Italy: Rules under allowance for corporate equity | KPMG | GLOBAL

Italy: New rules, tax benefits under “allowance for corporate equity”

Italy: Rules under allowance for corporate equity

In Italy, a decree re-defines the anti-avoidance rules that apply with respect to the “allowance for corporate equity.”

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Allowance for corporate equity

Under the “allowance for corporate equity,” Italian enterprises and Italian permanent establishments of foreign entities can benefit from increases made to their net equity by applying a nominal rate of interest to such equity increases. Under this allowance regime, an amount of interest that is determined to be the “allowance for corporate equity” is deducted from the company’s net taxable income. If in a given year, the amount of the allowance exceeds the company’s net taxable income, the surplus can be carried forward indefinitely.

New anti-avoidance measures

The decree (published in the official gazette on 11 August 2017) redefines anti-avoidance rules under the “allowance for corporate equity” regime so as to exclude duplications of the tax benefit within a group of enterprises (in particular, when intra-group transactions involve non-residents) and thus trigger a decrease in the amount of the allowance that is available as a reduction applied against taxable net income. Among the new measures:

  • The decree extends the definition of a “group” (to which the anti-avoidance measures apply) to include private individuals and non-resident companies. 
  • The decree applies the anti-avoidance rules to the following intra-group transactions between both Italian and non-Italian related parties: 
    • Cash contributions to group companies, made from 2011
    • Acquisitions of controlling interests from other group companies
    • Acquisitions of going concerns (i.e., businesses or branches of business) from other group companies
    • Financing provided, as of 1 January 2011, to other group companies

In addition, the anti-avoidance rules continue to apply to cash contributions from taxpayers (even outside the group) that are domiciled in a country that is not on the list of countries that allow for an adequate exchange of information with Italy—i.e., “white list” jurisdictions. Such a decrease in the amount of the allowance is to be divided among the companies receiving the cash contribution, with a “look through” approach being applied.

Taxpayers can file an application for a tax ruling from the Italian tax authorities to support a claim that these anti-avoidance rules do not apply because there is no duplication of the tax benefit under the allowance for corporate equity.

KPMG observation

The new rules are effective beginning from the first fiscal year following the effective date of the decree (e.g., 2018 for calendar year taxpayers). However, intra-group transactions subject to the anti-avoidance rules may have occurred in previous years; as such, taxpayers need to examine their group transactions and consider filing an application for a tax ruling if necessary.

 

Read a September 2017 report [PDF 177 KB] prepared by the KPMG member firm in Italy

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