Italian Windfall tax

On August 7th 2023 the Italian Council of Ministers proposed a one-off windfall tax on excess profits realized by banks as identified by Legislative Decree No. 385 of 1st September 1993, (‘Qualified Financial Intermediary’), with the aim of using the proceeds to support mortgage holders and cut taxes on households and enterprises (‘Excess-Profits Tax’). A press release by the Italian Minister of Economy and Finance on August 8th 2023 partially amended the mechanics of the Excess-Profits Tax (which is still in a draft version) as result of the negative reaction of the Italian financial market to the initial proposal.

How is the taxable base determined?

The Excess-Profits Tax is determined by applying a rate of 40 per cent to the greater value between:

a. The interest margin - referred to in item 30 of the profit and loss account drafted according to the standards approved by the Bank of Italy ('P&L') - relating to the financial year prior to that in progress on January 1st 2023 that exceeds the same margin by at least 5 per cent in the financial year prior to that in progress on January 1st 2022; and

b. The interest margin - referred to in item 30 of the P&L - relating to the financial year prior to that in progress on January 1st 2024 that exceeds the same margin by at least 10 per cent in the financial year prior to the financial year in progress on January 1st 2022.

In any case, the Excess-Profits Tax payable may not exceed 0.1 per cent of the net equity of the Qualified Financial Intermediary at the end of the financial year, prior to the one current on January 1st 2023.

When is the tax payable?

The Excess-Profits Tax shall be paid by the end of the sixth month following the end of the financial year, prior to the one in progress on January 1st 2024 (i.e. June 30th 2024 for Qualified Financial Intermediaries closing their financial year on December 31st 2023).

Qualified Financial Intermediaries that by law approve their financial statements after four months following the end of the financial year, shall pay the Excess-Profits Tax by the end of the month following the one in which the financial statements are approved (e.g., on July 31st 2024 for Qualified Financial Intermediaries which approves their 2023 financial statements within June 30th 2024).

For Qualified Financial Intermediaries whose financial year does not coincide with the calendar year, if the deadline referred to in the first two periods expires in 2023, payment shall be made during financial year 2024 and no later than January 31st.

Miscellaneous

The Excess-Profits Tax is not deductible for Corporate income tax and Regional tax on productive activities purposes.

The provisions governing assessment, penalties, collection and litigation for corporate income tax purposes shall also apply for Excess-Profits Tax purposes.