Pills on the expected reform of the Italian tax regime

Council of Ministers approved a set of general principles and criteria for a full reform of the Italian tax system (Draft Framework). The Parliament is now supposed to approve a law that will enable the government to implement the reform in detail. Then, within 24 months, the government will issue one or more Legislative Decrees in order to enact the reform. 

The Draft Framework provides for major changes in Italian tax regime, as below summarized.

New rules for tax nature of foreign entities
Under current Italian tax rules, non resident companies are always seen as corporations (i.e., as tax opaque), irrespective of their local jurisdictions' qualification. Such rule will be amended by a provision that takes into consideration the local tax characterization of the foreign entity.

Reinforcement of taxpayers' bill of rights and legal certainty
The Draft Framework aims at reviewing the taxpayers' bill of rights (Law n. 212/2000) by strengthening the obligation for the tax authorities to include motivations in tax audits, enhancing the principle of legitimate expectation and legal certainty and rationalizing tax ruling procedures. Application fees for tax rulings will likely be introduced. 

Review of tax residence rules
The Draft Framework calls for a review of the tax residence rules for individuals and companies, aiming to align domestic provisions with international best practices and the double-tax treaties signed by Italy.

Gradual elimination of Regional Tax on Business activities (IRAP)
The Draft Framework provides for a gradual elimination of the Regional tax on business  activities (generally levied at 3.9%), by replacing the tax with a surcharge on IRES.

Cooperative compliance regime
The Draft Framework aims to increase the attractiveness of the cooperative compliance regime by reducing the minimum entry threshold (currently set at one billion EURO (€1b) turnover/revenues) and simplifying the access requirements, with the possibility of certifying the required tax control framework. For small taxpayers, the Draft Framework introduces an optional regime under which the fiscal burden will be negotiated, on a two-year basis, with the Tax Administration.

Tax controversies
The Draft framework provides for the introduction of new rules aiming at making tax litigations quicker and more efficient. The digitalized processes will be improved as well as settlement procedures for controversies pending before the Supreme Court.
The tax penalty system is expected to be reorganized in order to ensure a greater integration between the tax and criminal penalty system.
The rules regarding enforced collection procedures and tax refund procedures will be amended as well.

Value Added Tax (VAT)
The Draft Framework includes guidance aimed at revising the domestic VAT rules with reference, among others, to VAT exempt transactions (especially with regard to real estate assets), VAT recovery, VAT rates and the VAT grouping.

Other measures
The Draft Framework includes guidelines for the introduction of rules aimed at reducing the differences between book and tax values; the revision of the tax provisions concerning the management of the economic crisis and financial insolvency of companies; the revision of the rules concerning non-operating companies.