxpayer could not give conclusive evidence that it could not collect the receivable from the debtor. Companies adopting IAS/IFRS to draft their financial statements were deemed to have fulfilled the condition for deductibility if they had properly written off (derecognized) the receivable according to IAS/IFRS. Finance Act 2014 amended the Italian Tax Act so as to extend this latter rule to companies that adopt Italian GAAP to draft their financial statements. Therefore, the Italian Income Tax Act now clarifies that certain and precise elements are deemed to exist if a company has duly derecognized the receivable from its balance sheet in compliance with Italian GAAP.
Amendments of the Tax Regime for Financial Leases
The Finance Act 2014 amended the tax regime applicable to financial leases for corporate income tax ("IRES") purposes, making it more favorable than before. Under Italian tax law, a lessee that does not follow IAS/IFRS to draft its financial statements can deduct the lease payments, regardless of the method used to account for the financial lease. Under the previous regime, which still applies to financial leases executed until December 31, 2013, the lease payments had to be deducted over a period that could not be shorter than two-thirds of the statutory depreciation period of the asset (or the entire statutory depreciation period in the case of leasing of motor vehicles). Moreover, if the leased asset was real property, the lease payments had to be deducted over a period that could not be shorter than two-thirds of the statutory depreciation period of the asset and that could not, in any case, be shorter than 11 years or longer than 18 years. Under the new regime, which applies to financial leases executed as of January 1, 2014, the lease payments must be deducted over a period that is not shorter than half of the statutory depreciation period of the asset (or the entire statutory depreciation period in the case of leasing of motor vehicles). If the leased asset is real property, the lease payments must be deducted over a period of no less than 12 years.