Investing in Italy: how to facilitate dealing with the tax authorities?

With the recent Circular No. 7/E, the Internal Revenue Service clarifies the interpellate on new investments.

This application can be addressed to the Revenue Agency by investors, whether Italian or foreign, who intend to make significant investments in the territory of the State, having a value of not less than 15 million euros, with substantial and lasting employment relapses.

The interpellate on new investments is a tool designed for the taxpayer to offer new ways of interacting with the tax administration.

By resorting to said interpellate, the investor taxpayer is assured a kind of prior certainty on specific issues, such as:

• Management of critical tax issues arising from the development of the business plan of the company, including, possibly, in the stages following the initial implementation of the same
• Power of rectification on the part of the Internal Revenue Service; through said interpellation, and the resulting agreement with the Agency, the Agency may revise any answers made only in case of a change in the factual and legal issues.

Essential hints to the institute

The scope of application of the interpellation on new investment is extensive. It includes any project for the realization of an economic initiative having a lasting character, including activities aimed at restructuring an enterprise in crisis, optimization or efficiency of an existing business complex, as well as participation in the assets of an enterprise.

The “new investment,” from which an advantageous agreement with the Internal Revenue Service in the tax sphere could be signed, takes shape where positive economic and revenue effects can be found in the territory of the State. The Agency, on this point, clarifies that the investment must:

• be of a total amount of not less than fifteen million euros
• be made in the territory of the State
• be accompanied by a business plan describing the positive effects of revenue on the Italian tax system (the business plan must also highlight the expected, lasting, and significant employment effects).

Moreover, for admissibility of the interpellation petition, the realization of an initiative in Italy must possess all the requirements required by the institute’s regulations, the subsistence of which must be illustrated in detail and documented at the accounting and contractual level by the investor. In particular, the economic initiative must:

• be of a lasting nature
• be of a magnitude not less than the legal threshold
• produce significant and lasting employment spin-offs
• result in positive effects in terms of tax revenues.

What are the relevant investments?

Among others, included among the types of relevant investments are:

• Share deals carried out through the conversion of receivables into equity in the target company
• the acquisition, by a resident investor, of a foreign entity, given the fact that the investor’s location in Italy guarantees the link with the territory
• the operations of “repatriation” of assets by entities that have previously relocated them abroad
• the operations of subjects’ return (so-called in-shoring or reshoring), as well as the transfer of tax residence in Italy of foreign subjects, provided that said investment is quantifiable in at least fifteen million euros and positive employment effects are produced.

Foreign investors

Foreign investors can also take advantage of this opportunity. In this regard, when a cross-border investment is made by a foreign investor, it is necessary that the part of the investment that is implemented in the Italian territory has a value at least equal to the minimum threshold of the law, regardless of whether the portion of the investment made in the Italian territory is not prevalent with respect to the ‘total amount of the business plan and, therefore, with respect to the portion of the investment intended to be made abroad.

What effects does the interpellation produce?

The Agency, within 120 days, may respond to the investor’s petition, and the response rendered will bind the Agency about the investment plan described in the petition.

In this sense, anybody called upon to carry out assessment activities on the investors involved is obliged, before drafting acts of dispute or other acts with tax or sanction content, to question the Office that drafted the response to verify whether the pending assessment concerns the same case already resolved in the interpellation on new investments.