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Italian Revenue Agency sends an encouraging sign on new investments

by Christian Montinari and Antonio Tomassini

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The Italian Revenue Agency has sent an encouraging signal offering companies planning to make investments an “early” tax ruling of future treatment, making good on pledges that it is open to cooperative compliance and preventive collaboration.

So far, 16 companies have asked for a ruling, and six have filed official paperwork (three of which are foreign).

The (cultural) challenge is now to transmit this message “from the centre to the periphery.” Since real fiscal reforms are not on the table, it would be already be strong progress to create a shared juridical sensitivity with a view to bring about a more relaxed relationship between the Revenue Agency and taxpayers.

The ruling on new investments according to Article nr. 2 of D.Lgs 147/2015 is a symbol of “a friendly revenue agency” shaking hands with the investor who illustrates his business plan and the transactions necessary (transfers of business units, mergers, spinoffs, etc.) to implement it, receiving a ruling on the tax profile of the investment that nullifies any sort of fiscal uncertainty later on down the line.

Although it is not possible to tolerate the 64% effective taxation on business estimated by the World Bank, legal certainty and stability of rules (which in Italy have at times been lacking) are almost worth more than a low tax rate policy.

That’s exactly what it says in the report attached to the “internationalization law” ( D.Lgs 147/2015), reminding us that legal certainty and the stability of rules are fundamental elements “in the fiscal competition between States, at least as much as the effective taxation rates.”

The revenue agency’s rulings on investment plans with a minimum threshold of €30 million (even including business groupings and many years) and with a positive impact on employment rates (also with respect to retention of current jobs) are very welcome. The ruling is also a way to widen the audience to the “cooperative compliance” regime, given that companies who “intend to” comply with the rulings can access to it even without fulfilling the threshold requirements.

In fact the cooperative compliance, as of today, while waiting for its benefits to be enhanced (why not disregard in their entirety administrative sanctions and introduce a penal exoneration with the exception of fraud cases?) is worth more as a complement (pairing the nice ticket of good fiscal reputation) compared to other institutions like the ruling on new investments, the ruling on transfer prices or in those cases when the company is already equipped with a tax control framework.

The ruling accepts the most diverse queries, demystifies the pre-emptive requirement (meaning that it suffices that there was never a fiscal implementation of a plan and that rulings can be requested for past but recurring questions) and it is not rectifiable barring significant changes in fact and in law.

It is crucial, concerning the diffusion of the cultural message from the center to the periphery, the relationship with inspections. New investments are managed by a new and very competent central office, it is necessary that there is nothing unexpected and that every office respects the pact agreed on. Taxpayers who are addressing pre-emptively the Italian Revenue Agency are trusting the Agency itself (a positive and important development): this trust must be respected.

Indeed, while evaluating the typical Italian business investment structures a few steps forward also in the technical field are needed. The Kafkaesque use of Article nr. 20 of the Testo Unico Registro (TUR) during audits comes to mind:  even after Article nr. 10 bis of the Statute, share deals are sometimes classified as asset deals. In this context, we must clarify this: an investor cannot be afraid of contradictory behaviors that challenge for the registration tax what is correct for direct taxes.