The Italian Government approved on 15 October 2013, as part of its 2014 budget package, a Law Decree (the Decree) regarding the so called “Law of Stability” for 2014. The Decree would be published soon in the Official Gazette and will enter into force on the same day.

Under the Decree a one-off opportunity has been granted for Italian companies to step up the value of business assets for accounting and tax purposes for the accounting period in course on 31 December 2013.

There will be an opportunity for Companies to choose the category of assets to be stepped-up to 16% for amortizable or depreciable assets and 12% for non-amortizable or no-depreciable assets through the payment of a substitute tax amounting. The payment of the substitute tax results in a higher tax base allowing depreciation or amortization at a 31.4% rate or a lower taxable gain in case of disposal of the assets.

The step up in the value of the assets will give rise to the creation of an equity reserve. This equity reserve can be freely distributed provided that a 10% substitute tax is paid.

The tax is due in three annual installments and the initial payment is due within the deadline for the payment of the corporate income tax balance related to fiscal year 2013 e.g., by 16 June 2014 for companies that follow calendar years. No interest is due on the second and third installments.

The Decree sets out the notional interest deduction (NID) rates for 2014, 2015 and 2016 at 4%, 4.5% and 4.75% respectively and as a deviation from the original rule, the NID rates for fiscal periods 2014, 2015 and 2016 are directly amended by the Decree rather than determined by the Ministry of Finance.

The election involves the upfront payment of a 16% substitute tax in order to benefit from tax amortization at a higher rate of at least 31.4% with respect to the hidden intangibles owned by the acquired controlled company and reflected in the value of the participation as shown in the consolidated statutory balance sheet.

The 16% tax is due within the deadline provided for the payment of the corporate income tax balance related to the fiscal period during which the relevant participation was acquired. However, for transactions that occurred in 2012, the 16% tax is due by the deadline provided for the 2013 balance payment.

Additional deductions are provided from fiscal year 2014 for employees hired under contracts with no termination date. Companies will be benefited from a maximum €15,000 deduction for each of the new employees within the limit of the annual increase for the overall labor cost and the deduction will be applicable from the year of hiring and the subsequent two years.