Investment in Italy

Investment in ItalyIRAPA company’s taxable income for IRAP purposes is determined exclusively on the basis ofits profit and loss account, as approved by the shareholders, with certain adjustments. Forinstance, the costs of personnel (except those engaged in R&D), losses on bad debts andinterest expenses (including those on leasing payments) are, in general, non-deductible.For IAS/IFRS users the corresponding items of the profit and loss account are considered.The IRAP tax itself is not an allowed expense; however, for IRES purposes, starting from thetax year in progress on 31 December 2008, 10 percent of the IRAP paid is deductible. Thisamount should, in principle, correspond to the tax paid on interest and personnel expenses(disallowed items).Special rules apply to banks and insurance companies.Allowed deductionsThere are a number of deductible business expenses specifically mentioned in tax law.These are described in the following sections. The items (by no means an exhaustive list)are deductible for both IRES and IRAP purposes, unless otherwise stated.Depreciation of tangible assetsThe depreciation of income-producing assets is based on their acquisition or manufacturingcost, and may include interest capitalised until utilization begins.Depreciation should start from the date an asset is first used by the company and should bemade on a straight-line basis over its estimated useful life, which is determined using theMinistry of Finance tables provided for each industry sector and asset category.In the first year of use, the ordinary depreciation rate is halved.If it does not exceed EUR 516.00, the purchase cost of assets may be fully deducted in theperiod of acquisition.Amortization of intangible assetsPatents and know-how: up to 50 percent of the cost of the asset can be deducted in eachtax year, i.e. the minimum amortization period is two years.Goodwill and trademarks: up to 5.55 percent of the cost of the asset can be deducted ineach tax year (the minimum amortization period is 18 years). The amortization of goodwilland trademarks is deductible regardless of how they are recorded in the company’saccounts, and thus by IAS/IFRS users also, whose goodwill and trademarks are subject tothe impairment test rather than to amortization.The amortization of the cost of licences and other rights is deductible on a straight-linebasis over the useful life of the licence as determined by the underlying contract or by law.© 2012 KPMG S.p.A., KPMG Advisory S.p.A., KPMG Fides Servizi di Amministrazione S.p.A., KPMG Audit S.p.A., Italian limited liability share capital companies, and Studio Associato Consulenza legale e tributaria, anItalian professional partnership, are member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.41