Italy

Italy: Draft law ratifying DTA with Romania approved

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The Senate of Italy approved the draft law ratifying the Double Taxation Agreement (DTA) with Romania on 4 May 2017. Once in force and effective, the treaty will replace the existing DTA of 1977.

Italy: Tax guidance clarifying patent box, R&D tax credit, business assets credit issued

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The Italian Revenue on 9 March 2017 issued tax guidance, clarifying the Italian patent fund regime, the tax credit for research and development activities (R & D) and the tax credit for new operating assets.

According to resolution n. 28/E, implementation, updating, personalization, and customization of software protected by copyright will be qualified as R&D activity for purposes of Italy’s patent box. However, ancillary and supportive activities will be kept outside the definition.

On the other hand, Resolution No. 32 / E published on the same day, clarifies that R & D expenditure on research projects commissioned by third parties would be considered as eligible for the tax credit for R & D activities , if the project satisfies the requirements of Article 3, Law Decree 145/2013.

Finally according to Resolution n. 29/E,  the tax credit should be repaid within 4 years from the filing year of the tax return related to the tax year in which the investment is made.

Italy: Decree issued on urgent measures on tax matters

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The Council of Ministers of Italy enacted a Law Decree No.50 with an effort to meet the European Union (EU) demands of extra budget deficit cuts. The Decree was published in the Official Gazette on 24 April 2017 and provides urgent measures on tax matters.

The Decree excluded trademarks from the definition of intellectual property to comply with OECD Base Erosion and Profit Shifting (BEPS) Action 5 recommendations. Taxpayers wishing to take advantage of the patent box regime need to make an election by the end of the first financial year for which the regime is to apply. The election remains in force for five years-the year in which the application is filed and the following four financial years.

According to Decree the definition of normal value with the concept of arm’s length will be modified to be more aligned with Organisation for Economic Co-operation and Development (OECD) principles. The new definition formally endorses the OECD standard by providing that intercompany transactions are determined based on the conditions and prices that would have been agreed in comparable circumstances between independent parties acting at arm’s length.

Also, corresponding adjustments are now allowed for the conclusion of tax audits performed under international cooperation procedures, where the results are agreed by the tax authorities involved. Now it is also possible to obtain a corresponding adjustment through a specific application filed by an Italian taxpayer where a final adjustment has been made based on the arm’s-length principle in a country which has a double tax treaty in place with Italy that allows an acceptable level of information exchange.

Italy approves DTA with Barbados

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On 2 May 2017, the Italian Chamber of Deputies approved the draft law ratifying the Double Taxation Agreement (DTA) with Barbados for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.

Andorra, Italy EOI Agreement enters into force

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On 27 March 2017, the Exchange of Information (EOI) Agreement between Andorra and Italy was entered into force. The agreement generally applies from 27 March 2017 for criminal tax issues and from 1 January 2018 for all other tax issues.

Italy-Ministerial Decree implementing Country-by-Country Reporting issued

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The Italian Ministry of Finance issued a Decree on 8 March 2017 providing detailed information regarding the application of CbC reporting rules. The Decree is in accordance with an EU Directive of 25 May 2016 requiring all EU Member States to implement a CbCR obligation in their national legislation in accordance with the recommendations of the OECD BEPS Action 13.

According to the Decree, all Italian tax resident entities that are Ultimate Parent Entities (UPEs) of an MNE group with annual consolidated group revenue equal to or exceeding €750 million will need to prepare a CbC report. Alternatively, if the UPE is not resident in Italy, and not obligated to file a CbC report in its country of residence, or although obligated to file CbC report there is no exchange of information instrument in place with Italy or there is a systemic failure of the jurisdiction of tax residence of the UPE, any other entity of the group that is resident in Italy would have to prepare the CbC report.

Hong Kong signs agreements on automatic exchange of financial account information in tax matters with 6 jurisdictions

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Hong Kong has signed agreements with six jurisdictions for conducting automatic exchange of financial account information on tax matters. They are Belgium, Canada, Guernsey, Italy, Mexico and the Netherlands.

A Government spokesman said on 17 March 2017 that they have been seeking to expand Hong Kong’s AEOI network with their tax treaty partners. The signing of agreements with six more jurisdictions, bringing up the number of Hong Kong’s AEOI partners to a total of nine (including Japan, Korea and the United Kingdom), signifies the Government’s efforts in this drive

The Government will put the six places on the list of “reportable jurisdictions” under the Inland Revenue Ordinance.