Executive summary
On 30 December 2021, the Italian Government issued Law n. 234 (Budget Law) which was published on the next day in the Official Gazette and became effective as of 1 January 2022.
The Budget Law provides for several tax measures that may be of interest to multinationals with Italian operations, including the following:
Changes to patent box regime
Changes to 3% step-up on goodwill and trademarks
Extension of tax credit for new investments
Extension of tax credit for research and development (R&D) activities
Suspension of accounting depreciation/amortization for fiscal year (FY) 2021
Increase of the annual limit of tax credit off-set
Extension of tax incentives to selected business combinations
Extension of initial public offering (IPO) tax credit for small and medium entities (SMEs)
Deadline extension for payments related to payment notices
Extension of tax credits for building renovation
Changes to Personal Income Tax (PIT) rates and deductions
Detailed discussion
Changes to patent box regime
Law Decree n. 146 of 21 October 20211 (converted into law on 17 December 2021 without substantial changes) repealed the patent box regime and replaced it with a cost-based incentive allowing for a 90% extra deduction of R&D expenses.
The Budget Law introduces several amendments to such new incentive:
The extra deduction of the eligible R&D expenses is increased from 90% to 110%. Thus, R&D costs may be recognized for an amount equal to 210% of the relevant expenditure for both corporate income tax (IRES) and regional tax (IRAP).
R&D expenses for trademarks and know-how are excluded from the incentive cost base. Therefore, qualifying R&D costs only relate to copyrighted software, patents, designs and models.
If R&D expenses are incurred prior to the creation of a qualifying intellectual property (IP), the extra 110% deduction applies from the fiscal year in which the relevant IP is granted legal protection. The extra deduction includes R&D expenses incurred up to the 8th fiscal year before IP protection is granted.
The extra 110% deduction measure is no longer alternative to the R&D tax credit. These incentives may now be utilized concurrently.
It is clarified that the new incentive is available starting the fiscal year in course as of 31 December 2021 (i.e., FY2021 for calendar year companies). Accordingly, 2020 is the last fiscal year with reference to which the patent box election can be made (possibly with a five-year validity, i.e., up to 2024 at the latest).
However, taxpayers who are still waiting for the conclusion of a patent box ruling (including renewals of prior agreements) may renounce the patent box and elect the new incentive even for fiscal years prior to the one in course as of 31 December 2021. Such alternative is not available for fiscal years for which a patent box ruling (including renewals of prior agreements) is already concluded, or with reference to which taxpayers have elected the self-computation method.
Implementing instructions will be issued by the Italian Tax Authorities.
Changes to 3% step-up on goodwill and trademarks
The Budget Law provides for a major change in the step-up procedure introduced by Law Decree n. 104/2020. Such procedure allowed Italian entities, under certain circumstances, to step up for tax purposes both tangible and intangible assets (including goodwill) resulting from the Financial Statement as of 31 December 2019 (for calendar year entities) in exchange for the payment of a 3% substitute tax.2
The amortization period for goodwill and trademarks stepped up under the mentioned rule is extended from 18 years to 50 years for both IRES and IRAP and such extension applies retroactively to all the elections made for FY2020.
In the case of transfers (including sales for a consideration, assignment to shareholders, etc.) of stepped-up goodwill and trademarks occurring after the recapture period of four years set forth by art. 110 of Law Decree n. 104/2020:
Any losses derived by the transferor, up to the amount of the step-up not yet amortized, will be deductible on a straight-line basis over the residual depreciation period.
The transferee will be allowed to amortize the stepped-up value, net of any loss deducted by the transferor, on a straight-line basis over the residual depreciation period.
Companies wanting to keep the 18-year straight line amortization may integrate the 3% payment by paying an additional substitute tax up to 12%, 14% or 16% depending on the case (i.e., by paying an additional tax of 9%, 11% or 13%). Payment is generally due by the deadline for the FY2021 balance payment of corporate taxes (i.e., 30 June 2022 for calendar year companies). An option to split the payment into two installments - due respectively by the deadline for the FY2021 and FY2022 balance payment of corporate taxes - is available.
Companies that elected the 3% step-up are given the possibility to renounce the regime according to instructions to be issued by the Italian Tax Authorities and will be able to recover the substitutive tax paid either as a refund or as a tax credit.
Extension of the tax credit for new investments
The Budget Law extends the previously available tax credit for new high-tech investments to assets purchased during the period from 1 January 2023 to 31 December 2025, or even until 30 June 2026, provided that purchase orders are accepted by the seller by 31 December 2025 and at least 20% of their price is paid by the same date.
For investments in high-tech tangible assets purchased from 2023 to 2025, the tax credit amounts to:
20% of the purchase cost for investment up to €2.5 million
10% of the purchase cost for investment from €2.5 million up to €10 million
5% of the purchase cost for investment from €10 million up to €20 million
For investments in high-tech intangible assets, the tax credit amounts to:
20% of the purchase cost for investment made in 2023 with a maximum annual investment amount of €1 million
15% of the purchase cost for investment made in 2024 with a maximum annual investment amount of €1 million
10% of the purchase cost of the purchase cost for investment made in 2025 with a maximum annual investment amount of €1 million
Extension of the tax credit for R&D activities
The Budget Law extends the previously available tax credit for R&D activities up to the fiscal year in course as of 31 December 2031 and revises the applicable tax credit rates.
Specifically, the tax credit available for R&D activities amounts to:
20% in 2022 with a maximum amount of €4 million
10% from 2023 to 2031 with a maximum annual amount of €5 million
The tax credit available for innovation, design and sustainable investments is extended through to the fiscal year in course as of 31 December 2025 with the following rates and annual maximum amounts:
| FY | Innovation and design | Sustainability | ||
| % | Maximum amount | % | Maximum amount | |
| 2023 | 10% | €2 million | 10% | €4 million |
| 2024 | 5% | €2 million | 5% | €4 million |
| 2025 | 5% | €2 million | 5% | €4 million |
Suspension of accounting depreciation/amortization for FY2021
The Budget Law extends to the financial statement drafted for the fiscal year following the one in course as of 15 August 2020 (i.e., fiscal year 2021 for calendar year companies) the possibility to suspend, only for accounting purposes, the amortization/depreciation process of intangible/tangible assets entirely or partially.
Such election is available only to companies that opted for the suspension in the FY2020 Financial Statements and have not recorded the 100% of the depreciation/amortization.
It is yet unclear whether companies that suspended only partially the depreciation and/or amortization process in FY2020 could elect for the suspension in FY2021.
Increase of the annual limit of tax credit off-set
The Budget Law makes permanent the increase of the annual limit of tax credits available to off-set tax liabilities (or to be refunded through a simplified procedure) from €700,000 to €2 million.
Extension of tax incentives to selected business combinations
The Budget Law extends certain tax benefits for selected business aggregations3 between third parties, including merger and de-merger transactions, as well as business contributions implemented through 2021 up until 30 June 2022.
The receiving entities involved in the aggregation may elect for the conversion into a tax credit of the deferred tax assets (DTAs) related to the tax losses carried forward and to excess Italian notional interest deduction.
The threshold of the convertible DTAs is set at €500 million.
Extension of IPO tax credit for SMEs
The tax credit available for advisory costs incurred by SMEs for the purpose of an IPO is extended to 2022 with a reduction of the maximum amount from €500,000 to €200,000.
Deadline extension for payments related to payment notices
For payment notices issued by a collection agent from 1 January to 31 March 2022, the payment deadline is set at 180 days (instead of 60) after the notification.
Extension of tax credits for building renovation
The Budget Law extends to 31 December 2025 the beneficial regime consisting in a tax deduction connected with expenses incurred for specific qualifying energy efficiency and anti-seismic works (so-called “Superbonus”), and, simultaneously, redefines the magnitude of the benefit.
Specifically, individuals and other no profit entities could claim the Superbonus:
As 110% of the expenses incurred up to 31 December 2023
As 70% of the expenses incurred in 2024
As 65% of the expenses incurred in 2025
At the same time, tax deductions related to expenses incurred for qualifying energy efficiency improvements on buildings and the recovery or restoration of the external facade of existing buildings have been extended to, respectively, 2024 and 2022 with some changes in the intensity of the measures.
Changes to PIT rates and deductions
The Budget Law introduces PIT changes aimed to reduce the overall tax burden by:
Amending the mechanism and magnitude of several PIT deductions
Rewriting the tax brackets (reducing from five to four) and applicable rates, as follows:
| Before | After | ||
| Income | PIT rate | Income | PIT rate |
| < €15,000 | 23% | < €15,000 | 23% |
| €15,000 - €28,000 | 27% | €15,000 - €28,000 | 25% |
| €28,000 - €55,000 | 38% | €28,000 - €50,000 | 35% |
| €55,000 - €75,000 | 41% | > €50,000 | 43% |
| > €75,000 | 43% | ||
For additional information with respect to this alert, please contact the following:
Studio Legale Tributario, International Tax and Transaction Services, Milan
- Marco Magenta
- Savino Tato
- Simone De Giovanni
Studio Legale Tributario, International Tax and Transaction Services, Rome
- Daniele Ascoli
Studio Legale Tributario, Business Tax Advisory, Rome
- Giacomo Albano
- Alessandro Pacieri
Studio Legale Tributario, Bologna
- Mario Ferrol
Studio Legale Tributario, Florence
- Cristiano Margheri
Studio Legale Tributario, Torino
- Marco Bosca
Studio Legale Tributario, Treviso
- Stefano Brunello
Studio Legale Tributario, Verona
- Alexia Pinter
Ernst & Young LLP (United Kingdom), Italian Tax Desk, London
- Domenico Borzumato
Ernst & Young LLP (United States), Italian Tax Desk, New York
- Emiliano Zanotti
- Maria Elena Passaretti
- Lorenzo Sambettini
For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.
