[May 4th, 2017] Tax Newsletter - Law Decree April 24, 2017, No. 50 - the so-called "Manovra Correttiva"
Split payment
As of July 1, 2017, the split payment mechanism is also extended to transactions made with:
- institutions and companies belonging to the Public Administration (by integrating the present excluded cases);
- companies controlled by the State and by the Territorial Public Bodies and subsidiaries which are, directly or indirectly, controlled by the above mentioned companies;
- companies listed in the FTSE MIB.
The split payment mechanism also applies to the provision of services subject to withholding tax (e.g. self-employed professionals).
The operating procedures will be defined by a ministerial decree to be issued within 30 days.
VAT Deduction
The deadline for exercising the right to deduct VAT is reduced: it can be exercised at the latest in the VAT return related to the year in which the right to deduct has arisen and no longer in the one relating to the second subsequent year.
In addition, the VAT taxpayers must record invoices in the VAT purchase ledger prior to the periodic liquidation in which the right to deduct is exercised and, in any case, within the deadline for submitting the VAT return relating to the year of receipt of the invoice.
Limits on the use of offset credits
The limit for the endorsement of conformity on annual VAT, income tax and IRAP returns resulting in a credit position is reduced to €5,000 (from the previous €15,000).
In case of offsetting without endorsement of
conformity, the recovery of credits used in violation of the law, as well as the related interests and penalties, is foreseen.
VAT taxpayers are obliged to use the telematics services provided by the Tax Authorities for offsetting (also those lower than €5,000).
The changes have immediate effect.
VAT rate increase
A more gradual VAT rate increase from 10% to 11.5% starting from 2018 and then, by degrees, up to 13% in 2020 is confirmed.
However, the 25% increase in the ordinary VAT rate as of 2018 remains unchanged (the ordinary rate that will be further raised to 25.4% in 2019, reduced to 24.9% in 2020 and finally stabilized at 25% starting from 2021).
Redefinition of the ACE base
Starting from the fiscal year following the one in progress at December 31, 2016 (namely starting from fiscal year 2017 for taxpayers adopting the calendar year), the base for calculating the ACE benefit is reduced: it will take into account the changes in net worth compared to the one existing at the close of the fifth previous fiscal year (and no longer the changes in net worth compared to the one existing at December 31, 2010).
There is also an obligation to recalculate the IRES advance payments of fiscal year 2017 (with reference to taxpayers adopting the calendar year) taking into account the IRES of the previous fiscal year determined by applying the ACE new provisions.
Tax mediation
The limit below which the tax mediation is imposed by law before bringing a suit in the tax court is raised to €50,000 (from the previous €20,000).
The new limit applies to the deeds notified as of January 1, 2018.
Tax litigation amnesty
An amnesty procedure for the pending tax litigations is introduced: it allows the taxpayer to settle disputes by paying only the tax and interest for assessment, with neither penalties nor default interest. In case of disputes involving penalties only, however, it is possible to settle the matter by paying 40% of the disputed sums.
Access to this procedure is permitted in case of litigation procedures filed with the competent tax court before December 31, 2016 and in relation to litigations in which the Revenue Agency is a party.
Patent box
Trademarks are excluded from the patent box tax benefit. Conversely, the tax benefit is also extended to income deriving from the joint use of intangible assets, complementary linked to each other, for making a product or a family of products, or a process or a group of processes, provided that the intangible assets used collectively include only those goods that are eligible for the tax benefit.
The changes apply (for taxpayers adopting the calendar year) with reference to the options exercised after December 31, 2016. Therefore, the options for trademarks exercised with reference to fiscal years 2015 and 2016 remain valid until expiration.
Transfer pricing
For the purposes of calculating intra-group transfer prices, the reference to the “normal value” of goods and services is replaced by the reference to “the conditions and prices that would be agreed upon between independent parties operating under conditions of free competition and comparable circumstances”.
In case of increases tax adjustment made for the purposes of transfer pricing by foreign tax authorities, the tax reduction in Italy is recognized:
- when carrying out the friendly procedures provided for by the international conventions (MAP);
- as a result of control carried out in the framework of international cooperation activities, the results of which are shared among the participating countries (joint-audit);
- following a request by the taxpayer as a consequence of a definitive increase adjustment and in accordance with the principle of free competition carried out by a foreign country with which Italy has signed an agreement against double taxation and which recognizes an appropriate exchange of information.
As of July 1, 2017, the split payment mechanism is also extended to transactions made with:
- institutions and companies belonging to the Public Administration (by integrating the present excluded cases);
- companies controlled by the State and by the Territorial Public Bodies and subsidiaries which are, directly or indirectly, controlled by the above mentioned companies;
- companies listed in the FTSE MIB.
The split payment mechanism also applies to the provision of services subject to withholding tax (e.g. self-employed professionals).
The operating procedures will be defined by a ministerial decree to be issued within 30 days.
VAT Deduction
The deadline for exercising the right to deduct VAT is reduced: it can be exercised at the latest in the VAT return related to the year in which the right to deduct has arisen and no longer in the one relating to the second subsequent year.
In addition, the VAT taxpayers must record invoices in the VAT purchase ledger prior to the periodic liquidation in which the right to deduct is exercised and, in any case, within the deadline for submitting the VAT return relating to the year of receipt of the invoice.
Limits on the use of offset credits
The limit for the endorsement of conformity on annual VAT, income tax and IRAP returns resulting in a credit position is reduced to €5,000 (from the previous €15,000).
In case of offsetting without endorsement of
conformity, the recovery of credits used in violation of the law, as well as the related interests and penalties, is foreseen.
VAT taxpayers are obliged to use the telematics services provided by the Tax Authorities for offsetting (also those lower than €5,000).
The changes have immediate effect.
VAT rate increase
A more gradual VAT rate increase from 10% to 11.5% starting from 2018 and then, by degrees, up to 13% in 2020 is confirmed.
However, the 25% increase in the ordinary VAT rate as of 2018 remains unchanged (the ordinary rate that will be further raised to 25.4% in 2019, reduced to 24.9% in 2020 and finally stabilized at 25% starting from 2021).
Redefinition of the ACE base
Starting from the fiscal year following the one in progress at December 31, 2016 (namely starting from fiscal year 2017 for taxpayers adopting the calendar year), the base for calculating the ACE benefit is reduced: it will take into account the changes in net worth compared to the one existing at the close of the fifth previous fiscal year (and no longer the changes in net worth compared to the one existing at December 31, 2010).
There is also an obligation to recalculate the IRES advance payments of fiscal year 2017 (with reference to taxpayers adopting the calendar year) taking into account the IRES of the previous fiscal year determined by applying the ACE new provisions.
Tax mediation
The limit below which the tax mediation is imposed by law before bringing a suit in the tax court is raised to €50,000 (from the previous €20,000).
The new limit applies to the deeds notified as of January 1, 2018.
Tax litigation amnesty
An amnesty procedure for the pending tax litigations is introduced: it allows the taxpayer to settle disputes by paying only the tax and interest for assessment, with neither penalties nor default interest. In case of disputes involving penalties only, however, it is possible to settle the matter by paying 40% of the disputed sums.
Access to this procedure is permitted in case of litigation procedures filed with the competent tax court before December 31, 2016 and in relation to litigations in which the Revenue Agency is a party.
Patent box
Trademarks are excluded from the patent box tax benefit. Conversely, the tax benefit is also extended to income deriving from the joint use of intangible assets, complementary linked to each other, for making a product or a family of products, or a process or a group of processes, provided that the intangible assets used collectively include only those goods that are eligible for the tax benefit.
The changes apply (for taxpayers adopting the calendar year) with reference to the options exercised after December 31, 2016. Therefore, the options for trademarks exercised with reference to fiscal years 2015 and 2016 remain valid until expiration.
Transfer pricing
For the purposes of calculating intra-group transfer prices, the reference to the “normal value” of goods and services is replaced by the reference to “the conditions and prices that would be agreed upon between independent parties operating under conditions of free competition and comparable circumstances”.
In case of increases tax adjustment made for the purposes of transfer pricing by foreign tax authorities, the tax reduction in Italy is recognized:
- when carrying out the friendly procedures provided for by the international conventions (MAP);
- as a result of control carried out in the framework of international cooperation activities, the results of which are shared among the participating countries (joint-audit);
- following a request by the taxpayer as a consequence of a definitive increase adjustment and in accordance with the principle of free competition carried out by a foreign country with which Italy has signed an agreement against double taxation and which recognizes an appropriate exchange of information.
