Conversion of deferred tax assets into tax credits applicable also to real estate companies
Pursuant to Article 55 of Law Decree 17 March 2020, no. 18 (the so-called Cura Italia Decree) companies that transfer “impaired” monetary receivables for a consideration by 31 December 2020 are entitled to elect for the conversion of deferred tax assets related to unused tax losses and stock of notional return on equity carried forward (DTAs), up to 20 per cent. of the nominal amount – not exceeding in any case EUR 2 billion of GBV – of the transferred “impaired” receivables into tax credits.
Receivables are deemed to be “impaired” if the obligor / tenant is in default on its payment obligations for more than 90 days.
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 transferred to other group companies or third-party entities.
The above-mentioned tax incentive is applicable not only to sellers qualifying as banks and as other financial entities, but also to companies operating in other business sectors, as real estate companies.
In order to convert the DTAs into tax credits under Article 55 the transferor must exercise the option set forth under Article 11(1) of Italian Law Decree no. 59 dated 3 May 2016 (the “Option”), which requires the payment of an annual fee determined by multiplying the rate of 1.5% by an amount (the “Basis”), in case such Basis is positive, which is to be determined annually on a case-by-case basis under certain detailed rules and in light of the specific tax position of the company in terms of DTAs and taxes actually paid. The fee due, if any, is deductible for the purposes of IRES and IRAP in the tax years in which it is paid.
There are several uncertainties regarding the interplay between the tax incentive under Article 55 discussed herein and the exercise of the Option under Article 11(1) mentioned. In particular, the are uncertainties in relation to the payment of the annual fee and the determination of the Basis for the purposes of the tax incentive under Article 55. Guidelines from the tax authorities on this aspect are required.
For non-financial companies, such as real estate companies, the Option must be exercised by 31 December 2020.
The above-mentioned provision is not applicable when the:
- transferor is under insolvency proceedings or other proceeding applicable to companies operating in certain sectors; and
- transferor controls the transferee pursuant to Article 2359 of the Italian Civil Code, or vice versa or both entities are under common control by another company.
Suspension of VAT and withholding tax payment obligations for certain eligible taxpayers
According to Article 18 of Law Decree 8 April 2020, no. 23 (the so-called Liquidità Decree), payments to the Italian revenue of output VAT and withholding taxes levied on salaries and wages due in April and May 2020 are suspended for:
- business entities, including real estate business entities, having their tax domicile, registered office or place of business in Italy, with 2019 revenues higher than EUR 50 million, to the extent that they have suffered a revenue reduction of at least 50 per cent. in, respectively, March and April 2020, compared with the same months of year 2019;
- business entities, including real estate business entities, having their tax domicile, registered office or place of business in Italy, with 2019 revenues not higher than EUR 50 million, to the extent they have suffered a revenue reduction of at least 33 per cent. in, respectively, March and April 2020, compared with the same months of year 2019;
- business entities, including real estate business entities, having their tax domicile, registered office or place of business in Italy, which have started their business activity after 31 March 2019.
Furthermore, payments to the Italian revenue of output VAT due in April and May 2020 are suspended for business entities, including real estate business entities, having their tax domicile, registered office or place of business in the provinces of Bergamo, Brescia, Cremona, Lodi and Piacenza, regardless of the amount of 2019 revenues, to the extent that they have suffered a revenue reduction of at least 33 per cent. in, respectively, March and April 2020, compared with the same months of year 2019.
The suspended tax payments above will need to be made by 16 September 2020 or in up to 4 monthly instalments starting from September 2020. Taxpayers that have already discharged the above-mentioned payment obligations cannot request for refund their payments.
Finally, payments to the Italian revenue of withholding taxes levied on salaries and wages due in April 2020 are postponed to 16 September 2020 (in one instalment or in up to 4 monthly instalments) for taxpayers having their tax domicile, registered office or place of business in Italy and acting in certain sectors particularly exposed to the current crisis (such as tourist and hotel operators).
Also the withholding tax compliance monitoring obligations of clients who entrust to the same company the performance of one or more works and services for a total annual amount of more than EUR 200,000, through contractual arrangements involving the prevalent use of manpower (at the offices of the customer with the use of capital goods owned by the latter), pursuant to Article 17-bis of Legislative Decree no. 241/1997, are suspended as a consequence of the suspension of payments to the Italian Revenue of withholding taxes on salary and wages described above.
Suspension of tax compliance obligations other than payment of taxes and levying of withholding taxes
Pursuant to Article 62(1) of the so-called Cura Italia Decree, tax obligations other than payments and levying of withholding taxes (such as reporting obligations) due from 8 March 2020 to 31 May 2020 are postponed to 30 June 2020.
In Paragraph 1.21 of Circular N. 8/E of 3 April 2020 , the Italian Tax Authority have clarified that the suspension for compliance obligations provided for by Article 62 (1) of the so-called Cura Italia Decree also includes the registration formalities of real estate lease agreements with the Italian tax authorities (generally, real estate lease agreements need to be filed with Italian tax authorities within 30 days after execution), and payment of the related registration tax due upon filing. |
However, registration tax becomes due both: (i) when registration actually occurs, and (ii) in respect of instalments of registration tax related to multi-annual lease agreements registered in the past.
It is currently unclear whether the suspension at stake could apply also to payment of registration tax in respect of events affecting the lease agreements after their execution, such as their transfer, resolution or postponement of maturity.
“Forecast method” for the annual advance payments on account of IRES and IRAP due for 2020 tax year and IRAP
Under Article 20 of Law Decree no. 23/2020 (the so-called Liquidità Decree, if taxpayers, including real estate corporations, opt to determine and pay the advance payments on account of corporate income tax (IRES) and regional tax on productive activities (IRAP) for the ongoing 2020 tax year on the basis of an estimate (i.e. based on the tax expected to be paid in respect the ongoing 2020 tax year, the so-called “forecast method”), then no penalties and interest for omitted or insufficient advance tax payments will apply provided that the amount of the advance payments made is not less than 80 per cent. of the amount that will be actually due for the 2020 tax year.
Furthermore, under Article 24 of Law Decree 19 May 2020, no. 34 (the so-called Rilancio Decree), the balance payment of IRAP for 2019 and the first instalment of IRAP advance payment for 2020 are not due by businesses with revenues not exceeding EUR 250 million in 2019. However, the first instalment of IRAP advance payment for 2020, even if not actually paid under this provision, is deemed to have been paid for the purpose of determining the balance payment of IRAP for 2020. Taxpayers which apply such provision would need to take into account the effects of the forfeiture of the balance payment of IRAP for 2019 in the amount of taxes registered as payable in 2019 financial statements.
Financial intermediaries, holding companies, insurance companies, public administrations are excluded from the application of such benefit. In any case, all IRAP advance payments due for 2019 are not forfeited.
The forfeiture of IRAP payments under Rilancio Decree is applicable subject to compliance with limits and conditions set forth in the EU Commission communication C(2020) no. 1863 on a Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak.
Suspension of withholding taxes on brokerage commissions
Article 19 of the so-called Liquidità Decree provides for taxpayers having their tax domicile, registered office or place of business in Italy, with revenues not higher than 400,000 EUR in tax year 2019, a relief whereby the fees (including those related to real estate brokerage) received during the period between 17 March 2020 and 31 May 2020 is not subject to the withholding taxes provided for by Articles 25 and 25-bis of Presidential decree n. 600/1973, provided that in the preceding month no employments (or similar) costs were incurred.
The taxpayers making use of this option: (i) make to its withholding agent a specific declaration according to which the fees to be paid are not subject to withholding tax pursuant to the present rule, and (ii) directly pay the withholding taxes, not applied by the withholding agent, within 16 September 2020, or by up to four equal monthly instalments starting from September 2020, without application of interest and penalties.
IMU exemption for the tourist sector
Article 177 of the Rilancio Decree provides for the cancellation of the first instalment of municipal tax (IMU) due on 16 June 2020 for: (i) buildings classed as D/2 and buildings used by taxpayers operating in the tourist sector, including hotels, provided that the owner of the building is also the manager of the activities carried out therein, and (ii) buildings used as beach resort or thermal resort.
The tax relief at hand is applicable subject to compliance with limits and conditions set forth in the EU Commission communication C(2020) no. 1863 on a Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak.
Tax credit for the tourism industry
Families with equivalent economic status indicator (ISEE, “Indicatore della Situazione Economica Equivalente”, which is an indicator of the eco-nomic status of a family unit, used to access tax incentives and other benefits) not exceeding EUR 40,000 are granted a subsidy for purchasing touristic services offered in Italy from 1 July 2020 to 31 December 2020. The subsidy is equal to EUR 500 for each family (EUR 300 for couples and EUR 150 for singles). The subsidy is granted, subject to certain conditions, as follows: (i) 80% as a discount on the price of the services (in turn the supplier may benefit from a corresponding tax credit which can be either used to off-set tax payments, without ordinary annual caps, or assigned, also to financial intermediaries) and (ii) 20% as a tax allowance for the tourist.
Tax credit for the costs borne for sanitization purposes and for the acquisition of personal protective equipment
The Cura Italia Decree and Law Decree no. 23/2020 (the so-called Liquidità Decree) introduced a tax credit equal to 50% of the costs borne by businesses in the course of 2020 for the sanitization of the work premises, for the acquisition of personal protective equipment (e.g. medical masks, heavy duty gloves, eye protection, disinfectants, alcohol-base hand rub) and for the acquisition and installation of other equipment/appliances aimed at protecting workers and ensure physical distancing.
Article 125 of the Rilancio Decree replaces the provisions of the Cura Italia Decree and of the Liquidità Decree and extends the scope of application of such tax credit, which may be now obtained also by foundations, non-commercial entities, including third-sector entities and religious entities recognized under a civil law perspective. The Rilancio Decree also provides that the tax credit is now equal to the 60% of the costs borne for the purposes mentioned above and cannot exceed EUR 60,000 per taxpayer and the total maximum limit of public budget expenditure of EUR 200 million.
Tax credit for COVID-19 safety measures implemented on workplaces
A tax credit equal to the 60% of the costs borne during the course of 2020, up to EUR 80,000 per beneficiary, related to those necessary investments made in order to implement the required safety measures on workplaces to counteract COVID-19, is granted to businesses which perform business activities in venues open to the public as well as to associations, foundations and other private entities, including third-sector entities (irrespective of the activity carried out by the latter).
The tax credit can be used in 2021 only to off-set other taxes and social security liabilities (ordinary annual caps to the amount of off-settable tax credits do not apply to the tax credit at stake). The tax credit may be cumulated with other analogous tax benefits (up to the amount of the relevant costs) and could be also transferred to other persons, including banks or other financial intermediaries.
The tax credit at hand is applicable subject to compliance with limits and conditions set forth in the EU Commission communication C(2020) no. 1863 on a Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak.
Tax credits for rentals
Article 28 of the Rilancio Decree provides for a tax credit which can be claimed by eligible taxpayers as a consequence of payment of rents or lease (or concession) fees relating to the months of March, April and May 2020 for the rent, leasing or concession of non-residential properties used to perform professional, industrial, commercial, craft, agricultural or tourist activities, provided that in any of March, April and May 2020 they have incurred a decrease in turnover or revenues of at least 50 per cent as compared with the same months of 2019.
The amount of the tax credit shall be determined as follows:
- 60% of the monthly rent or lease (or concession) fee under rent or lease or concession agreements;
- 30% of the monthly rent or lease (or concession) fee where the property is held under either a business unit lease (affitto di ramo d’azienda) or an agreement for the provisions of complex services (i.e., agreements under which, in addition to the lease of the property and its furniture, a number of additional services such as postal, secretarial, accounting services are provided, which are common in the Italian market practice for shopping malls),
paid in 2020 with reference to each of the months of March, April and May 2020 and, for seasonal tourist estate, with reference to each of the months of April, May and June 2020.
Eligible taxpayers are those engaged in business, craft or professional activities, whether legal entities or natural persons, with revenues or fees in 2019 not exceeding EUR 5 million. No cap applies to hotels and holiday farms, which are eligible irrespective of the turnover figures or amount of revenues generated in the previous tax periods.
In addition to the foregoing, the 60% tax credit at stake also apply to non-profit organizations (enti del terzo settore) and religious bodies with civil-law status, in respect of rents or lease (or concession) fees paid for the rent, leasing or concession of non-residential properties where their own institutional activities are carried out.
Such tax credits can be used or claimed for refund directly by the taxpayers (ordinary annual caps to the amounts of tax credits which can be used by the taxpayer do not apply in respect of the tax credit at stake) or, alternatively, transferred, within 31 December 2021, even partially, to other entities, including credit institutions and financial intermediaries, according to modalities that are still to be determined by a regulation to be issued by the director of Italian tax authorities.
No double-counting is allowed between the tax credit at stake and the tax credit on March commercial property rents provided for under Article 65 of Law Decree no. 18/2020 (the so-called Cura Italia Decree). It is worth noting that the latter had a narrower scope of application than the tax credit at stake.
Article 28 of the Rilancio Decree provides that the tax credit at hand is applicable subject to compliance with limits and conditions set forth in the EU Commission communication C(2020) no. 1863 on a Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak. It is worth outlining that, under Paragraph 22(a) of the above mentioned EU Commission communication, the Commission will consider a state aid compatible with the internal market on the basis of Article 107(3)(b) TFEU, provided that certain conditions are met, including, inter alia, that aids do not exceed EUR 800,000 per undertaking in the form of direct grants, repayable advances, tax or payments advantages. All figures used must be gross (i.e., before any deduction of tax or other charge). Such EUR 800,000 threshold is expressly referenced into other provision of the Decree but not in Article 28 governing the tax credit at issue.
Assignment of the tax credits granted in response to the COVID-19 pandemic (Art. 122)
Pursuant to Article 122 of the Rilancio Decree, the beneficiaries of:
- the tax credit granted to certain shops and stores for the rentals borne during the COVID-19 lockdown, provided by Article 65 of Law Decree no. 18 dated 17 March 2020, converted with amendments by Law no. 24 dated 24 April 2020 (the so-called Cura Italia Decree);
- the tax credit for rentals provided by Article 28 of the Rilancio Decree described in the present alert;
- the tax credit for COVID-19 safety measures implemented on workplaces provided by Article 120 of the Rilancio Decree described in the present alert;
- the tax credit for the costs borne for sanitization purposes and for the acquisition of personal protective equipment provided by Article 125 of the Rilancio Decree described in the present alert
are entitled to assign the above tax credits (even partially) to other persons, including banks or other financial intermediaries, until 31 December 2021, as an alternative to use such tax credits directly.
Increase of the ordinary annual cap to offset tax credits
For tax year 2020, taxpayers may offset any tax credits and social security credits against their tax liabilities up to EUR 1,000,000 (in lieu of the ordinary annual cap of EUR 700,000).
Suspension of terms for “first home” registration tax relief and tax credit
Pursuant to Article 24 of Liquidità Decree, the computation of terms relating to the execution of the acts needed to keep benefiting from the “first home” registration tax relief and being entitled to the tax credit for the repurchase of the first home are suspended from 23 February to 31 December 2020.
Incentives for energy efficiency, earthquake bonus, photovoltaics
A tax allowance (to be split across 5 years) of 110% is granted to, inter alia, individuals not acting in the context of a business or professional activity, for specific costs related to energy efficiency measures (e.g. thermal insulation, replacement of the air-conditioning or heating systems), seismic risk mitigation, installation of photovoltaic systems on buildings and columns for charging electronic vehicles incurred between 1 July 2020 and 31 December 2021. The measure should apply to interventions carried out on residential complexes and individual residential units used as primary residence.
With respect to the above incentives (and to certain other tax incentives, such as the so-called “façade bonus”), the tax allowance can be converted in:
- a discount, up to the amount of the consideration of the above mentioned works, granted directly by the supplier. In turn, the supplier will benefit from a corresponding tax credit vis-à-vis the Italian State that could be assigned to other persons, including banks and other financial intermediaries; or alternatively
- a tax credit that could be assigned to other persons, including banks or other financial intermediaries.
Re-opening of the tax step-up measures concerning holding of shares in unlisted companies and land
The optional regime that allows taxpayers to step-up, for capital gains (other than business income) taxation purposes, the tax basis of holdings in shares in unlisted companies and land (by paying an 11% substitute tax) is re-opened for land and shareholdings held as at 1 July 2020. The 11% substitute tax shall be paid within 30 September 2020 or in up to three yearly instalments starting from the same date.
Extension of the fiscal regularity certificates for procurement (so-called DURF)
According to the new Article 17-bis of Legislative Decree no. 241/1997, in force since January 1, 2020, the customer who entrusts to the same company the performance of one or more works and services for a total annual amount of more than 200,000 EUR, through contractual arrangements involving the prevalent use of manpower (at the offices of the customer with the use of capital goods owned by the latter), is required to request prove of payments of withholding taxes on salary and wages by the entrusted companies to verify the correct payment of the relevant withholding taxes by the latter.
The obligations provided for by Article 17-bis do not apply if the contracting (“impresa appaltatrice”), subcontracting (“impresa sub-appaltatrice”) or entrusted company (“impresa affidataria”), as an alternative to the provision of tax payment receipts, send the customer a certificate of fiscal regularity (so-called DURF).
The fiscal regularity certificate, made available by the Revenue Agency upon request of the taxpayer, is valid for only 4 months from the issue date.
Article 23 of the Liquidità Decree provides for an extension to 30 June 2020 of the validity of the DURFs issued by 29 February 2020 by the competent offices of the Revenue Agency.