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August 9, 2023
2023-1383

Italy announces proposed one-time windfall tax for banks

  • On 7 August 2023, the Italian Council of Ministers approved a Draft of Law Decree containing blended tax law provisions — Draft Blended LD — including the Italian windfall tax for banks (which is expected to apply both to Italian banks and to Italian branches of foreign banks).
  • The Italian windfall tax is a one-off tax, solely for fiscal year 2023, to be levied at a 40% rate on the increase of interest margin realized by banks over a monitoring period of one or two financial years, subject to a 5% and 10% floor, respectively. The Italian windfall tax is capped at 0.1% of the value of the assets reported in the financial statements of the reporting year preceding the one pending as of 1 January 2023. The Italian windfall tax will not be deductible against the Italian direct taxes.
  • The Draft Blended LD will enter into force upon its publication on the Official Gazette; its effectiveness is temporary, as it must be converted into law within the following 60 days or it will cease to be effective retrospectively.

Executive summary

On 7 August 2023, the Italian Council of Ministers approved a Draft of Law Decree containing blended tax law provisions — Draft Blended LD.

Article 26 of the Draft Blended LD aims at introducing the Italian windfall tax for banks (which is expected to apply both to Italian banks and to Italian branches of foreign banks). This is an extraordinary one-off tax — due solely for fiscal year 2023 — to be levied at a 40% rate on the increase of the interest margin realized by banks (IoIM).

The taxable amount is the higher of the IoIM determined by reference to either of the two financial years (i.e., 2022 or 2023) subject to a minimum threshold of 5% (for 2022) and 10% (for 2023), to be measured against the interest margin realized by banks in the financial year (FY) 2021, in case of a calendar statutory reporting period.

The Italian windfall tax is capped at 0.1% of the value of the assets reported in the financial statements of the reporting year preceding the one pending as of 1 January 2023. The Italian windfall tax will not be deductible against the Italian direct taxes (e.g., corporate income tax (IRES) and regional tax (IRAP)).

The Draft Blended LD will enter into force upon its publication on the Official Gazette; its effectiveness is temporary, as it must be converted into law within the following 60 days or it will cease to be effective retrospectively.

Detailed discussion

Article 26 of the Draft Blended LD is labeled "extraordinary tax calculated on the increase of the interest margin." In the light of the interest rates trends and the cost of credit, Article 26 of the Draft Blended LD is aimed at introducing the Italian windfall tax for all banks, as defined under Article 1 of the Legislative Decree No. 385/1993 (so-called Italian Banking Code), such that the Italian windfall tax should apply both to Italian banks and to Italian branches of foreign banks.

The taxable basis of the Italian windfall tax is assumed as the higher of the following two amounts:

  1. The (portion of the) interest margin, reported under Item 30 of the profit and loss accounts approved by the Bank of Italy, for the FY before the one pending as of 1 January 2023 (commonly, FY2022) that exceeds by at least 5% the interest margin for the FY before the one pending as of 1 January 2022 (commonly, FY2021)
  2. The (portion of the) interest margin, reported under Item 30 of the profit and loss accounts approved by the Bank of Italy, for the FY before the one pending as of 1 January 2024 (commonly, FY2023), that exceeds by at least 10% the interest margin for the FY before the one pending as of 1 January 2022 (commonly, FY2021)

The Italian windfall tax is capped at 0.1% of the value of the assets recorded in the financial statements for the reporting year preceding the one pending as of 1 January 2023 (commonly, FY2022).

The above-reported rules are not particularly straightforward and we expect some clarifications to follow from the legislative process of conversion of the Draft Blended LD and from administrative practice.

The Italian windfall tax shall be paid by the end of the sixth month following the end of the FY preceding the one pending as of 1 January 2024 (commonly, 30 June 2024).

For banks that approve financial statement later than the end of the fourth month following the end of the reporting year, the payment deadline of the Italian windfall tax is the end of the month following the one in which the financial statement is approved.

For banks with a FY that is not aligned with the calendar year, where the payment deadline of the Italian windfall tax falls within calendar year 2023, the relevant payment will be performed during calendar year 2024, in any case no later than 31 January 2024.

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For additional information with respect to this alert, please contact the following:

Studio Legale Tributario, Financial Services Office, Milan

Published by NTD's Tax Technical Knowledge Services group; Carolyn Wright, legal editor

 

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