Italy: update on ACE deduction


The rate to calculate the notional return on equity for ACE (Italian Aid to Economic Growth) deduction purposes has been drastically cut, with amendments now in effect.

The 2017 Italian Budget Law amendment to paragraph 3, art. 1 of Italian Law Decree 201/2011, reduces the notional return from a considerable 4.75% - referring to the tax period ending 31 December 2016 – to 2.3% for the tax period ending on 31 December 2017.

Starting from the next tax period, which is 2018, a rate of 2.7% has been set. Therefore, the rate of the notional return will no longer be determined by taking the mean yields of government bonds as reference. In fact, the new paragraph 3 of the Decree 201/2011 contains now only the aforementioned fixed rate.

This amendment, which notably affects the benefit of the deduction to Italian Corporate Tax (IRES) in the 2017 period, is within the context of other changes, which are on the other side the decrease in the IRES rate to 24% that reduces the burden on corporate income.

It’s also worth noting that advance payments relating to 2017 must be calculated on the basis of the tax for the previous period that would have been obtained by applying the rate of 2.3% (and not that of 4.75%).

The 2017 Italian Budget Law also introduced an “anti-avoidance” rule under paragraph 6-bis, art. 1 of Italian Law Decree 201/2011.

This provision introduces a new restriction to the benefit: for subjects other than banks and insurance companies, the increase in equity does not have an effect for deduction purposes, until this change reaches the amount of the increase in the composition of stocks and securities other than equities, compared to those resulting from the financial statements for the year ending on 31 December 2010.

The rule actually tends to avoid increases in the shareholders’ equity from being devoted to transactions of a financial nature with speculative intent, and not destined to the development of the company’s core business operations.

Beginning 2016 there are also changes for natural persons, Italian law partnerships and Italian law limited partnerships adopting the ordinary accounting regime. The previous rule, which basically assumed the shareholders’ equity resulting at the end of the respective years as the ACE basis, will now be subject to the same method of the increases in shareholders’ equity of IRES subjects.

Also for these subjects it will be necessary to identify the increase in equity at 31 December 2016, compared to the one existing at 31 December 2010, equal to the algebraic sum, if positive, between increases and decreases.

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