Special tax loss deduction regime
A special regime for the deduction of tax losses assessed in the tax years of 2020 and 2021 is created, as well as for tax losses from previous years that are reported on the first day of the 2020 tax year.
Under these new dispositions:
✓ The reporting period for tax losses generated in 2020 and 2021 by “non-SMEs” will be 12 years (currently, 5 years);
✓ The taxable profit limit to which the reportable tax losses can be deducted is exceptionally extended from 70% to 80%, whenever this difference results from the deduction of the tax losses recorded in the 2020 and 2021 tax periods;
✓ When determining the deadlines for tax loss reporting in relation to the 2020 tax year, the 2020 and 2021 tax years should be disregarded which, in practical terms, translates into an increase in 2 years for deducting those tax losses:
Tax year in which tax losses are generated
Deadline for deduction
Special Regime for tax loss transmission
A special innovative regime is created that allows the transmission to the sphere of taxpayers who are SMEs or of medium capitalization of the tax losses assessed by micro, small and medium-sized companies deemed as “in difficulty” and which are acquired until the end of 2020.
The deduction of tax losses of the acquired company is carried out by the acquiring company in proportion to the acquired company's shareholding, up to a limit of 50% of its taxable profit.
The above-mentioned deduction is conditioned by a series of requirements, among which we highlight:
✓ Acquisition of share capital allowing for direct or indirect majority holding of voting rights for at least three years;
✓ Participation has to be maintained continuously for a period of not less than 3 years; and
✓ The acquired company cannot distribute profits or terminate employment contracts for 3 years.
II. Payments on account
Exceptional limitation on 2020 payments on account
Personal income tax:
Taxpayers with income classified in category B who have not made the first and second payments on account, can regularize the total amount in question up to the deadline for making the third payment on account, i.e., December 20th, 2020, without any penalty, burden or other charges.
Corporate Income Tax:
An extraordinary limitation on payments on account has been introduced under the following conditions:
✓ Possibility of limiting the first and second payments on account up to 50% of the relevant amount if there is an average monthly decrease in invoicing of at least 20% in the first semester of 2020 and in relation to the same period in 2019, taking into consideration the information communicated through the E-invoice (E-fatura), or, for those entities who started their activity during 2019, the comparable period is the average of the period of activity;
✓ Possibility of limiting the totality (100%) of the first and second payments on account, when the monthly invoicing average communicated through the E-invoice with reference to the first 6 months of 2020 shows a drop of at least 40% in relation to the average verified in the same period of the previous year, or, for those entities who started their activity during 2019, the comparable period is the average of the period of activity.
This option is applicable, regardless of the breakdown of invoicing, to cooperatives, micro, small and medium-sized companies or when the main activity of the taxpayer falls under the classification of hospitality, food or similar (for this purpose those activities are considered main activities if they represent more than 50% of the total turnover obtained in the previous tax period).
1st Payment on account
2nd Payment on account
3rd Payment on account
Invoice break ≥ 20%
Limitation up to 50%
Limitation up to 100%
Invoice break ≥ 40%
Cooperative, micro, small and medium-sized companies
Taxpayers that the main activity is hospitality, food or similar
If RETGS is applicable:
The decrease in invoicing is assessed considering the amount corresponding to the algebraic sum of the value obtained by each of the group companies in the 2020 tax year, taking into consideration the composition of the group in force with reference to the last day to make the first payment on account.
When one or more companies carry out a main activity of hospitality, food or similar, and the turnover from such activity is over 50% of the total turnover in the previous tax period, the limitation is 100% for the first and second payment on account. This limitation is primarily calculated by subtracting the hypothetical payment on account owed had there been no RETGS from the payment on account owed by the dominant company. This do not prejudice the subsequent application of the other exceptional limitations rules to the remaining companies.
If the taxpayer verifies that, as a result of the use of the exceptional limitations referred to above for the first and second payments on account, no more than 20% of the amount that, under normal conditions, would be paid, is paid, he can regularize the amount in question until the deadline for making the third payment on account, without any burden or charges.
In case the total or partial reduction of the first and second payments on account result in an amount to be paid of over 20% of that which would have been paid in normal conditions, the taxpayer may rectify the amount up to the last day of the deadline to make the third payment on account, without any penalty, burden or other charges.
Early refund of special payments on account
Cooperatives, micro, small and medium-sized companies can request in 2020 the full reimbursement of the amount of special payments on account (commonly known has “PEC”) made in previous years that has not yet been deducted.
III. Investment incentives
Special investment tax credit scheme II
An Extraordinary Tax Credit for Investment II (CFEI II) is created, which allows any taxpayer who incurs in investment expenses in assets related to their activity between the 1st of July 2020 and the 30th June 2021 may benefit from a 20% deduction over the CIT assessed. The deduction is capped at 70% of the CIT assessed.
The maximum cumulative amount of eligible investment expenses is set at 5.000.000 euros per taxpayer.
Eligible investment expenses include tangible fixed assets and non-consumable biological assets, acquired in a new state and that come into operation or use until the end of the tax period beginning on or after January 1, 2021. They are still eligible expenditure on investment in intangible assets subject to depreciation, namely expenditure on investment projects and expenses on industrial property elements, such as patents, trademarks, permits, etc..
Are excluded as eligible investment expenses: passenger and mixed-use vehicles, furniture, comfort or decoration items and expenses incurred with the construction, acquisition, repair and extension of any buildings, except when those buildings are used for productive or administrative activities, as well as assets related to activities under concession or public-private partnership agreements entered into with public sector entities and intangible assets acquired from related entities.
Eligible assets must be held and accounted for a minimum period of 5 years or, when lower, during the minimum fiscal useful life.
In case the tax assessed is insufficient, the benefit may be carried forward for a period of 5 years.
CFEI II cannot be used simultaneously with any other tax benefits of the same nature, in relation to the same eligible investment expenses.
Incentives to company restructuring
It was introduced a new regime applicable to merger operations carried out under the tax neutrality regime during the 2020 tax year, under which during the first three periods of taxation it will “not be applied” any limitation to the deduction of tax losses transmitted by incorporated companies against the taxable profit of the acquiring company, as long as the following conditions are met:
✓ The taxpayers involved qualify as a micro, small or medium-sized companies;
✓ The taxpayers involved have initiated their activity for more than 12 months;
✓ The taxpayers involved have their tax position regularized with reference to the date of the merger;
✓ There is no profit distribution for three years following the date of the effect of the present benefit;
✓ The main activity of the taxpayers involved is substantially identical.
Exceptional payment system in instalments for tax and social security debts
An exceptional system of payment in instalments is created, applicable to tax debts related to facts that occurred between March 9th, 2020 and June 30th, 2020, and to debts with origin in the monthly contributions due to Social Security in the same period. This is applicable to any debtor, including those who are already complying with an instalment plan authorized by the Tax Authority or the Social Security.
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