The Chamber of Deputies has definitively approved the law delegating to the government tax reform. “Today’s approval of the tax delegation represents a historic result, we are in front of an epoch-making reform that Italy has been waiting for for over 50 years,” says Deputy Minister Maurizio Leo.
The enabling act for the restructuring of the tax system gives a mandate to the Government to review the tax system within a period of 24 months, through the publication of one or more legislative decrees that may be followed by further legislative decrees containing corrections and additions.
The law pursues several ambitious goals: lowering the tax burden, increasing the degree of legal ‘certainty’ of the tax system, decreasing litigation, and outlining a system capable of attracting individuals and capital from abroad.
As regards the timing of implementation, from the entry into force of the enabling act, the Government will be required to comply with the following timelines:
- within a period of 12 months, it must implement the creation or revision of single texts for homogeneous sectors;
- within a time frame of 24/27 months, delegated decrees will be required to be issued, possibly followed by further corrective or supplementary measures;
- within 12 months of the publication of the corrective or supplementary decrees, the tax code must be drawn up.
The principles that will have to inspire the hand of the legislator are geared towards a gradual adaptation of national tax law to European principles and the recommendations of the OECD in the context of the BEPS (Base erosion and profit shifting) project. The reform will also be oriented towards a revision of the discipline of the tax residence of persons and entities, in order to make it consistent with international best practice and double taxation conventions and, more generally, to bring the national tax system into line with greater competitiveness at the international level.
SOME OF THE MAIN PROVISIONS
With regard to personal income tax, the delegation states that the complete and organic revision of the system will have to respect first of all the ‘principle of progressivity’ while still transitioning to a system with a single rate. The reform will also have to redefine the deductions and deductions.
With regard to changes affecting personal income tax, the Act contains specific provisions for various income categories, among which significant new aspects emerge:
- The extension of the application of the ‘cedolare secca’ (income tax substitute for rental income) also to properties used for purposes other than residence (mainly, commercial and instrumental properties), ‘where the tenant is a business, art or profession;‘;
- The introduction of a single income category unifying capital income and other income of a financial nature, providing for taxation based on the cash principle, with the possibility of offsetting. In short, it establishes a substitute tax based on the total net income deriving from financial income realised in the calendar year, adding together positive and negative financial income;
- The ‘system-wide’ introduction of the possibility of revaluation of participations and land, outside the business activity;
- The establishment of rules on capital gains realised by collectors outside the exercise of entrepreneurial activity, concerning objects of art, antiques or collections, with the exclusion of cases where speculative intent is absent (including those of capital gains relating to assets acquired by inheritance or gift).
With regard to changes affecting corporate income tax, the Bill provides:
- The reduction of the applicable rate in the case of investments, with particular reference to qualified investments, or even new hires or stable employee profit-sharing schemes;
- The rationalisation and simplification of regimes for realigning tax values to book values;
- The revision of the rules on the deductibility of interest expenses;
- The reorganisation of the system for offsetting tax losses and the circulation of those of companies participating in extraordinary transactions or in the tax consolidation;
- The rationalisation of the regulation of business transfers and exchanges of participations by way of contribution, with particular reference to participations held in holding companies, while respecting the existing principles of tax neutrality;
- The provision of a special regime in the event of the transfer of assets from commercial to non-commercial activity and vice versa as a result of a change in the tax classification of such activities;
- Rationalisation with regard to the domestic tax qualification of foreign entities, taking into account their qualification as tax-transparent or opaque entities by the relevant legislation of the state or territory of incorporation or tax residence.
There are also many changes related to the “taxpayer statute” including strengthening the Italian tax administration’s obligation to motivate tax acts, enhancing the principle of the taxpayer’s legitimate expectations, increasing legal certainty, and rationalizing the tax ruling institution.
These are just some of the main areas of intervention of the enabling act, which, however, also extends to VAT and other indirect taxes, IRAP, taxpayers’ compliance, financial administration procedures and sanctions, tax litigation, and the reform of single texts on tax matters.
The tax reform is intended to represent a structural and comprehensive change: a long-awaited revolution that aims to make Italy an increasingly competitive country capable of attracting and welcoming people, investors and companies from abroad.
Our firm will monitor future developments and report all news and insights concerning the reform of the Italian tax system.
