Harmful Tax Practices – 2018 Peer Review Reports on the Exchange of Information on Tax Rulings

Italy

Italy has met all aspects of the terms of reference (OECD, 2017[3]) (ToR) for the calendar year 2018 (year in review) except providing information to the Competent Authority without undue delay (ToR II.5.5)and exchanging information during the year of review on new entrants to the IP regime that obtained benefits with respect to trademarks (ToR I.4.1.3). Italy receives two recommendations on these points for the year in review.

In the prior year report, as well as in the 2016 peer review, Italy received two recommendations in connection with the same issues. The recommendation with respect to the IP regime has been fully addressed in mid-2019 by the completion of the exchange on new entrants, however the relevant recommendation remains in place for the 2018 year in review. As regards the recommendation providing information to the Competent Authority without undue delay, Italy has introduced measures that are expected to take effect as of next year’s review.

Italy can legally issue three types of rulings within the scope of the transparency framework. In practice, Italy issued rulings within the scope of the transparency framework as follows:

• 58 past rulings;

• For the period 1 April 2016 - 31 December 2016: 39 future rulings;

• For the calendar year 2017: 123 future rulings, and

• For the year in review: 308 future rulings.

Rulings other than APAs and ad hoc Patent Box may be published, in an anonymised form, as a general ruling (Resolutions)1 when the underlying issue is new and relevant, or the response to the query may apply to groups or types of taxpayers in the same situation, providing guidance on the position of the Italian tax administration on the matters of the query. Moreover, as of August 2018 the basic principles underpinning the replies given to a single taxpayer by the Central Directorates to the so called “ordinary rulings” (“interpelli”) are published on the Revenue Agency website.2

Peer input was received from nine jurisdictions in respect of the exchanges of information on rulings received from Italy. The input was generally positive, noting that information was mostly complete and in in a correct format.

Introduction

This peer review covers Italy’s implementation of the BEPS Action 5 transparency framework for the year 2018. The report has four parts, each relating to a key part of the ToR. Each part is discussed in turn. A summary of recommendations is included at the end of this report.

A. The information gathering process

Italy can legally issue the following three types of rulings within the scope of the transparency framework: (i) rulings related to preferential regimes;3 (ii) cross-border unilateral advance pricing arrangements (APAs) and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles; and (iii) as of May 2016, permanent establishment rulings.

Past rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1, I.4.2.2)

For Italy, past rulings are any tax rulings within scope that are issued either: (i) on or after 1 January 2014 but before 1 April 2016; or (ii) on or after 1 January 2010 but before 1 January 2014, provided they were still in effect as at 1 January 2014.

In the prior year peer review report, it was determined that Italy’s undertakings to identify past rulings and all potential exchange jurisdictions were sufficient to meet the minimum standard. Italy’s implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

Future rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1)

For Italy, future rulings are any tax rulings within scope that are issued on or after 1 April 2016.

In the prior year peer review report, it was determined that Italy’s implementation undertakings to identify future rulings and all potential exchange jurisdictions were sufficient to meet the minimum standard. Italy’s implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

Review and supervision (ToR I.4.3)

In the prior years’ peer review reports, it was determined that Italy’s review and supervision mechanism was sufficient to meet the minimum standard. Italy’s implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

Conclusion on section A

Italy has met all of the ToR for the information gathering process and no recommendations are made.

B. The exchange of information

Legal basis for spontaneous exchange of information (ToR II.5.1, II.5.2)

Italy has the necessary domestic legal basis to exchange information spontaneously. Italy notes that there are no legal or practical impediments that prevent the spontaneous exchange of information on rulings as contemplated in the Action 5 minimum standard.

Italy has international agreements permitting spontaneous exchange of information, including being a party to the (i) Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol (OECD/Council of Europe, 2011[4]) (“the Convention”), (ii) the Directive 2011/16/EU with all other European Union Member States and (iii) double tax agreements in force with 99 jurisdictions.4

Completion and exchange of templates (ToR II.5.3, II.5.4, II.5.5, II.5.6, II.5.7)

In the prior year peer review report, it was determined that Italy’s process for the completion and exchange of temples met all the ToR, except for providing the information on future rulings to the Competent Authority in a timely manner (ToR II.5.5). Therefore, Italy was recommended to continue its efforts to reduce the timelines.

During the year in review, Italy still experienced delays when forwarding information on rulings to the Competent Authority and information has been forwarded to the Competent Authority at six monthly intervals. Italy issued new internal guidelines in February 2019 to make information on rulings available on a quarterly basis to the Competent Authority, so that exchange of information on is conducted in a timely manner as required under the transparency framework. In addition, the Revenue Agency, in collaboration with its IT partner, is implementing an IT application intended to allow an automatic download of the rulings contained in the relevant databases and their subsequent transmission to the Competent Authority. This will be assessed in the subsequent peer review report.

For the year in review, the timeliness of exchanges is as follows:

 

Past rulings in the scope of the transparency framework	Number of exchanges transmitted by 31 December 2018	Delayed exchanges
		Number of exchanges not transmitted by 31 December 2018	Reasons for the delays	Any other comments
0	0	N/A	N/A
Future rulings in the scope of the transparency framework	Number of exchanges transmitted within three months of the information becoming available to the competent authority or immediately after legal impediments have been lifted	Delayed exchanges
		Number of exchanges transmitted later than three months of the information on rulings becoming available to the competent authority	Reasons for the delays	Any other comments
	1 155	0	N/A	N/A
Total	1 155	0

 

Follow up requests received for exchange of the ruling	Number	Average time to provide response	Number of requests not answered
1	1 week	1

Italy has the necessary legal basis for spontaneous exchange of information, a process for completing the templates in a timely way and has completed all exchanges. As Italy continued to experience delays when forwarding information on rulings to the Competent Authority during the year of review, the recommendation is retained and Italy is recommended to continue its efforts to ensure that information is made available to the Competent Authority without undue delay (ToR II. 5.5).

C. Statistics (ToR IV)

The statistics for the year in review are as follows:

 

Category of ruling	Number of exchanges	Jurisdictions exchanged with
Ruling related to a preferential regime	1 063	Andorra, Argentina, Australia, Austria, Belgium, Botswana, Brazil, Bulgaria, Canada, Chile, China (People’s Republic of), Colombia, , Costa Rica, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hong Kong (China), Hungary, India, Indonesia, Ireland, Israel, Jamaica, Japan, Jersey, Kazakhstan, Korea, Luxembourg, Macao (China), Malaysia, Mauritius, Mexico, Monaco, Netherlands, New Zealand, Norway, Panama, Peru, Poland, Portugal, Qatar, Romania, Russia, San Marino, Saudi Arabia, Serbia, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, Thailand, Tunisia, Turkey, Ukraine, United Kingdom, United States, Zambia
Cross-border unilateral advance pricing agreements (APAs) and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles	87	Australia, Austria, Belgium, Brazil, China (People’s Republic of), Denmark, Finland, France, Germany, Hong Kong (China), Hungary, Ireland, Japan, Korea, Luxembourg, Malaysia, Netherlands, Norway, Poland, Portugal, Russia, Slovak Republic, Singapore, Spain, Sweden, Switzerland, Turkey, Ukraine, United Kingdom, United States
Cross-border rulings providing for a unilateral downward adjustment to the taxpayer’s taxable profits that is not directly reflected in the taxpayer’s financial / commercial accounts	N/A	N/A
Permanent establishment rulings	5	France, Hungary, Ireland, Luxembourg United Kingdom
Related party conduit rulings	N/A	N/A
De minimis rule	N/A	N/A
IP regimes: total exchanges on taxpayers benefitting from the third category of IP assets, new entrants benefitting from grandfathered IP regimes; and taxpayers making use of the option to treat the nexus ratio as a rebuttable presumption	0	N/A
Total	1 155

D. Matters related to intellectual property regimes (ToR I.4.1.3)

Italy offered an intellectual property regime (“IP regime”)5 that was amended with effect as of 1 January 2017 to the extent it was not nexus compliant (i.e. for benefits for trademarks) and is subject to transparency requirements under the Action 5 Report (OECD, 2015[5]). It states that the identification of the benefitting taxpayers will occur as follows:

• New entrants benefitting from the grandfathered IP regime:

  In the prior year peer review report, Italy was recommended to continue its efforts to identify and exchange information on new entrants to the grandfathered IP regime. Italy issued an Inter-Ministerial Decree which came into force on 6 February 2018 and stipulates that every taxpayer who has benefitted as a new entrant from the grandfathered Italian Patent Box regime shall indicate this in the annual tax return. In addition, the taxpayer shall provide the following information to the Agenzia delle Entrate, which is the competent body to issue ad hoc rulings and regime rulings relating to the Patent Box regime:

  • the type and the number of eligible assets (patent, trademarks, etc.) to which the benefit applies;

  • the amount of the eligible income resulting from the use of the assets; and

  • as regards benefits for trademarks, information on relevant jurisdictions where related parties are fiscally resident

• The first tax return containing this information was filed at the end of 2018. The information was gathered in early 2019. As such, the part of the recommendation relating to the identification of the relevant new entrants is removed. On the basis of 2018 tax returns, the following information on new entrants has been gathered: 512 taxpayers have opted for the Italian IP regime for 6 116 trademarks. Of these taxpayers, 391 are purely domestic taxpayers while 121 have related parties in other jurisdictions. Italy has fully exchanged this information by July 2019. This will be taken into account in the subsequent peer review, and this is not a recurring issue.

Third category of IP assets: not applicable as the regime does not allow the third category of IP assets to qualify for the benefits.

• Taxpayers making use of the option to treat the nexus ratio as a rebuttable presumption: not applicable as the regime does not allow the nexus ratio to be treated as a rebuttable presumption.

Summary of recommendations on implementation of the transparency framework

 

Aspect of implementation of the transparency framework that should be improved	Recommendation for improvement
During the year of review Italy continued to experience delays when forwarding information to the Competent Authority.	Italy is recommended to continue its efforts to continue its efforts to apply reduced timelines for providing the information on future rulings to the Competent Authority. This recommendation remains unchanged since the 2016 peer review report and the 2017 peer review report.
Italy has completed the exchange of information on new entrants to the grandfathered IP regime that obtained benefits with respect to trademarks in mid-2019.	As the exchange was done by mid-2019 (after the year in review), the recommendation to complete the exchanges on the new entrants is retained, though this is not a recurring issue. A recommendation on this issue remains since the 2016 peer review report and the 2017 peer review report.

Notes

← 1.  Available here: https://www.agenziaentrate.gov.it/wps/content/Nsilib/Nsi/Normativa+e+Prassi/Risoluzioni.

← 2.  Available here: https://www.agenziaentrate.gov.it/wps/content/nsilib/nsi/normativa+e+prassi/risposte+agli+interpelli.

← 3.  With respect to the following preferential regimes: 1) International shipping and 2) Patent Box.

← 4.  Parties to the Convention are available here: www.oecd.org/tax/exchange-of-tax-information/convention-on-mutual-administrative-assistance-in-tax-matters.htm. Italy also has bilateral agreements with Albania, Algeria, Argentina, Armenia, Australia, Austria, Azerbaijan, Bangladesh, Barbados, Belarus, Belgium, Bosnia and Herzegovina, Brazil, Bulgaria, Canada, Chile, China (People’s Republic of), Congo, Côte d'Ivoire, Croatia, Cyprus, Czech Republic, Denmark, Ecuador, Egypt, Estonia, Ethiopia, Finland, Former Yugoslav Republic of Macedonia, France, Georgia, Germany, Ghana, Greece, Hong Kong (China), Hungary, Iceland, India, Indonesia, Ireland, Israel, Japan, Jordan, Kazakhstan, Korea, Kuwait, Kyrgyzstan, Latvia, Lebanon, Lithuania, Luxembourg, Malaysia, Malta, Mauritius, Mexico, Moldova, Montenegro, Morocco, Mozambique, Netherlands, New Zealand, Norway, Oman, Pakistan, Philippines, Poland, Portugal, Qatar, Romania, Russia, San Marino, Saudi Arabia, Senegal, Serbia, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Syrian Arab Republic, Chinese Taipei, Tajikistan, Tanzania, Thailand, Trinidad and Tobago, Tunisia, Turkey, Uganda, Ukraine, United Arab Emirates, United Kingdom, United States, Uzbekistan, Venezuela, Viet Nam and Zambia.

Note by Turkey: The information in this document with reference to “Cyprus” relates to the southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Island. Turkey recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Turkey shall preserve its position concerning the “Cyprus issue”.

Note by all the European Union Member States of the OECD and the European Union. The Republic of Cyprus is recognised by all members of the United Nations with the exception of Turkey. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus.

← 5.  Partial exemption for income/gains derived from certain IP rights.