Navigating through Covid-19
Public support schemes for small and medium-sized enterprises
As Covid-19 becomes of increasing concern around the globe, schemes for small and medium-sized enterprises are being put into to place.
This page is a collection of all you need to know on SMEs and Covid-19 in Italy.
What I need to know
Employment related measures
1. Suspension or reduction of working activity
Companies can have recourse to social shock-absorbers, that allow them to:
- either entirely suspend the employees’ working activity; or
- reduce the employees’ working time.
During suspension from work, or short time work programs, the state social security authority (Istituto Nazionale della Previdenza Sociale – “INPS”) makes up the pay of the affected employees up to certain thresholds. There are different types of social shock-absorbers, depending on the headcount and on the business sector in which the company operates, and each is governed by different rules and procedures.
Cassa integrazione guadagni ordinaria “CIGO” and ordinary allowance (assegno ordinario)
CIGO treatment and ordinary allowance may be provided for up to a maximum of 9 weeks starting from 23 February 2020, but not later than August 2020.
Companies that suspend or reduce working activity for Covid-19 emergency-related events may apply for access to CIGO provided by INPS, or access to an ordinary allowance (i.e., monetary performance that provides support to employees’ income for companies which fall outside the scope of the supplemental fund (cassa integrazione)) provided by the Salary Supplementation Fund (FIS).
CIGO applies to companies working in the industrial and mechanical sector, while FIS to a vast majority of Italian companies, not joining CIGO/CIGS nor a different Fund provided for by the applicable CBA.
In order to understand if the company falls under CIGO or FIS, the company should check whether contributions are paid to one of those subsidies.
The application for the admission to CIGO treatment or for ordinary allowance must be submitted electronically with, respectively, INPS or FIS by the end of the fourth month following the month when the suspension or reduction in work activity has started.
The Regions and the autonomous Provinces, with respect to companies in relation to which protections under applicable law for suspension or reduction of the working hours do not apply (not CIGO nor FIS apply), may entitle such companies to access derogated CIG treatments, by previous arrangement with the trade unions of the most representative employers at a national level. This union agreement is not required for companies comprised of up to 5 employees.
Before submitting the application for Derogated CIG, the Company should check the relevant Regional agreement (agreement signed by the Region and the unions), in which every Region has detailed the cases and the procedure to file the request.
2. Measures to support companies
Suspension of deadlines for tax and social security obligations
For companies most affected by the Covid-19 emergency (among which, tourist-accommodation companies, travel agencies, associations and sports clubs, catering activities, etc.), the deadlines for the payment of withholding tax and social security contributions due with respect to employees' salaries are suspended starting from 17 March 2020 until 30 April 2020. These payments may be made, without the application of penalties and interest, in a single instalment to be paid by 31 May 2020 or by instalments up to a maximum of 5 equal monthly instalments, starting from May 2020.
3. Flexible working
Until 31 July 2020, employers may decide unilaterally to have their employees work in “agile mode” without requiring their consent. Therefore, a refusal by the employee is strictly sanctioned.
Employers are not released from the obligation to deliver, either electronically or otherwise, the relevant health and safety policy to agile employees, including, where applicable, risk-related measures specific to Covid-19 (e.g., to avoid working in public/crowded places) with the involvement of Safety Managers and Inspectors (RSSP) and the relevant general practitioner.
4. Prohibition of dismissal
For the 60-day period starting from 17 March 2020, employers are prohibited from dismissing their employees for objective justifiable reasons (i.e., organizational reasons for a reduction or suspension of activities due to the Covid-19 emergency), regardless of the number of occupied workers.
During the same period employers with a number of employees equal to or greater than 15 may not initiate collective dismissal procedures (applicable by companies who, as a result of business or activities reduction or transformation, intends to make at least 5 dismissals over 120 days). All of the pending collective dismissal procedures initiated as of 23 February 2020, are hereby suspended.
1. Key contract disputes concepts
The following contractual and Italian law principles may be relevant in circumstances where one party to a contract is seeking to avoid its performance obligations. Note that similar concepts may exist under agreements governed by common law:
- Force majeure
Italy does not have any general statutory provisions relating to force majeure which would allow parties to a commercial contract to avoid the performance of their contractual obligations in case of a supervening event. However, contracts may contain force majeure clauses which typically excuse one or both parties from performance of the contract in some way following the occurrence of certain events. The relevant events are often defined as acts, events, or circumstances beyond the reasonable control of the party concerned. In order to be upheld by the courts, any such clause will need to be clearly defined and sufficiently certain.
- Material adverse change
Whether or not a “MAC” or “material adverse change” clause gives a party to the contract the right to terminate in the event of the company’s operations being affected by Covid-19 will depend on the wording of the relevant clause and the relevant circumstances. This will require a careful consideration of the clause and the specific facts which give rise to the MAC. As a general rule, it is harder to trigger the clause where the circumstances which give rise to the MAC are known at the time the contract is entered into.
- Supervening impossibility
When the performance of one party under an agreement becomes impossible for a cause which is not attributable to the same (“impossibilità sopravvenuta”), such party can invoke the termination of the contract and (i) will not be liable for damages due to (absolute or late) non-performance; (ii) is released from the relevant obligation and (iii) shall return what has already received as consideration. For the occurrence of the supervening impossibility, it is requested that: (a) the performance has become objectively impossible; (b) such impossibility has not been caused by the relevant party; and (c) the relevant event had a specific and direct impact on the performance causing it to be impossible.
Italian case law found “supervening impossibility”, inter alia, in the following cases: (i) events caused by nature (such as strong wind preventing a vessel from docking; earth-quakes rendering a real estate unit unsuitable for living; storm preventing travelling at sea); (ii) natural factors affecting the sphere of the debtor (such as flu of a lyric singer; old age of a farmer; and (iii) factum principis, i.e., an official order or measure that affects the agreement (such as an annulment of a previous favourable judgment; supervening governmental regulation; outcome of a popular referendum on nuclear power).
- Supervening excessive burdensomeness
When a contractual obligation, although technically still possible, becomes excessively burdensome due to an extraordinary and unforeseeable event, the provisions relating to change of circumstances imposing excessive burden (“eccessiva onerosità sopravvenuta”, which is similar to the concept of “hardship” in other jurisdictions) may apply. In this case, the party experiencing the excessive burden can claim the termination of the contract (safe the other party’s right to renegotiate the contract on fairer terms), if: (i) the agreement is outstanding and/or provides for obligations to be performed on a later date; (ii) the obligations on one party become excessively burdensome compared to the obligations of the other party; (iii) the obligations which have become too burdensome have not been entirely performed; (iv) such excessive burden results from an extraordinary and unforeseeable event; and (v) the agreement is not, by its nature or by agreement of the parties, of “aleatory” nature (“natura aleatoria”).
2. Managing the contractual relationship
In any potential breach of contract situation, a careful assessment of the facts, the nature of the contractual provisions engaged (e.g., are there conditions, warranties or something else?) will be required.
Care must be taken when interacting with counterparties that are reporting difficulties in performing their contractual obligations to ensure that you do not make promises or provide assurances that could later be argued to amount to a variation of contract or a waiver of rights. If a variation or waiver is intended, make sure to follow up in writing. The risk may be mitigated if the contract contains an anti-oral variation clause. If you are the party struggling to perform, consider whether it is appropriate to negotiate a waiver or variation to the agreement before a default occurs.
Corporate related measures
1. Corporate governance measures
Certain special provisions apply to shareholders’ meetings convened until 31 July 2020 or by the date, if later, until which the Covid-19 outbreak continues to be present in Italy.
- the annual shareholders’ meeting must be convened within the wider term of 180 days from the company’s financial year end (instead of the usual 120-days term), irrespective of any provision in its by-laws. The company’s management body is not required to justify the use of such wider term;
- in the relevant meeting notice, companies may allow (or require) the remote attendance of the shareholders’ meeting by way of electronic means (e.g., conference call or videocall) and allow voting remotely by postal (voto per corrispondenza) or electronic vote (voto in via elettronica), even if the company’s by-laws provide otherwise;
- companies may allow for shareholders’ meeting to be held, even exclusively, using electronic means provided that such means allow the identification of participants, their participation and their voting rights. Furthermore, the chairman and the secretary of the meeting (also in cases where the notary acts as secretary) are not required to be in the same place, even if the company’s by-laws provide otherwise;
- with respect to limited liability companies (società a responsabilità limitata), except for certain specific matters, resolutions of the quotaholders may be adopted by way of written consultation or written consent, even if the company’s by-laws do not explicitly contemplate such possibility or provide otherwise.
2. Other corporate law measures
- Losses affecting the share capital and winding-up
The provisions requiring that, in case of losses reducing the share capital of joint stock companies and limited liability companies by an amount higher than 1/3 for two consecutive accounting periods: (a) the share capital is reduced by an amount equal to the losses (articles 2446, second and third paragraph, and 2482-bis, fourth, fifth and sixth paragraph, of the Italian Civil Code) or (b) where the share capital is reduced below the minimum required by the law, either the share capital is restored above the statutory minimum or the company is transformed (articles 2447 and 2482-ter of the Italian Civil Code) do not apply to instances occurring in accounting periods ending by 31 December 2020.
Additionally, within the same time frame (i.e., with respect to instances occurring in accounting periods ending by 31 December 2020), the reduction of the share capital below the statutory minimum (for joint stock companies and limited liability companies) or the loss of the entire share capital (for cooperative companies) will not trigger the winding-up of the company (as articles 2484, first paragraph, no. 4 and 2545-duodecies of the Italian Civil Code would require), thus releasing the directors from the obligation to file for the liquidation of the company and manage the business with sole aim of preserving the integrity and value of the company’s assets.
- Financial statements going concern valuation perspective
With respect to the drafting of the financial statements relating to the accounting period ending on 31 December 2020, the valuation of the balance sheet’s items in a going concern perspective may be carried out if the going concern was deemed as present in the company’s last financial statements relating to an accounting period ended prior to 23 February 2020. This provision shall apply also to financial statements relating to accounting periods ended prior to 23 February 2020 and not approved yet.
- Shareholders’/intercompany loans
oans granted by shareholders or entities exercising direction and coordination over the borrower in the period between 9 April 2020 and 31 December 2020 are exempted from the application of the so-called “equitable subordination” rule i.e., the rule set out under articles 2467 and 2497-quinquies of the Italian Civil Code whereby shareholder/intercompany loans are subordinated by operation of law to all other debts of such company, if granted at a time when, taking into consideration also the business carried out by the company: (i) the company’s indebtedness was excessively high compared to shareholders’ equity, or (ii) the company’s financial situation was such that a shareholders’ contribution would have been reasonable under the circumstances.
Liquidity support measures
1. Central Guarantee Fund for Small and Medium-sized Enterprises (SMEs)
The terms of the Central Guarantee Fund for SMEs (“CGF”) are modified until 31 December 2020 and the CGF, derogating from its current legislative framework, will offer loan and portfolio guarantees on more favourable terms to SMEs and mid-caps, including those which are going through financial stress within certain limits. In particular, with regard to loan guarantees, the following measures are enhanced: (i) the granting of the guarantee is free of charge, (ii) increase of the maximum amount guaranteed, (iii) increase of the coverage percentages, (iv) relaxation of the borrower’s eligibility conditions, (v) issuance of the guarantee also with regard to renegotiated loans (subject to conditions), (vi) automatic extension of the guarantee in case of interruption of the payments by the bank, (vii) removal of certain fees.
Moreover, the maximum coverage of the guarantee has been extended to the entire amount of the loan (100%), for loans granted in favour of SMEs (and individuals carrying out business activities, professionals and artisans) affected by Covid-19 epidemic, provided that the loans (i) shall have a duration between 24 and 72 months and (ii) the relevant amount shall not exceed the lower of 25% of the borrower’s income and €25,000 (the application form is available at this link). The approval of the applications submitted from 8 April 2020 will be without credit assessment also for start-ups.
In addition to the measures set out above, until 31 December 2020, guarantees in relation to loan portfolios with certain characteristics are enhanced.
Additional information on these measures is available on the website of the Ministry for Economic Development (link) and in the operational circulars and clarifications of the CGF (available here).
2. SACE guarantees
SMEs which have already made full use of their access capacity to the CGF can apply through their bank for the loan guarantee issued by SACE, Under the new Counter-Guarantee Mechanism by SACE and the State, at least €30 billion (out of €200 billion) are reserved for SMEs. The measure is intended to ensure the necessary liquidity in the interest of Italian entities affected by Covid-19 epidemic by enabling SACE to issue irrevocable first-demand guarantees in favour of banks and other financial institutions to guarantee loans made available to Italian companies. SACE’s obligations under the guarantee will be backed by an irrevocable first-demand State guarantee.
SMEs may access the guarantee scheme provided that (a) as at 31 December 2019, they were not classified as an “undertaking in difficulty” pursuant to EU legislation and (b) their financial exposures were not classified as “NPEs” (“non-performing exposures”) as at 29 February 2020. The issuance of the guarantee for SMEs will be subject to the positive credit approval of the prospective lender.
Additional information on this measure and on the application procedure is available on the website of SACE (“Garanzia Italia” section) (link).
3. Moratorium of loans with a partial government guarantee
Micro-enterprises and SMEs which have suffered liquidity shortages as a consequence of Covid-19 and whose debt exposures are not classified as “NPEs” may request a moratorium on specified loan payments and credit lines which will last until 30 September 2020. The loans and credit lines covered by the moratorium will benefit from a free government fund guarantee equal to 33% of the relevant amount (which would depend on the type of financing).
Additional information on this measure and on the application procedure is set out in the webpage of the Ministry of Economy and Finance (here).
Tax related measures
Suspension of VAT and withholding tax payment obligations extended to other persons operating in specific business sectors
Withholding tax payment obligations on salaries due in March and April 2020 are suspended for employers operating in a number of sectors financially affected by the consequences of the Covid-19 outbreak such as entertainment, transport, sports, assistance, education, betting and gaming sectors1. Suspended withholding tax liabilities will need to be paid by 31 May 2020 or in up to 5 monthly instalments starting from May 2020.
VAT payment obligations due in March 2020 are suspended for tourist and hotel operators as wells as the operators of the above-mentioned sectors. Suspended VAT payments will need to be made by 31 May 2020 or in up to 5 monthly instalments starting from May 2020.
Taxpayers that have already discharged the above-mentioned payment obligations before the entry into force of the Decree cannot request for refund their payments.
Suspension of VAT and withholding tax payment obligations for small taxpayers
VAT payment obligations and withholding tax obligations on salaries and wages due in April and May 2020 are suspended. VAT and withholding taxes will need to be paid in a lump sum by 30 June 2020 or in up to 5 monthly instalments starting from June 2020, without any interest or penalties. This rule applies to:
- businesses with revenues of up to €50m, if their turnover has fallen by at least 33 percent in March and/or April 2020, compared with the same months last year;
- businesses with revenues of more than €50m, if their turnover has fallen by at least 50 percent in March and/or April 2020, compared with the same months last year.
In case of businesses whose tax residence, registered office or place of business is in the province of Bergamo, Brescia, Cremona, Lodi or Piacenza, the delay of VAT payments for April and May is exclusively subject to the condition that they must have suffered a fall in turnover of at least 33 percent, irrespective of revenues.
General tax payment suspension
Without prejudice to the specific measures listed above, all payments due to public administrations expiring on 16 March 2020 (including any tax payments), and initially postponed to 20 March 2020, have been deferred to 16 April 2020. Taxpayers other than those under paragraphs 1. or 2. above are now subject to ordinary tax payments.
Suspension of tax reporting and compliance
Tax obligations other than payments (i.e. reporting and compliance obligations) due from 8 March 2020 to 31 May 2020 are postponed to 30 June 2020.
Suspension of tax audit, assessment, collection and litigation and extended statutes of limitation
Terms and deadlines concerning tax liquidation, audit, assessment, collection and litigation activities due from 8 March to 31 May 2020 are suspended.
Within the same period also a number of terms and deadlines imposed upon the tax authority are suspended, such as: replies to tax ruling applications2, replies to applications for collaborative compliance and enhanced cooperation, international tax ruling procedure, transfer pricing adjustments and applications for the election for the patent box regime.
The statutes of limitation for the performance of the tax audit activities originally expiring on 31 December 2020 is extended by two years. This means that an audit, for income tax or VAT purposes, on tax year 2015 can be made until 31 December 2022 instead of 31 December 2020. Amendments have been proposed to repeal this extension.
Suspension of payment of debts entrusted to the collection agent
Payment obligations due from 8 March 2020 to 31 May 2020 deriving from tax payment notices (cartelle) issued by the collection agent, tax assessments notices issued by the “Agenzia delle Entrate” (atti impoesattivi), notices issued by social security bodies, payment orders issued by the “Agenzia delle Dogane” and payment orders issued by local municipalities are suspended.
Taxpayers must fulfil the above-mentioned payment obligations in a single instalment within one month following the end of the suspension period (i.e. 30 June 2020). In any case, taxpayers which have already fulfilled the above-mentioned payment obligations are not entitled to request for refund the amounts paid to the Italian tax authority before the enactment of the Decree.
Provisions relating to tax litigation
Hearing in front of tax Courts scheduled from 9 March 2020 to 15 April 2020 are postponed to a date to be fixed after 11 May 2020. The postponement also regards the performance of any judicial acts relating to the tax proceedings, the filing of tax appeals and tax complaints.
Tax credit for the costs of sanitization
In order to promote the sanitization of the work environments and to reduce the spread of Covid-19 outbreak, for year 2020 businesses and self-employed workers are granted a tax credit equal to 50% of the costs of (i) sanitization of the work environments/work tools, including hand cleansers and disinfectants, and (ii) purchasing and installing safety equipment to protect workers from accidental exposure to biological agents or to ensure that people are at a safe distance from one another. Such tax credit cannot exceed €20,000 per beneficiary.
Tax credits for rentals
A tax credit equal to 60% of the March rental of shops is granted to those tenants that are businesses. This is not applicable to those that carry out activities identified as “essential” (e.g., pharmacies, para-pharmacies, supermarkets or similar stores)3. Such tax credit can be only used to off-set other tax and social security liabilities in accordance with the ordinary rules.
Simplification of the payment of stamp duty on e-invoices
The payment of stamp duty has been deferred to:
- 20 July 2020, if the stamp duty for the first quarter of 2020 amounts to less than €250;
- 20 October 2020, if the stamp duty for the first and second quarters of 2020, amount to less than €250.
Advance instalments falling due in June
Underpayments of advance instalments of IRPEF, IRES and IRAP will not trigger any penalties or interest, provided that the difference between the payment and the amount due is not more than 20 percent.
Voluntary contributions made by businesses to the Italian State, Regions, State entities and recognised charitable organisations for Covid-19 recovery measures are entirely deductible for IRES and IRAP purposes by a donor that is a business.
Conversion of deferred tax assets into tax credits
Companies that transfer for a consideration “impaired” monetary receivables by 31 December 2020 are entitled to elect for the conversion of deferred tax assets (DTAs) into tax credits. Such tax credits can be utilised to off-set other tax and social security liabilities without application of ordinary limitations, or can be claimed for refund or surrendered to other group companies or third-party entities.
The above-mentioned tax incentive seems prima facie applicable not only to sellers qualifying as banks and as other financial entities, but also to companies operating in other business sectors. The above-mentioned provision is not applicable to companies under insolvency proceedings.
If the election is exercised, a 1.5% fee is due with respect to the excess of the DTA over the related income tax (IRES) and regional tax (IRAP) liabilities. At the present date, the mechanics of calculation of this fee are unclear.
Both trade and loan receivables are eligible. Receivables are deemed to be “impaired” if the relevant debtor is in default on its payment obligations for more than 90 days4.
DTAs that are convertible into tax credits are those originating from tax loss carry-forward and unused notional interest deduction on equity injections (ACE or Aiuto alla Crescita Economica) both existing at the date of the transfer of the receivables.
The maximum amount of tax loss carry-forwards and stock of unused ACE convertible into DTAs/tax credits is 20% of the nominal value of the transferred receivables, subject to a cap of €2bn receivables per group. For example, if a company transfers €1bn worth of impaired receivables, the maximum amount of tax loss carry-forwards and or unused ACE convertible into tax credits is €200m which at the current 24% IRES rates gives a spendable tax credit of €48m.
In order to avoid duplication of benefits, starting from the date of transfer, the transferor will no longer be able to use the tax losses or the unused ACE.
The above conversion mechanism also applies to DTAs which have not been booked in the financial statements on the basis of the applicable accounting principles (e.g., as clarified by the explanatory report to the Decree, DTAs that did not pass the so-called “probability test”). Amendments are expected to this rule.
1 For a detailed description of the specific business, please refer to Article 58 (2) of the Decree and to Resolution No. 12/E issued by the Italian tax authorities on 18 March 2020.
2 Please note that the Decree clarifies that during the suspension period, taxpayers are entitled to file tax ruling request only by telematic means.
3 For a detailed description of the business operators deemed as “essential” please refer to Annexes 1 and 2 to the Decree of the President of the Council of Ministers dated 11 March 2020.
4 In this respect, the Decree provides that transfers of monetary receivables made between companies belonging to the same group in accordance with Article 2359 of the Italian Civil Code and between companies subject to common control are not eligible for the conversion of DTAs in tax credits.