Italy was the first of the European states to declare the lockdown of certain areas and subsequently of the whole country for the purpose of containing the spread of coronavirus (or Covid-19). As a result, to address the problems of coping with tax deadlines and payments, a number of extraordinary measures were enacted on March 17, 2020 with Law Decree n. 18, the so-called Save Italy Decree (the Decree). Among these are specific measures addressed to enterprises, professionals and employees, and mainly focused on the suspension of payment of taxes and social contributions as well as other tax obligations.
In addition, in order to boost contributions to public bodies to support initiatives to combat Covid-19, extraordinary rules have been enacted to grant tax benefits to individuals and enterprises making donations.
The Italian Revenue Agency has also issued several specific Circulars and Resolutions aimed at clarifying the scope of the suspension of payments and other details falling within the scope of the Decree.
The main measures are summarized below.
Suspension of Tax Payments
Article 61 of the Save Italy Decree provides for a suspension of tax payments for specific business sectors most affected by the restrictions imposed to address the outbreak of coronavirus (e.g. theaters, tour operators, travel agencies, hotels and accommodation, restaurants, museums, fitness centers). The Revenue Agency clarified the scope of application of such suspension from a subjective perspective (Risoluzione n. 12 and Risoluzione n. 14), indicating that the list of enterprises specifically mentioned in the Decree is provided by way of example and should not be considered exhaustive.
The suspension involves all payments for withholding, social security, welfare contributions and premiums for compulsory insurance, and value-added tax (VAT) with a deadline falling in the period April 8 to April 30. Tax payments are postponed to May 31, with the possibility to make them in full in five monthly installments without application of interest and penalties.
The government introduced a similar suspension for taxpayers carrying out business, art and professional activities (see Article 62 of the Decree) who realized, in the fiscal year preceding the current one, revenues not higher than 2 million euros ($2.19 million). In contrast to those business activities allegedly most impacted by Covid-19 measures, the suspension here applies only for tax payments with a deadline falling in the period March 8 to March 31. The payments are also postponed to May 31, and must be made in full or in five monthly installments, without any application of interest and penalties.
Moreover, for taxpayers who recorded revenues not higher than 400,000 euros in the previous fiscal year, no withholding tax is applied to payments made in March to the extent that a specific declaration is submitted and that no expenses for employees were incurred by the taxpayers.
Suspension of Payment of Amounts Already Assigned for Collection
The Decree introduced the postponement of deadlines for payment of amounts due in the period between March 8 to May 31 in relation to collection notices, final tax assessments, assessment notices issued by the customs agency and other local authorities, and National Institute of Social Security (INPS) assessment notices. The deadline has been set to June 20, 2020.
The extended deadline for payments originally due in February with regard to the scrapping of notice of payments is May 31, and March 31 for the final installment of the notice of payments (Article 68 of the Decree).
On the other hand, no suspension has been granted for other tax payments falling due in the same period, such as amounts requested by the Revenue Agency as a result of formal inspections or installment plans due in the context of settlement procedures.
Suspension of Other Formalities
With the exception of the payments of each type of tax and the withholding taxes related to the regional and municipal surcharge which are due, for all taxpayers the tax requirements (e.g. tax returns, communications) expiring between March 8 and May 31, 2020 are postponed (Article 62 of the Decree).
Acknowledgment of “Virtuous Taxpayers”
The Decree stipulates that taxpayers who respect the ordinary deadlines for payments instead of benefiting from any suspension introduced by the Decree will be acknowledged and mentioned as “virtuous taxpayers” (Article 71 of the Decree).
Extension of Statute of Limitations
The Decree introduces the suspension of the activities of tax offices in relation to liquidations, audits, assessments, collection and litigation activities, for the period March 8 to May 31, 2020.
As a result of the above suspension, the Italian government ordered the extension of the statute of limitations expiring in the current fiscal year by two years. By way of example, if the statute of limitations for corporate income taxes expires in 2020 (e.g., fiscal year 2015 for companies having a fiscal year coinciding with the calendar), the deadline for any assessment is postponed to fiscal year 2022.
The extension of the statute of limitations has been highly criticized and some changes are expected at the time of the conversion of the Decree. The provision is evidently discriminatory, in breach of the principle of equality applicable to both tax administration and taxpayers.
Consultancy Activity of the Revenue Agency: Ruling Procedures
The Decree provides that activities connected with the ruling procedure are suspended in the period March 8 to May 31. As a result of such suspension, the deadlines for submitting supplementary documentation to the ruling requests are suspended as well. The deadline to provide an answer to the ruling filed (which can only be submitted electronically) during the suspension period starts as of June 1, 2020 (see Article 67 paragraph 2 of the Decree).
Despite the general suspension indicated in the Decree the Revenue Agency clarified (Circolare n. 4, dated March 20, 2020) that the activities of the tax office will continue, but an answer within the ordinary terms shall not be taken for granted. The delay in answering the ruling request may have an impact on the computation of the tax.
A relief from penalties should be granted to taxpayers that make lower tax payments or intend to voluntarily settle such lower payments, as a result of an answer not being received in time to correctly compute taxes, and also taking into consideration the negative financial effects arising from the Covid-19 measures.
Tax Disputes: Postponement of Actions before Tax Courts
The Decree introduces the postponement of hearings originally scheduled in the period March 9 to April 15 and all actions connected with such tax proceedings for the same period (e.g. filing of briefs or documents) are suspended. The suspension also applies to the terms for lodging an appeal brief before a provincial tax court.
The suspension of the terms applies to the proceeding before the Supreme Courts.
The Italian Revenue Agency issued a Circular (Circolare n. 5 dated March 20, 2020) clarifying the impact of such a suspension on the ongoing settlement procedure where the deadline to conclude the negotiations with the tax office falls within the period of suspension. In particular, the Revenue Agency confirmed the application of the suspension to these proceedings, thus implying that the term to file the appeal is eventually frozen for 38 days (from March 9 to April 15), as it occurs during the summer recess period in August.
However, stressing the relevance of cooperation between the Italian tax administration and taxpayers, the Revenue Agency specified that tax offices and taxpayers are not prevented from continuing discussions and eventually concluding the procedure by electronic means. Any payments arising from the conclusion of the settlement procedures shall be made according to the ordinary 20-day term.
Donations to Support Covid-19 Measures
Donations made to support measures against the spread of Covid-19 are deductible from the taxable base for corporate income tax (IRES) purposes, to the extent that they are made through foundations, associations, committees and entities. Some clarification will be needed to specify the conditions to obtain the deductibility.
The same donations are deductible from the taxable base for regional tax (IRAP) purposes in the fiscal year in which the payment is made.
Donations made by individuals are deductible from gross tax to an amount equal to 30% of the donation, provided that it does not exceed 30,000 euros, and in whatever form made (Article 66 of the Decree).
Specific Tax Credits
The Decree introduced a tax credit in relation to the sanitation costs incurred by subjects performing business, art or professional activities in the workplace. The tax credit is granted in financial year 2020 and is computed at an amount of 50% of the expenses borne to sanitize workplaces and work appliances, up to an amount of 20,000 euros (Article 64 of the Decree). The implementation of the tax credit is subject to the release of a forthcoming decree.
A tax credit has been also provided for retailers, with the exception of activities of trade in food and basic necessities as listed by the Decree of March 11, 2020. The tax credit is granted for 60% of the amount of real estate rental expenses incurred in March 2020 and may only be used to offset other tax payments (Article 65 of the Decree).
Companies that transfer receivables towards defaulting debtors (where debts are older than 90 days) by December 31, 2020, can convert the deferred tax assets into a tax credit if related to tax losses carried forward or the allowance for corporate equity (ACE) carried forward. The benefit deriving from the above cannot exceed 20% of the face value of the receivables transferred. This applies up to a maximum amount of 2 billion euros. The tax credit can be offset, without any limitation as to the amount, through the F24 form, or transferred or a refund requested. The tax credit must be reported in the tax return and does not affect the taxable base for both IRES and IRAP (Article 55 of the Decree).
Postponement of Corporate Formalities
All companies are allowed to call the ordinary general meeting for the approval of the financial statements within 180 days from the end of the financial year (instead of 120 days). All formalities can be complied with by electronic means, irrespective of the provisions in the company by-laws (Article 10 of the Decree).
Giuliana Polacco is Senior Counsel and Annarita De Carne is Senior Associate with Studio Legale Bird & Bird.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.