Italy: Detail corporate tax measures mentioned in Budget Law for 2017

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The Italian Budget Law for 2017 entered into force on 1 January 2017.

From 2017 financial year, the Italian corporate income tax (“CIT”) standard rate is reduced from 27.5% to 24 %. However, Banks, parent companies of banking groups, individual asset management companies, financial intermediaries, electronic money institutions, payment institutions, and financial companies are subject to surtax of 3.5 % and therefore, the effective CIT rate for such entities will remain 27.5%.  The surtax will not apply to insurance companies and parent companies of insurance groups and to investment funds.

The withholding tax rate applicable to outbound dividends paid by Italian companies to European Union or European Economic Area corporate shareholders resident in countries that allow an effective exchange of information with Italy, included in the so-called White List, is reduced from 1.375% to 1.2 %.

Effective from 2017, interest paid by qualifying banks and financial institutions are fully deductible. But insurance companies, parent companies of insurance groups and qualifying investment fund management companies are able to interest deduction only up to 96% of the total amount.

The 2017 Budget Law has provided a reduction of the allowance on corporate equity deduction regime (“ACE”) rates and introduced some anti-avoidance provisions that limit the utilization of ACE. According to the Budget, the applicable allowance for corporate equity (ACE) rate is 2.3% in 2017 and will increase to 2.7% in 2018.

Subject to certain conditions, a company may be able to transfer tax losses acquired in the first 3 years of functioning of the business to a related company which directly or indirectly holds an equity interest in the transferor granting voting rights and a profit share not lower than 20%, at the end of the fiscal year in which the transfer is made. However, the transfer will have to be finalized before the deadline for the submission of the annual tax return and the losses incurred in the first 3 years of operation of the business will have to be transferred in full.

From fiscal year 2017 to fiscal year 2020, qualifying enterprises will be able to benefit from a tax credit equal to 50% of R&D expenses exceeding the average R&D expenditures that the enterprise has incurred in fiscal years 2012, 2013 and 2014, up to EUR 20 million.

Resident companies and Italian permanent establishments of non-resident companies which carry out R&D activities under contracts concluded with resident entities and entities resident in an EEA country or in a country which allow an adequate exchange of information with Italy will also be able get the benefit.

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