On 21 June 2013, Law Decree no. 69 of 21 June 2013 (the Decree) was published in the Official Gazette.
Among many other provisions aimed at supporting the Italian economy, the Decree significantly extends the scope of application of the “Robin Hood Tax” by lowering the turnover and taxable income thresholds.
The Robin Hood Tax was originally introduced by Section 81, Paragraph 16 of Law Decree no. 112 of 2008, converted by Law no. 133 of 2008. It provided for a 6.5 per cent increase to the corporate income tax rate (IRES) payable by electricity production companies with annual gross revenues exceeding Euro 25 million. Renewable energy (solar, wind, biomass) companies were exempted from the increase.
Through Law Decree no. 138 of 2011, converted by Law no. 148 of 14 September 2011, the legislature eliminated the exemption for renewable energy companies. It also reduced the annual gross revenue threshold to Euro 10 million, provided the company had a taxable income of Euro 1 million.
The new Decree has further reduced the gross revenue and taxable income thresholds. In particular, Section 5, Paragraph 1 provides that the Robin Hood Tax now applies to any energy production company, including renewable energy companies, that have:
- Gross revenues in the preceding year of more than Euro 3 million and
- Taxable income for the same year of more than Euro 300,000.
These amendments will result in an increase to the corporate income tax rate for a vast number of renewable energy production companies that had previously been exempt from the Robin Hood Tax.
The additional tax does not apply to special purpose vehicles (SPVs) that are organised as limited partnerships, it only applies to legal entities that are organised as corporations and are therefore taxable pursuant to Article 73 of the Consolidated Income Tax Code.
In order to become definite, the Decree—which was enacted by the Government—must be converted into law by the Italian Parliament. The timeline for conversion is 60 days, i.e., 20 August 2013, and the Parliament is entitled to make amendments to the Decree.
Provided that the Parliament confirms the current wording of Section 5, Paragraph 1 of the Decree, renewable energy companies that exceed the new turnover and income thresholds in 2014 will have to pay the increased IRES of 34 per cent, instead of 27.5 per cent.
It is worth noting that the compatibility of the Robin Hood Tax with the Italian Constitution has been challenged and an action is currently pending before the Constitutional Court. In particular, the Robin Hood Tax would seem to be in breach of the principles of equality and contribution pursuant to economic capabilities. The Constitutional Court has not yet scheduled a date for the hearing but we will release an update when the Court has reached its final decision.
For more information, please contact your regular McDermott Will & Emery lawyer or Carsten Steinhauer.