For such entities, dividends from investments in shares and other financial instruments held for trading are fully taxable.ĭividends generally are excluded from the IRAP taxable base. ![]() There are specific rules for entities adopting IFRS for Italian statutory financial reporting purposes. Conversely, no exemption applies to dividends paid by entities that are resident in tax haven jurisdictions (unless those dividends derive from profits that were already taxed under the Italian controlled foreign company rules). not included in the 'black list') are excluded from the IRES taxable base for 95% of their amount. Dividend incomeĭividends received by Italian resident companies from Italian companies or from companies resident in countries other than tax havens (i.e. Specific anti-dividend washing rules provide that where capital losses arise from the disposal of shareholdings that are not eligible for PEX, such losses are deductible only for the part exceeding the tax exempt amount of dividends ( see Dividend income discussion below) received from the shares in question in the 36 months prior to the disposal.Ĭapital gains on financial investments generally are excluded from the IRAP taxable base. Specific exemptions are provided for those entities adopting IFRS for Italian statutory accounts reporting purposes. Likewise, the capital losses realised on sales of non-PEX investments are tax deductible. If these conditions are not met, the capital gain realised by the company is ordinarily taxed.Ĭapital losses arising from the sale or write-down of shareholdings meeting PEX conditions are basically not tax deductible. The fourth condition must be met since the beginning of the shareholder period, or, if the buyer is a third party, over the five-year period before the disposal. The third condition must be met both at the time of the sale of the investment and in the three preceding years. The majority of the subsidiary's income is not generated in a tax haven country or one with a privileged tax regime.investments in companies mainly performing management of their own real estate are not entitled to PEX benefits). The subsidiary is actually carrying on a commercial activity (e.g.The investment was classified under financial fixed assets in the financial statements relating to the first tax period of uninterrupted ownership.The shareholding was held uninterruptedly for at least 12 months prior to the sale.PEX applies if all of the following conditions are met: Under this regime, capital gains realised by Italian companies on sales of shareholdings are 95% exempt from IRES. Financial investments: A specific participation exemption regime (PEX) is applicable.This treatment is allowed if the company owned the fixed assets for not less than three years. Additionally, for IRES purposes, tax on capital gains can be spread over a maximum of five years. Fixed assets: The gain realised on the sale of fixed assets is taxable for both IRES and IRAP purposes.Capital gainsĬapital gains are taxable in the tax period in which they are realised, as follows: For IRES only, the reference prices used to calculate the written down value of the inventory items cannot be lower than their market prices during the final month of the tax period.Ĭompanies operating in the oil and gas sector are required to adopt either average cost or FIFO for tax purposes. Italian tax law allows the application of all the most commonly used inventory valuation methods: last in first out (LIFO), first in first out (FIFO), average cost. Positive and negative items resulting from transfer of business concern are out of the scope of the taxable basis. ![]() IRAP income determinationįor IRAP purposes, relevant income and expenses are those reported in the statutory financial statements. There are also measures aimed at coordinating different items of the tax code in the light of new evaluation and representation criteria introduced by the accounting reform. The already issued provisions for International Accounting Standards (IAS)/IFRS entities also apply to Italian GAAP adopters, if compatible. Therefore, the taxable basis is influenced by the qualification criteria, time-based recognition, and classification in the financial statements provided by the related accounting standards. These provisions are aimed to align the taxable basis determination rules with the statutory financial reporting (so-called principle of derivation of the corporate income taxable basis from the statutory financial statements). Specific rules have been released for entities adopting Italian Generally Accepted Accounting Principles (GAAP) rather than International Financial Reporting Standards (IFRS) for Italian statutory financial reporting purposes.
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