22 January 2025 Italy issues final legislation for corporate income tax reform
Legislative Decree n. 192 of 13 December 2024 (Decree) was published in the Official Gazette on 16 December 2024 and became effective as of 31 December 2024. The Decree intends to simplify and rationalize the tax treatment of corporate reorganizations with regard to (i) tax step-up regimes, (ii) tax loss carryforwards, and (iii) tax-free regimes of corporate reorganizations. A prior Alert detailed the legislation in its proposed form (see EY Global Tax Alert, Italy issues draft legislation for corporate income tax reform, dated 27 November 2024.) This Alert highlights the differences between the proposed and final legislation. One of the limited differences between the draft and final version involves the new step-up substitute tax rates. Specifically, the Decree clarifies that the 3% tax applying in lieu of the Italian local tax (i.e., "Imposta regionale sulle attivita produttive" or IRAP) for banking and insurance businesses should be increased by the ordinary IRAP surcharges specifically provided for such sectors. The Decree reintroduces a three-year recapture rule for tax-free reorganization step-ups to prevent tax-arbitrage practices as proposed by the Parliament. As also proposed by Parliament, the Decree refers to further implementing Ministerial decrees to clarify specific mechanics applicable to the new intra-group exception for tax-loss carryforwards in cases of change of control and mergers/demergers. The final Decree also clarifies the concept of the (newly modified) Net Equity Test (as one of the tests to preserve tax-loss carryforwards in cases of change of control and mergers/demergers) by requiring the economic value of the net equity to be decreased by a qualifying pro-rata share of the shareholder contributions made in the 24 months preceding 31 December 2024. Lastly, the Decree introduces some changes to the Dormant Companies Regime (i.e., a set of rules aimed at counteracting the practice of setting up companies for the mere purpose of holding assets without an actual business activity). Under Italian tax law, a company is deemed to be "dormant" (and therefore subject to a minimum alternative tax) when certain ratios between revenue and asset values are not met. The Decree amends some of these minimum ratios. Multinationals with Italian operations should become familiar with the final Decree and continue monitoring any potential impact deriving from the ongoing major tax reform in Italy.
Document ID: 2025-0293 | ||||||