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Italy issues final legislation for corporate income tax reform
- The new Legislative Decree became effective as of 31 December 2024.
- Part of an ongoing broader tax reform, the Decree is aimed at amending some aspects of the Italian corporate income tax framework by specifically focusing on the elimination of mismatches between accounting and tax values as well as mitigating cases of tax arbitrage.
Executive summary
Legislative Decree n. 192 of 13 December 2024 (Decree) was published in the Official Gazette on 16 December 2024 and became effective as of 31 December 2024.
The Decree intends to simplify and rationalize the tax treatment of corporate reorganizations with regard to (i) tax step-up regimes, (ii) tax loss carryforwards, and (iii) tax-free regimes of corporate reorganizations.
A prior Alert detailed the legislation in its proposed form (see EY Global Tax Alert, Italy issues draft legislation for corporate income tax reform, dated 27 November 2024.) This Alert highlights the differences between the proposed and final legislation.
Detailed discussion
One of the limited differences between the draft and final version involves the new step-up substitute tax rates. Specifically, the Decree clarifies that the 3% tax applying in lieu of the Italian local tax (i.e., "Imposta regionale sulle attivita produttive" or IRAP) for banking and insurance businesses should be increased by the ordinary IRAP surcharges specifically provided for such sectors.
The Decree reintroduces a three-year recapture rule for tax-free reorganization step-ups to prevent tax-arbitrage practices as proposed by the Parliament.
As also proposed by Parliament, the Decree refers to further implementing Ministerial decrees to clarify specific mechanics applicable to the new intra-group exception for tax-loss carryforwards in cases of change of control and mergers/demergers.
The final Decree also clarifies the concept of the (newly modified) Net Equity Test (as one of the tests to preserve tax-loss carryforwards in cases of change of control and mergers/demergers) by requiring the economic value of the net equity to be decreased by a qualifying pro-rata share of the shareholder contributions made in the 24 months preceding 31 December 2024.
Lastly, the Decree introduces some changes to the Dormant Companies Regime (i.e., a set of rules aimed at counteracting the practice of setting up companies for the mere purpose of holding assets without an actual business activity). Under Italian tax law, a company is deemed to be "dormant" (and therefore subject to a minimum alternative tax) when certain ratios between revenue and asset values are not met. The Decree amends some of these minimum ratios.
Implications
Multinationals with Italian operations should become familiar with the final Decree and continue monitoring any potential impact deriving from the ongoing major tax reform in Italy.
For additional information concerning this Alert, please contact:
Studio Legale Tributario, International Tax and Transaction Services, Milan
- Marco Magenta
- Savino Tato
- Quirino Imbimbo
- Rossella Patella
- Roberto De Bernardinis
- Simone De Giovanni
Studio Legale Tributario, Financial Services Office, Milan
- Paolo Zucca
- Giuseppe Marco Ragusa
- Antonfortunato Corneli
- Giancarlo Tardio
- Gabriella Cammarota
- Roberto Carotenuto
Studio Legale Tributario, Rome
- Daniele Ascoli, International Tax and Transaction Services
- Giacomo Albano, Business Tax Advisory
- Alessandro Pacieri, Business Tax Advisory
- Grazia Carbone, Business Tax Advisory
- Marco Marani, Business Tax Advisory
Studio Legale Tributario, Bologna
- Gianluca Cavallari
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
- Giulia Randazzo
- Agnese Tiracorrendo
Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor
For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.