Italian 2014 Budget Tries Out New Taxes

by Ulrika Lomas, Tax-News.com, Brussels

27 December 2013

On December 23, the Italian parliament approved a "maxi-amendment" which completely replaces the proposals originally made by the Government in its draft 2014 Budget in October, and introduces tax measures that may produce additional revenues to reduce individual tax burdens over the next year.

For the moment, the so-called 2014 "Stability Law" contains only restricted tax cuts, by way, for example, of deductions to individual income tax for employees earning up to EUR55,000 (USD75,300), an increase to the tax incentive for equity contributions from 3 percent to 4.75 percent by 2016, and a rise to 30 percent from 20 percent in the deductibility of local property tax (IMU) against both federal and local corporate income tax for one year.

The Budget has confirmed the restructuring of local taxes from January 1, 2014, whereby IMU is abolished for first non-luxury residences. A new "service tax" to fund all local services, to be called IUC (the unified local tax) will be formed of IMU (levied on the remainder of property owned, including luxury and second houses and commercial and industrial properties.), TASI (a new tax on general local services) and TARI (the current local tax on environmental and waste services).

Additional new measures include that a specific fund will be constituted to reduce tax burdens, to be divided equally between further individual income tax deductions and offsets available to businesses against the regional tax on production. The fund will be topped up with resources deriving from a further rationalization of public expenditure and by action to control tax evasion during the year – the amounts of which presently remain unknown.

However, the biggest innovation in the final version of the Stability Law is said to be the introduction of a "web tax" from January 1, 2014. While a first version of the measure which would have included within its ambit all goods traded over the internet, the approved legislation has been restricted to include an obligation for all purchases of online advertising or copyright in Italy to be effected through a business that is registered for Italian value added tax.

It is still hoped that the "web tax" will compel online multinationals, such as Google, which currently sell advertising through intermediary companies based in countries with lower taxes, to establish a fiscal domicile in Italy.

While it is believed to be the first such tax in the European Union, doubts have been raised that the new tax is compliant with the single market's non-discrimination rules, and the Government is expected to have to negotiate with the European Commission to ensure its legitimacy.

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