Italy's Anti-Crisis Incentives Pass

by Ulrika Lomas, Tax-News.com, Brussels

06 August 2009

The Italian government’s anti crisis incentives package has passed into law, with only a few amendments introduced during its transit through parliament. Its net budgetary effect is calculated to be largely neutral, but the productivity of certain of the approved measures cannot be estimated.

The main corporate tax incentive has been retained intact. In order to try to unblock private investment in the recession, 50% of corporate profits re-invested in machinery will be free of tax until June 2010. This measure is expected to cost over EUR1.8bn in 2010 and EUR2.3bn in 2011.

However, a further measure has been added to encourage the capitalisation of Italian companies. When company profits are reinvested in additions to share capital, up to a maximum of EUR500,000, there will be tax incentives lasting five years. In addition, there will be a moratorium on repayments of bank loans, the details of which will be agreed with the financial sector as soon as possible, while higher rates of depreciation allowances will be proposed for high-technology or energy-saving plant and machinery, by the end of this year.

To re-emphasise the government’s commitment to combating international tax evasion, a new tax amnesty (or so-called “tax shield”) has been introduced as an amendment to the original decree. A penalty, effectively 5%, will be imposed on the assumed interest received from repatriated or declared funds held by Italians abroad.

The penalty will be payable on capital held abroad up to 31 December 2008 and repatriated or declared from 15 October this year to 15 April 2010. It has been estimated that some EUR50bn could be repatriated. However, those against whom legal proceedings have already been started will be not be able to avail themselves of the amnesty.

The government has stated that all funds in ‘tax havens’ are now to be considered to be the result of tax evasion, unless proved otherwise, and a special unit of the Italian Revenue Agency will be established and will co-operate internationally to further OECD directives against ‘tax havens’.

In addition, to provide a further national tax amnesty, persons (above all, those of non-EU origin), presently engaged in undeclared domestic employment, will be able to regularise their situation by the payment of EUR500. It is estimated that some 300,000 people could be attracted by this measure to move out of the “black economy”.

The Italian government expects to benefit not only from the payment of the “modest” penalties, but also the increased revenue in subsequent years from regular taxes.

The 6% tax on the accrued profit of the gold reserves held by the Bank of Italy, which following the adverse opinion of the European Central Bank (ECB) was to be reduced by the government to 1%, has been re-instated at its original level. It remains subject to the approval of the ECB.

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