Corporate Tax Comparative Guide

1 Basic framework

1.1 Is there a single tax regime or is the regime multi-level (eg, federal, state, city)?

In Italy, corporate profits are generally taxed at both state and regional level, being subject to corporate income tax ('Imposta sul Reddito delle Società' (IRES)) and to regional tax on business activities ('Imposta Regionale sulle Attività Produttive' (IRAP)).

1.2 What taxes (and rates) apply to corporate entities which are tax resident in your jurisdiction?

The ordinary IRES rate is 24%; a higher rate of 27.5% applies to certain banks and financial institutions. Furthermore, if a company qualifies as a 'non-operating company' ('società di comodo'), the ordinary IRES rate is increased to 34.5%.

The ordinary IRAP rate is 3.9%, but may be increased or reduced by specific regional tax laws based on the business carried out by the taxpayer.

1.3 Is taxation based on revenue, profits, specific trade income, deemed profits or some other tax base?

IRES and IRAP are levied on different taxable bases:

For IRES taxation purposes, the net profit/loss resulting from the official financial statement of the taxpayer is adjusted according to several tax rules provided by the IRES Law; and The IRAP taxable base is determined based on earnings before interest and taxes resulting from the official financial statement of the taxpayer, adjusted taking into consideration specific tax adjustments provided for by the IRAP Law with the purpose of excluding or limiting the deduction of labour costs, depreciation and provisions/accruals.

1.4 Is there a different treatment based on the nature of the taxable income (eg, gains on assets as opposed to trading income or dividend income)?

In principle, income earned by a corporate entity (and assimilated taxpayers) is qualified as business profits and included in the IRES and IRAP taxable bases, notwithstanding the nature of such income (eg, trading income, dividends, capital gains).

However, some specific rules may apply, depending on the nature of such taxable income. For example, for IRES purposes:

capital gains/losses on shareholdings become tax relevant upon realisation and, if specific requirements are met (according to the Italian participation exemption rule - see question 3.1), are respectively 95% exempt or 100% not deductible; and dividends become tax relevant upon realisation and are 95% exempt from taxation.

1.5 Is the regime a worldwide or territorial regime, or a mixture?

Italian resident companies are subject to IRES on their worldwide income, including profits realised abroad through local branches, and to IRAP only on business profits realised in each single Italian region.

Non-resident taxpayers are subject to taxation only as concerns profits realised in the Italian territory.

1.6 Can losses be utilised and/or carried forward for tax purposes, and must these all be intra-jurisdiction (ie, foreign losses cannot be utilised domestically and vice versa)?

As a general rule, tax losses suffered during the first three years of business activity can be carried forward without limitation, while losses suffered in subsequent years can be used to offset future IRES profits up to a limit of 80% of the amount of losses each year.

According to the worldwide taxation principle, tax losses suffered abroad (ie, through a foreign branch of an Italian resident company) can be used to offset domestic taxable profits (if any).

1.7 Is there a concept of beneficial ownership of taxable income or is it only the named or legal owner of the income that is taxed?

As a general rule, the recipient/legal owner of income is subject to taxation. However, the concept of beneficial ownership may assume relevance in Italy where a double tax treaty applies or due to anti-abuse provisions (eg, controlled foreign company rules; anti-abuse provisions concerning tax residence).

1.8 Do the rates change depending on the income or balance-sheet size of the taxpayer?

In principle, the IRES and IRAP rates do not change depending on either the nature of the income or the size of the taxpayer.

1.9 Are entities other than companies subject to corporate taxes (eg, partnerships or trusts)?

For corporate taxation purposes, entities established as cooperative companies, public and private bodies different from corporates, trusts and so on whose principal purpose is the carrying out of business activities are equated to corporates.

2 Special regimes

2.1 What special regimes exist (eg, for fund entities, enterprise zones, free trade zones, investment in particular sectors such as oil and gas or other natural resources, shipping, insurance, securitisation, real estate or intellectual property)?

With some specific and limited exceptions, Italian tax law does not provide for special tax regimes with reference to specific business sectors/zones.

However, Italian law does provide for two 'extra-customs zones' - the Municipality of Livigno and Campione d'Italia - where value added tax, custom and excise duties are not applied.

In addition, some free trade zones, called 'Zone Franche Urbane' (ZFUs), have been recognised by the Italian government in order to promote the economic development of specific areas characterised by social and environmental challenges. In such free trade zones, tax exemptions and decontribution programmes are reserved (mainly) to small and micro enterprises.

Italian tax law further provides for a special regime applicable to listed real estate investment companies, based on which income from real estate leased to third parties is not subject to corporate income tax ('Imposta sul Reddito delle Società' (IRES)) or to regional tax on business activities ('Imposta Regionale sulle Attività Produttive' (IRAP)).

A special regime called the 'patent box' is granted to companies investing in intellectual property, under which they benefit from a 50% exemption from IRES and IRAP taxation of income derived from the direct or indirect exploitation of intangibles and intellectual property (see question 3.2).

2.2 Is relief available for corporate reorganisations or intra-group transfers of companies and other assets? Please include details of any participation regime.

As far as corporate reorganisations are concerned, pursuant to Italian law, the following transactions are, in principle, tax neutral:

mergers; spin-offs; capital contributions of 'control' shareholdings (ie, more than 50% of the voting rights) or 'connection' shareholdings (ie, more than 20% of the voting rights, reduced to 10% for listed companies); capital contributions of going concerns; and certain exchanges of shareholdings. However, companies undertaking such transactions may step up, for IRES and IRAP purposes, the tax basis of certain assets received by paying a substitutive tax ranging from 12% to 16% of the revaluated value.

2.3 Can a taxpayer elect for alternative taxation regimes (eg, different ways to calculate the taxable base, such as revenue-based versus profits based or cash basis versus accounts basis)?

No, in principle, this is not possible for corporate taxpayers.

2.4 What are the rules for taxing corporates with different functional or reporting currency from that of the jurisdiction in which they are resident?

If the functional/reporting currency adopted by the taxpayer is different from euros, the year-end accounting balances should be converted into euros for taxation purposes in Italy.

2.5 How are intangibles taxed?

In Italy, no specific rules apply to the corporate income taxation of intangibles (with the exception of the patent box regime described in question 3.2).

Intangibles which qualify as fixed assets for corporate income tax purposes are subject to depreciation, calculated on the purchase price or on the cost of manufacture, which is tax relevant at rates not exceeding those prescribed by the Ministry of Finance. Depreciation is computed using the straight-line method.

More specifically:

purchased goodwill may be depreciated over a period of 18 years; know-how, copyrights and patents may be depreciated in accordance with financial statements, but over at least two fiscal years; trademarks may be depreciated over a period of 18 years; research expenses and advertising expenses may be either entirely deducted in the year of sustainment or depreciated in equal instalments in that year of sustainment and the four subsequent years; and depreciation allowances of other rights may be claimed with reference to the utilisation period. Furthermore, the disposal of intangibles may generate a taxable capital gain equal to the difference between the sale price and the tax value of the asset.

2.6 Are corporate-level deductions available for contributions to pensions?

Corporate...