Anticipated changes in the Italian tax structure

Suspending taxes, providing mortgage reliefs, cutting taxes, and postponing tax litigation are examples of new changes or anticipated changes in the Italian tax structure. In the U.S., payroll tax cuts and corporate income tax cuts are examples of changes to the U.S. tax system. Major tax differences between the U.S. and Italy can be seen on the value-added tax (VAT) rates and the taxes of S Corporations in the U.S.

I. Trends and/or Anticipated Changes in the Italian Tax Structure

Suspending Taxes

• The Italian government suspended tax payments following the coronavirus outbreak. The remarks were made by Italy’s Deputy Economy Minister, Laura Castelli, in an interview with Rai Radio 1.
• The suspension of tax payments follows the lockdown of the 11 towns that have been affected the most by the virus. Nationally, over 60 million people will be affected, as well.
• Suspending tax payments emerges as a trend since it is directly related to the effect caused by the coronavirus outbreak. Moreover, the suspension is a new occurrence in Italy’s tax structure.
• The coronavirus outbreak will cause delays in payments of taxes. According to “John Edmunds, a professor at the London School of Hygiene & Tropical Medicine,” these measures would also delay the epidemic for some time.

Mortgage Relief

• Following the coronavirus epidemic in Italy, the government has paused the collection and payment of mortgages, which will likely affect property taxes.
• However, the government did not comment on whether interest rates will accrue. The government is collaborating with banks to implement the measure as it fights to contain the spread of the virus.
• The mortgage relief is a new change to the nation’s mortgage collection system to relieve the citizens during the coronavirus outbreak. The mortgage relief measure is a new occurrence to the nation’s property tax system and affects the entire country.
• Mortgage relief will cause delays in payments. Other experts say that banks may defer the accrued interest, or the government may have to bear the burden.

Tax Cuts/Credits

• Another measure introduced by the Italian government focuses on providing tax cuts and credits to businesses affected the most by the coronavirus.
• According to numerous reports, the Italian government is providing tax cuts and credits to businesses that reported a 25% decrease in revenue.
• The information regarding tax cuts and credits is new and trending following its enactment as a measure to curb the spread of coronavirus.
• The most significant impact this measure will have is cushioning the companies that have been affected by the virus by cutting their taxes by 25%, which is a huge relief.

Postponing Tax Litigation Hearings

• The Italian government also postponed the judicial proceedings in tax litigation as a measure to inhibit the spread of coronavirus further.
• However, the suspension does not affect serious hearings that have an immediate effect on the population; for instance, hearing about the suspension of provisional taxes.
• The suspension of judicial proceedings in tax litigation qualifies as a trend or emerging trend since it is a new move by the government to control coronavirus spreading further. It is also a new happening, which is altering the usual Italian judicial
• The suspension will cause delays in judicial proceedings. Moreover, access to courts from 23 March to 31 May 2020 is limited, court fees are paid electronically, and booking is made online or via telephone.

II. Trends and/or Anticipated Changes in the U.S. Tax Structure

Payroll Tax Cut

• The U.S. Congress is considering various measures to help people cope with the unprecedented outbreak of coronavirus. In particular, the government is considering a payroll tax holiday or tax cuts via direct cash payments.
• According to experts, putting more cash in the pockets of people can facilitate consumption and business investments. It also helps vulnerable individuals to afford essential goods, take control of their lives, and shield them from financial disaster.
• The new measure is emerging as a trend because it aims at temporarily assisting average people in getting more cash on hand. Moreover, it is a new measure aimed at responding to the threat of coronavirus.
• Overall, increased consumption and business investment have a direct impact on economic activities. Consequently, high consumption and business investments drive economic growth.

Defer Tax Payments

• Among the many measures put in place to respond to the economic challenges following the coronavirus epidemic, the U.S. seeks to provide financial relief to individuals who fall sick or get isolated.
• Already, the U.S. president has tasked Congress to establish legislative action aimed at extending the tax relief; however, it is unknown how long the relief would last.
• Importantly, the president told the Treasury Department to “defer tax payments” without charging interest or fines for people and companies impacted negatively by the coronavirus epidemic.
• The significant impact following this measure is providing tax relief to the affected individuals, including no penalties or fines for deferred tax payments.

Tax Day (April 15) Extension

• The Trump administration has extended theApril 15 Tax Day for some people who are adversely affected by the financial effects of coronavirus.
• An extension means more money in the economy and the pockets of Americans. Trump noted that the measure would ensure over $200 billion of additional liquidity is available to people.
• Extending Tax Day April is a change in the nation’s tax structure system since it would allow individuals to pay taxes later, which is unusual for the functioning of the tax system.
• According to the House Appropriations Committee, extending the tax day would relieve hard-working Americans and small and medium-sized businesses affected by the virus.

Corporate Income Tax Cuts

• The U.S. broad tax cuts affect both individual and corporate income; therefore, both corporations and individuals, especially wealthy individuals, are likely to benefit more.
• The tax cuts are a response to the coronavirus outbreak as the government seeks to provide relief to businesses and individuals.
• Thetax cuts change the existing functioning of the U.S. tax structure; however, the reports have not mentioned the percentage drop; moreover, they alter the way the tax system
• Unfortunately, experts are warning that the broad tax cuts on income and corporate tax will severely affect the economy. Some claim that the cuts do not efficiently address the financial impact following a potential outbreak of coronavirus outbreak nationally.

III. Differences in the Italian Tax Structures for Businesses

Corporate Income Tax Bases

• The Italian corporate tax structure combines two bases, i.e., imposta sul reddito sulle società or IRES, which uses elements of a global tax system, and imposta regionale sulle attività produttive or IRAP, a regional production tax. On the other hand, the U.S. uses a territorial system of taxation, which it enacted in December 2017.
• Italy’s standard charges include 24% for IRES and 9% for IRAP. The U.S. charges a flat 21% corporate income tax; however, foreign businesses without a nexus with the U.S. pay a rate of 30%.
• The Italian tax structure impacts businesses differently; for instance, banks and financial entities and insurance corporations are subject to different IRAP rates. However, the U.S. uses a flat fixed rate for all corporate income taxation.

Value Added Tax (VAT)

• Italy levies a VAT on goods and services procured in the nation. The tax affects the services of “entrepreneurs, professionals, or artists” and onimportations by business people. In the U.S., a sales tax or VAT is applicable at the federal level and applies to the retail sale of physical goods and some services.
• Italy’s standard VAT is 22%, while that of the U.S. ranges from 9% to 7.25% depending on the state. However, Italy provides reduced rates for some items and services; for instance, a 4% rate for “listed food, drinks, and agricultural products, etc. On the other hand, the U.S. sales tax is fixed, but states can increase or lower it.
• The differences in sales tax imply that the standard Italian rate is higher by over 14 points than the highest state-level rate in the U.S. Importantly, businesses in Italy are impacted differently by VAT since some listed items and services have low rates such as 5% for the sale of food herbs, transport via lake, etc.

Substitutive Tax on Reorganizations

• Italy charges a substitutive tax for mergers and acquisitions to help them acquire a partial or full tax recognition. The substitutive tax is based on progressive rates that range from 12% to 16%. In the U.S., corporate acquisitions can be completed through tax-free reorganization, as long as the companies meet some set criteria.
• The Italian substitutive tax structure taxes the first €5 million at 12%, the next amount ranging from €5 million to €10 million is taxed at 14%, while any amount above €10 million is taxed at 16%. On the other hand, for acquisitions in the U.S., the tax regime charges a 20% U.S. federal income tax rate on capital gains.
• Substitutive tax affects mergers and acquisition activities in Italy; however, unlike the U.S., it levies the businesses involved higher taxes based on a progressive tax system, while the U.S., uses a flat rate system.

IV. Differences in the U.S. Tax Structures for Businesses

Gross transportation income taxes

• The U.S. charges gross transportation income taxes, which are not applicable in Italy. The tax is charged at an annual rate of 4% and affects the US-source gross transportation income (USSGTI) of foreign corporations and non-resident alien individuals.
• The USSGTI tax has some exceptions for specific income that are treated as being linked with U.S. trade or businesses. USSGTI is any income generated from the use or hiring of an aircraft or vessel or the performance of services that are directly linked to the use of an aircraft or vessel.
• USSGTI affects foreigners and non-residents more than U.S. citizens. Importantly residents from countries with similar taxes are eligible for exemption.

State and Local Income Taxes

• Unlike Italy, with a tax rate system applicable to all citizens, the U.S. relies on state and local income tax systems besides the federal tax system. Corporate income tax rates vary depending on state with the rate starting from 1% to 12%, with some states not imposing an income tax.
• The tax base for state and local income tax structures is the federal taxable income. However, the U.S. states and local authorities enact new provisions that change the federal tax structure.
• Many states are transitioning to a one-factor receipts apportionment approach for corporate income tax, versus a three-factor formula. Overall, municipal and state taxes qualify as deductible expenses and are “capped at $10,000 for federal income tax purposes.”

S corporations — Subchapter S Corporations Tax

• In the U.S., S corporations, those with 100 or fewer shareholders, can request to be taxed under a different tax structure — “Subchapter S of the Internal Revenue Code (IRC).
• Therefore, S corporations are those corporations with 100 or fewer eligible shareholders that have requested to be taxed under Subchapter S of the IRC.
• The tax system of S corporations resembles that of partnerships but is not identical. For instance, all taxable assets and amounts flow through to the business owners; therefore, they are not subject to the U.S. federal income tax.
• S corporation tax system impacts the shareholders of the corporations because the taxes are levied on the allocated shares of each shareholder.

Research Methodology

To explore the Italian versus the U.S. tax structures and how the coronavirus would likely impact these structures, your research team started by examining business, economics, and financial reports on how the coronavirus is affecting the tax structures of Italy and the U.S. In this regard, we checked for the most recent information published within the outbreak of the coronavirus epidemic, to capture accurately the changes brought upon the tax structures. We relied on information published by leading media houses such as the New York Times, Bloomberg, Yahoo Finance, CNBC, KPMG, USA Today, PWC, LA Times, etc. Reports published by PWC provided an in-depth view of the tax structures of both the U.S. and Italy, allowing one to perform a comparative analysis on various facets of the tax structures. We managed to identify the major differences in corporate income tax in Italy and the U.S. by looking at what the U.S. tax structure has or does differently than Italy and vice versa. Overall, the details provided highlights the major differences in both tax regimes, including details on how the coronavirus epidemic affects these tax structures.