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Simona Catuogno » 14.National and International tax consolidation

National consolidation

Group taxation is achieved with the total algebraic sum of the taxable total through the aggregation of data in a single summarizing declaration.

The national consolidation does not require the consolidation of the whole group but follows an optional two-way system, i.e. the option must be exercised jointly by the reporting company and the subsidiary.

The option is irrevocable for three years, except in the absence of control requirements.

Terms of fiscal conditions

The law states that the holding company must be in possession of shares which are at least equivalent to those required to exert control, either direct or indirect, as set out in article 2359 of the civil code.

The controlling company and subsidiary which decide to use this option must be resident or have a permanent establishment in Italy.

Consolidation mechanism

The result of the algebraic sum of total taxable income will be:

Taxable income (100-50) = 50
Taxes (30%) =15

Consolidation mechanism (cont.)

The consolidated taxable income is determined from the reporting company’s declaration of revenue through

  1. the algebraic sum of all the taxable income calculated by the individual companies involved in the option.

  2. The adjustment of that amount as a result of consolidation procedures.

The taxable income is taken as a whole, regardless of proportion of shares held.

In this way any intra-group profit or loss is immediately and fully compensated for.

Consolidated tax option

Corporate groups wishing to use the consolidated tax return option must communicate the fact digitally to the Revenue & Customs office before 16 June 2010 for the start or renewal of taxation regime for the period 2010-2012.

The application of this option must take into consideration the changes introduced by the Finance Act 2010 (IRES reduced from 33 to 27.5% and the calculation of the limit for the deducation of interest).

Benefits of consolidated taxation

  • tax losses attributable to a participant in the consolidated mechanism can be used to reduce group taxable income;

  • dividend exemption in place of the ordinary 5% taxation;

  • assets can be transferred between participating companies without triggering tax on any gain;

  • profits in one company can be reduced by losses in another;

  • greater possibility of passive interest deduction.

Passive interest deduction

Passive interests and similar charges are deductible up to the amount of active interests and income.

The excess is deductible to the extent of 30% of its ROL (AB excluding amortization and lease finance). If a company has interests that exceed 30% of its ROL, the excess can be assigned to another company whose 30% of ROL is greater than its passive interest.

If the situation is different from the above, the excess which is not deducted cannot be recovered in future years from ROL available to all companies that participated in national consolidation.

International tax consolidation

An extension of the group taxation system is also available to non-resident companies and organisations.

The international consolidation system is optional but once undertaken it cannot be revoked for at least five years. Control requirements remain unchanged.

International tax consolidation (cont.)

Involves the participation of all non-resident subsidiaries: it is not practical to consolidate only some of the subsidiaries and ignore others.

International tax consolidation only requires the controlling company to be resident in Italy.

Consolidation only applies to that portion of the taxable income that corresponds to the proportion of controlling interest held.

Corporate case study 1

We refer to the Fiat group as an example of First Time Application and calculation of anticipated and deferred taxes.

Corporate case study 2

We use the Luxottica group to illustrate First Time Application and calculation of anticipated and deferred taxes.

Corporate case study 3

The Mediaset group provides an example of First Time Application and calculation of anticipated and deferred taxes.

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Progetto "Campus Virtuale" dell'Università degli Studi di Napoli Federico II, realizzato con il cofinanziamento dell'Unione europea. Asse V - Società dell'informazione - Obiettivo Operativo 5.1 e-Government ed e-Inclusion

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