Italy Explores Technical Reduction To Regional Corporate Tax

by Ulrika Lomas, Tax-News.com, Brussels

10 November 2009

After much discussion, the possibility of a corporate tax cut in Italy has become more likely, particularly given the additional revenue expected to be received from the penalties payable on funds being declared under the present tax amnesty.

Discussion regarding a tax reduction had begun early in October with a call from Emma Marcegaglia, the President of Confindustria, the Italian Business Federation, for the government to decrease the rate of IRAP (the regional corporate tax). This followed talk of similar moves in France and Germany.

Last month came an unexpected promise from Italy’s Premier, Silvio Berlusconi, who announced that the government was indeed planning company tax reductions, including gradual reductions to IRAP or increased exemptions for the smallest companies.

However, this caused a certain amount of difficulty inside the government, particularly with Giulio Tremonti, the Minister of the Economy, who was said to be against any fiscal relaxation before seeing an improvement to Italy’s increased public sector deficit.

Nevertheless, with the pressure for tax cuts still persisting, the government does appear to be giving way to a certain extent; Deputy Minister of the Economy, Giuseppe Vegas, in the Senate recently mentioned the possibility of a reduction in IRAP by means of a technicality.

The calculation of taxable income subject to IRAP currently allows only for the deduction of the costs of production (as defined within the relevant law). The proposal is now that other losses within a company’s accounts could also be deductible, allowing for an effective tax cut.

He observed that such a reduction could help to sustain weaker companies, for example, small and medium-sized enterprises, but he ruled out more substantial tax cuts in the present economic situation and before additional monies become available.

However, it is now being reported that the government expects further revenues of between EUR3bn (USD4.5bn) and EUR4bn from the present tax amnesty (on declared funds of between EUR60bn and EUR80bn).

It is said that the receipt of such amounts could allow the production of a balanced set of measures, providing relief not only to the corporate sector but also allowing tax relief on property rents and financial assistance in the south of the country.

In the last few days, Marcegaglia has also emphasized that any reduction to IRAP should only be the beginning of a series of measures to help companies and their employees.

It has been suggested that any immediate tax package could be introduced within the 2010 budget bill, which is presently being considered in parliament.

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