Italy issues Law Decree with urgent tax measures including voluntary disclosure for R&D tax credit

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October 28, 2021
2021-1962

Executive summary

On 21 October 2021, the Italian Government issued Law Decree n. 146 (Decree) and published it on the same day in the Official Gazette. While the Decree has been effective from the day after its publication (i.e., as of 22 October 2021), it will have to be converted into Law (with potential changes) within 60 days to remain in force. Implementing regulations are set to be issued at a later date.

The Decree contains the repeal of the old patent box regime¹ and a series of other urgent economic and tax measures, including changes to tax payment deadlines under different collection procedures as well as the possibility to voluntarily disclose any undue use of research and development (R&D) tax credits without application of penalties.

Detailed discussion

Deadline extension for payments related to settlement procedures

The Decree provides for an extension of the deadline for the payment of the installments related to settlement procedures (Rottamazione-ter and Saldo e Stralcio) due in 2020 and/or on 28 February 2021, 31 March 2021, 31 May 2021 and 31 July 2021. Such payments will qualify as timely if made by 30 November 2021.

Deadline extension for payments related to payment notices

For payment notices issued by a collection agent from 1 September to 31 December 2021, the payment deadline is set at 150 days (instead of 60) after the notification. Until the 150-day term expires, no interest will be due and no further collection procedures will be actionable.

Extensions on installment plans

For installment plans, activated with reference to payment notices, already in place as of 8 March 2020, the number of unpaid installments that imply the loss of the installment plan benefit is increased from 10 to 18.

Taxpayers that, at the date of the entry into force of the Decree, have already lost the benefits of the installment plan in existence as of 8 March 2020, are automatically readmitted to the procedure if the payment deadline for the installments suspended during the pandemic emergency is set for 31 October 2021.

New patent box regime

The Decree repeals the old patent box regime by shifting from a profit-based incentive (50% exemption) to a cost-based incentive by introducing a super deduction for R&D expenses (190% deduction of qualifying expenditures).

R&D costs incurred in relation to copyrighted software, patents, trademarks, designs, models and qualifying know-how may be recognized for tax purposes for an amount equal to 190% of the relevant expenditure for both corporate income tax (IRES) and regional tax (IRAP). R&D costs incurred with related parties would not be eligible.

The election for the new patent box regime will be irrevocable and last for five fiscal years with the possibility of subsequent renewals.

A separate decree will provide additional details on specifics for implementing the new regulations. Among other things, there is an expectation for implementing rules to provide a definition of qualifying R&D costs.

The Decree is unclear on the rules governing the transition to the new regime and such uncertainty leaves room to interpretation about retroactive effects putting at risk patent box elections for 2020.

Voluntary disclosure for undue utilization of R&D tax credit

The Decree provides for a voluntary disclosure procedure for cases where R&D tax credits accrued through tax periods from 2015 to 2019 have been unduly offset. Taxpayers joining the voluntary disclosure will be exempt from penalties and interest, and criminal law prosecution will be excluded where applicable (i.e., generally in the case of undue offset of tax credits for an amount higher than €50,000).

Access to the voluntary disclosure procedure is denied in cases of fraudulent conduct, use of false documents or invoices for non-existent transactions, and in cases where no adequate supporting documentation has been drafted and/or provided to the tax authorities.

The voluntary disclosure is not accessible to taxpayers if the unduly offset of the R&D credit, at the date of the entry into force of the Decree, has already been challenged by the tax authorities and the related deed of assessment has been issued.

To elect the voluntary disclosure procedure the taxpayer should file a specific communication before the tax authorities according to specifics to be detailed in separate guidelines.

Payments will be due: