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Changes to the Italian Budget 2016

Guido Petraroli 20 Feb 2016

The top three corporate tax changes introduced by the Italian Budget Law 2016 are the following.

Country by Country reporting 

Italy introduced the so-called Country by Country (CbC)reporting, in accordance with BEPS Action 13.

Companies subject to reporting

The Italian tax resident companies subject to CbC reporting are:

• Ultimate Parent Entities, i.e., Italian tax resident companies that (i) are required to prepare Consolidated Financial Statements, (ii) with a turnover at the level of the group at least of EUR 750 million, and (iii) are controlled by individuals;
• Italian tax resident companies that are included in a MNE group’s Consolidated Financial Statements, if, alternatively, (i) the Ultimate Parent Entity of such group is not obliged to file a CbC report in its jurisdiction (ii) the jurisdiction in which the Ultimate Parent Entity is resident for tax purposes does not have a Tax Information Exchange Agreement for the exchange of the CbC report or (iii) the Ultimate Parent Entity fails to comply with the CbC reporting rule.

Data to be reported

The CbC report shall contain the following in regard to each jurisdiction in which the MNE Group operates: (i) an identification of each entity of the MNE Group, (ii) revenue, (iii) profit/loss before income tax, (iv) income tax paid, (v) income tax accrued, (vi) other information which indicates a substantial business activity.

Penalties

A penalty from EUR10K to EUR 50K applies in case of omission or inaccurate filing.

Implementing decree

An implementing decree will be issued in order to clarify the technical aspects.

Corporate income tax rate reduction:

The corporate income tax (imposta sul reddito delle società, IRES) rate will be decreased from 27.5% to 24%, with affect from tax year 2017.

Modification of the statute of limitations: 

The Tax Authorities have five years from the end of the year in which the tax return was filed to send a tax assessment. The statute of limitations is seven years if no tax return was filed. In comparison to the previous rule, the terms shall not be doubled if the taxpayer’s action constitutes a criminal offence. Such modification gives more certainty to the taxpayer.

Taxand's Take

The key opportunity for multinationals is to invest in a tax environment, which is more in line with the OECD BEPS actions (CbC reporting), attractive (CIT rate reduction), and certain (modification of the statute of limitation).

Article tags

International Tax | Italy