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Tax Implication of New Aid to Growth (ACE) Plan
A new decree recently approved to tackle the debt crisis, introduced tax facilities arising from increases of capital injection in companies. In particular, among the tax measures included in the decree, the "Aid to growth" (ACE) rule has been introduced which gives companies the opportunity to reduce their corporate taxable income. Currently, companies are subject to Corporate Income tax (IRES) at a rate of 27.5%, by an amount calculated on a "notional yield" of their equity increase. This rule will come in to force in the new fiscal year in effect as of 31 December 2011. Taxand Italy considers the decree and possible impact to taxpayers in Italy.
To determine the tax deduction, the following elements must be considered:
- the yield will correspond to a certain percentage: 3% for the first three years, and, after this three year period, a percentage to be established by Ministerial Decree
- the yield must be applied on the amount of equity increase (i.e cash capital contributions and retained earning net of distributed reserves) in respect of the amount of the equity value measured as of the Financial statements of the fiscal year; in effect on 31 December 2010
- the qualifying increase for a newly incorporated company would be the full amount of its share capital / premium paid-in cash
For the computation of the benefit, the cash capital contributions are relevant from the date of the cash injection, while retained earnings not distributed are relevant from the beginning of the fiscal year in which they are classified as reserves.