Domestic and world tax consolidation

Companies belonging to the same group may opt for the consolidation of their company income.

Domestic tax consolidation Domestic tax consolidation is an optional system arranged for a 3-year period , to which company groups may have access. To exercise the option, the law provides for the controlling company to participate directly or indirectly in an amount exceeding 50% of the share capital and profits of the subsidiary for the year.The system consists of the consolidation of the taxable income , calculated separately by each company, which is totally algebraic , irrespective of the percentages of participation of the different companies.For this purpose, the holding company must:

  • submit the consolidated earnings return, calculating the overall global income based on the algebraic sum of the overall net income declared by each of the companies participating in the system, without making any consolidation adjustment;
  • proceed with payment of the group taxation (IRES).

Any excess interest payable and non-deductible assimilated costs formed by a subject who takes part in the consolidated balance sheet can be deducted from the group’s overall income if and within the limits in which the other participants submit a declaration of large-scale gross earnings for the same taxation period that is not fully used for deduction. These rules can be applied to excesses carried forward, excluding any excess formed prior to entering the national consolidated balance sheet that must be used for the sole purposes of each company elected for this regime.

The option is exercised by forwarding suitable notification to the Inland Revenue.

Companies belonging to the group and using IRES rate reductions may not exercise the option.

The following conditions must also be met:

  • residence in Italy of all companies participating in the “fiscal unit”;
  • all of the companies participating in the group must have the same year-end;
  • election of domicile by each subsidiary with the controlling company.
World tax consolidation World tax consolidation is an optional system with a 5-year period, based on which a controlling company resident in Italy may consolidate the income made by all non-resident subsidiaries proportionately, for which the control requirement exists, based on the percentage of participation held in the subsidiaries.The following conditions must be met:

  • residence of the controlling company in Italy;
  • all of the companies participating in the group must have the same year-end, unless not permitted by foreign legislation;
  • inspection of the balance sheets of the controlling and subsidiary companies;
  • compulsory consolidation of all foreign subsidiary companies;
  • certification by non-resident subsidiaries of their consent to the audit of the balance sheet and undertaking to provide any collaboration required to establish the tax assessment basis and to comply with the requests of the Inland Revenue.

A suitable appeal should be made to the Inland Revenue to check the requirements for the valid exercise of the option.

Withholding taxes are applied to various payments. The following are the most important.Tax treaties, where more favorable to the tax-payer, override statutory provisions.

Dividends Dividend income received by partnerships or by individuals in relation to business activities is subject to tax at 49.72%.Dividend income received by individuals not related to business activities is subject to:

  • ordinary tax at 49.72%, if related to qualified participations(26% advance withholding tax also applies to foreign source dividends);
  • 26% substitutive final tax withheld at source for the total amount, if related to non-qualified participations.

Qualified participations are participations entitling to:

  • more than 2% of voting rights in an ordinary meeting or 5% of capital or corporate assets of quoted companies;
  • more than 20% of voting rights in an ordinary meeting or 25% of capital or corporate assets of other companies.

Dividends of foreign source from black list countries are subject to ordinary tax on 100% of their amount. 26% advance withholding tax applies.

Dividend paid to non-residents (other than EU companies) are subject to a 26% final withholding tax. Reduced rates and reimbursement may apply (leading to a 15% effective tax rate), provided that certain conditions are met.

Dividends paid to EU companies are subject to a 1.375% final withholding tax.

Payments to a qualifying EU parent company are exempt from withholding tax under the Parent-Subsidiary Directive, according to specific conditions.

 

 


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