Corporate Income Tax (IRES) - Key Concepts from Lecture Notes

VOCABULARY flashcards covering the key terms, definitions, and regulatory concepts related to the Italian Corporate Income Tax (IRES) as presented in the lecture notes.

IRES (Corporate Income Tax)

Italian tax on the income of resident companies and other entities with income sourced in Italy; standard rate 24%, plus surcharges and allowances; subject to credits, deductions, and exemptions (e.g., non-profit entities, certain regimes).

TUIR

The Italian Income Tax Consolidation Act governing IRES (Articles 72 onward); amended by DPR 917/1986 and Legislative Decree 344/2003; defines income categories and computation rules.

PEX (Participation Exemption)

95% exemption on capital gains from selling qualifying shareholdings, provided the stake was held at least 12 months, is in financial fixed assets, the subsidiary conducts business, and the investor isn’t in a tax haven (plus related conditions).

Strengthened Derivation Principle

Taxable income is derived from adjustments to the year’s financial statements according to accounting standards; substance over form; can override some TUIR provisions, especially for IAS adopters.

IAS adopters (IFRS users)

Entities that prepare financial statements under IAS/IFRS; subject to strengthened derivation and specific qualification, timing, and classification criteria.

OIC

Italian Accounting Standards Board; issues national accounting standards that interpret and supplement the Civil Code provisions (Art. 9-bis, Legislative Decree 38/2015).

Instrumental assets

Assets used for the operation and production activities of the business; have specific tax depreciation and deduction rules under the TUIR.

Patrimonio (investment properties)

Real estate assets not used directly in production or trading activities; taxed under distinct rules as investment properties.

Positive income components

Elements that increase the IRES base, including revenues, capital gains, active interests, final inventories, and other gains or receipts.

Revenues (Art. 85, TUIR)

Income from sale of goods/services and related items; includes various forms of proceeds and certain compensations and contributions in kind used for business purposes.

Capital Gains (Art. 86, TUIR)

Gains realized from transfer of assets or from compensation; may be taxed over up to five fiscal years if the asset is held for at least three years.

Active Interests

Interest income from equity investments; taxed in the period it accrues and measured using the amortized cost method; late interest is taxed on a cash basis.

Final Inventories

End-of-period inventories valued for tax purposes; grouped by nature, with minimum values determined by allowed configurations and cost methods (LIFO/FIFO rules as applicable).

Real Estate Management Revenue vs Instrumental Assets vs Patrimonio

Tax regimes differ based on whether real estate is used for operations (instrumental), as part of production activities, or as investment property (patrimonio).

Depreciation (Art. 102, TUIR)

Tax depreciation of tangible assets; rates set by ministerial decree; first year allowance is half; no general accelerated depreciation; ‘super depreciation’ no longer active after 2019.

Passive Interests (Art. 96, TUIR)

Deductibility rules for passive financial charges; deductible up to active interests and income, with a cap of 30% of gross operating income (ROL) and carryforwards; potential carryforward without time limit.

Gross Operating Income (ROL)

Difference between revenues and costs of production; used to compute the 30% cap for deducting passive interests.

Tax period

Fiscal period for IRES; typically the company’s fiscal year or management period; if not specified, defaults to the calendar year; adjustments apply to periods shorter/longer than 12 months.

Tax rate (IRES)

Baseline IRES rate of 24%, plus a 3.5% surcharge for financial intermediaries; reductions or surcharges may apply (e.g., 50% reductions for non-profits or ZES; shell company surcharge of 10.5%).

ZES (Southern Italy Special Economic Zone)

50% tax relief in IRES for new business activities in Southern Italy Special Economic Zones; conditions include maintaining operation and jobs for a set period.

ACE (Tax relief on equity)

Previously a deduction for the net increase in equity employed; repealed for new periods from 31 Dec 2023; any unused credits may be carried forward until fully utilized.

Patent Box

Regime for R&D/intellectual property costs; cost-based incentive with 110% of eligible expenditure; five-year irrevocable election; requires proper documentation and no related-party eligibility.

R&D tax credit

Credit for eligible R&D costs; historically 20% (12% in 2020) with ceilings; extended to 2031 with rates varying by year (e.g., 10% in 2024-2025 according to latest rules).

Foreign tax credit

Credit for foreign-sourced income taxed abroad; limited per country; can be carried back or forward up to eight years; excess credits may be carried forward under conditions.

Investments in new capital assets (Assets 4.0)

Tax credits for investments in new tangible assets; rates depend on amount and year (e.g., 20% up to 2.5m, 10% up to 10m, 5% up to 20m for certain periods).

ERP investments (digital/ERP enhancements)

Tax credit for investments in ERP-related upgrades enabling process optimization and energy savings; rates up to 35% for up to 2.5m, 15% up to 10m, 5% up to 50m (for 2024-25 investments).

Withholding tax (WHT)

26% base WHT on yields paid to Italian and non-Italian residents; 12.5% on government bonds; reductions apply under treaties or domestic regimes; deductions allowed in accrual or at payment.

Transfer of IRES excesses

Ability to transfer tax credits requested for a refund; governed by Article 43-bis of DPR 602/73; allows vertical or horizontal compensation within regulatory limits.

Offsetting of taxes (Conformity mark and Entratel)

Offsets allowed within a yearly EUR 2 million limit; credits above EUR 5,000 require a conformity mark; filing must go through Entratel for offsetting tax liabilities.

Payment of taxes (acconti and settlement)

Advance payments are usually 100% of prior year net tax liability; split in two installments (40% and 60%), with settlements due by the sixth month after year-end; electronic filing via F24.

Non-resident taxation principle

Worldwide taxation for Italian-resident entities; non-residents taxed only on Italian-source income.

Accrual principle (tax adjustments)

Rules that require revenues and costs to be recognized in the period to which they pertain; lead to temporary and permanent differences between accounting and tax bases.

Temporary vs Permanent differences

Temporary differences arise from timing rules; permanent differences arise from exemptions or regimes that permanently exclude related costs.

F24 form

Tax payment form used to settle IRES and other taxes; required for many tax payments and offsetting activities.

Entratel

Italian tax authority gateway for electronic filing; used for offsetting tax credits and other compliant submissions.

Financial statements (Art. 2423 etc.)

Corporations must prepare a Balance Sheet, Income Statement, and Notes (Art. 2423, 2423-bis, 2423-ter). Sole proprietorships/partnerships have a free format; civil code governs. Used as basis for tax calculations.

Notes to the financial statements

Explanatory notes adding deviations, valuation criteria, movements, and other information to aid understanding of the Balance Sheet and Income Statement.

IAS/IFRS applicability vs national standards

IAS/IFRS adopters follow international standards; national standards (OIC) supplement Civil Code provisions; classification of assets and income follows respective standards in the strengthened derivation framework.