At the end of December 2019, the Italian Parliament passed two pieces of legislation, the Budget Law for 2020 and a related tax law decree1, which introduce, among other things, a new tax on digital services, as well as a number of other tax measures material to corporations and individuals, becoming effective either as of January 1, 2020 or during 2020.
This memorandum briefly illustrates some of the main tax measures included in such legislation.
1) The New Web Tax
The 2020 Budget Law introduces a new 3% tax on digital services (the "Web Tax")2 applicable on Italian-sourced gross revenues resulting from the supply of (i) advertising services through digital media, (ii) digital platforms allowing users to interact and possibly facilitate the direct supply of goods and services, and (iii) users' data generated via digital media. Such revenues are generally deemed to be Italian-sourced if supplied to customers using a digital device on the Italian territory3.
The Web Tax will only apply to companies that, on a stand-alone basis or at group level, generated revenues of at least Euro 750 million, of which at least Euro 5.5 million from Italian-sourced qualifying digital services, in the preceding tax period .
The Web Tax is effective as of January 1, 2020, but it could be repealed or amended if an agreement on the taxation of digital economy were reached at the international level.
2) Deferral of Certain Tax Allowances for Financial Institutions and Insurance Companies
The 2020 Budget Law increases the tax liability of financial institutions and insurance companies by deferring certain corporate income tax ("IRES") and local quasi-income tax ("IRAP") allowances on write-downs and losses relating to receivables.
In particular, while financial institutions and insurance companies are currently entitled to fully deduct write-downs and losses relating to receivables in the tax period in which they are accounted for, write-downs and losses accrued up to 2015 are allowed to be deducted in variable installments during the 2016-2025 period4. More specifically, for 2019, under such rules, financial institutions and insurance companies were entitled to deduct an amount corresponding to 12% of the pre-2016 write-downs and losses. The 2020 Budget Law has now deferred the 2019 12% instalment allowance to the 2022-2025 tax periods, in four equal instalments5.
Moreover, in 2018, financial institutions and insurance companies were granted an IRES and IRAP allowance for losses on receivables booked as a result of the first-time adoption of the new IFRS No. 9. Such allowance was available on a straight-line basis over a ten-year period. The 2020 Budget Law has postponed to 2028 the deductibility of the 2019 annual instalment.
While not novel (the 2018 instalment had been postponed to 2026 with the 2019 Budget Law), these cash-in measures result in last-minute additional levies that will likely affect the yearly tax charges and budgets of financial institutions and insurance companies.
3) The Re-instatement of the Allowance for Corporate Equity Rules
The Allowance for Corporate Equity ("ACE") rules, in force through 2018, have been retroactively reinstated, as of the 2019 tax period. Equity increases occurred in...