Global Daily Tax News, Italian Cabinet Agrees Income Tax Law Reforms, (Dec 26, 2024)

Italy's Council of Ministers has signed off on proposals to amend tax laws governing the income tax on natural persons (IRPEF) and legal entities (IRES).

The Council gave preliminary approval to the project in April 2024. Meeting this month, the Council signed off on newly finalized proposals, contained in law August 9, 2023, no. 111, which will now be tabled before lawmakers for approval.

Among other things, new income tax rules are to be introduced to expand agricultural income to include income derived not solely from the exploitation of agricultural land – so-called "soilless crops", where crops are grown indoors with hydroponic lamps.

In addition, the reform legislation provides that contributions and premiums paid by an employer for an employee's dependent family members, including in the form of insurance, should be excluded from classification as employment income.

Other notable provisions include proposals to strengthen the scope of tax rules for self-employed persons; to enable the deduction of expenses relating to intangible assets in the exercise of arts and professions; and to clarify that income and expenses of self-employed persons should be recognized under the cash basis.

Several other changes to the IRES law are intended to bring book and tax values closer together, the Italian Government has said. It has also said changes are proposed for business transfers made between residents and in the exercise of commercial enterprises, introducing the possibility, for the transferee company, to opt, in the tax return relating to the tax period during which the contribution takes place, for the application of a substitute tax (to be paid in a single instalment and within a specific term) on the higher values attributed in the financial statements to tangible fixed assets and relating to the holding received.

Finally, the legislation would modify the rules for losses being carried forward for resident companies in the event of a merger, demerger, spin-off, acquisition, or liquidation.