Italian Tax Reform | Reshoring - McDermott Will & Emery


On October 16, 2023, the Council of Ministers approved, in preliminary examination, the draft of a legislative decree implementing the tax reform on international taxation. The draft decree must now acquire the opinions of the relevant parliamentary committees before officially coming into force.

In our previous alerts, we reviewed the main measures of interest to businesses and in particular reviewed the new residence provisions for individuals, companies and entities.

In this latest alert we will explore the innovation ushered in by the new so-called ‘reshoring’ of ‘economic activities’ in Italy.

The new ‘reshoring’ provisions will apply as of the tax period following the tax period in progress on the date of final approval of the legislative decree (e.g., as of 2024, if the legislative decree scheme is approved, as planned, by December 31, 2023).

The actual entry into force of the provisions is, however, conditional upon the authorization by the European Commission.

In Depth

Reshoring of Economic Activities

Article 6 of the draft legislative decree provides for a special tax incentive aimed at encouraging the transfer of ‘economic activities’ to Italy. Both the heading of Article 6 and the Illustrative Report on the decree allude to this incentive, which pertains to a tax incentive aimed at favouring the carrying out in Italy of ‘economic activities’ previously conducted in a foreign country, other than a State belonging to the EU or the European Economic Area (EEA).

This measure follows current similar initiatives already underway in other countries, chiefly the United States, where, however, ‘reshoring‘ measures have focused on certain sectors, considered strategic for growth, such as energy. The Italian decree differs in that it pertains to all “economic activities” regardless of sector.

It is envisaged that income deriving from business activities (or from the exercise of arts and professions exercised in an associated form) carried out in a foreign country not belonging to the EU or the EEA and transferred to Italy would be exempt, for income tax and IRAP purposes, for 50% of the relevant amount:

  • the relief applies in the current tax period at the time of the transfer to Italy and in the following five tax periods;
  • ‘economic activities’ (already) exercised in the territory of the State in the 24 months preceding the transfer to Italy are not considered as eligible.

The legislation raises numerous questions for operators, starting with the objective scope of application.

Economic Activities

The scope of ‘economic activities’ potentially affected by the ‘reshoring’ legislation is rather broad.

As mentioned, the draft legislative decree makes general reference to income derived from ‘business activities‘ carried out in a foreign country outside the EU or EEA and transferred to Italy.

Given this framework, the new regime might apply in the case of the transfer of the registered office in Italy of non-EU and EEA foreign companies.

The draft legislative decree does not make any specific allusion to the possible ‘combined’ application of the provisions of Article 166-bis of the Consolidated Income Tax Law (TUIR), concerning the step-up of tax basis upon entry, in the event that the transfer of the registered office in Italy is made by a party resident in a country that allows an effective exchange of information (the so-called ‘white list‘ referred to in the Ministerial Decree of September 4, 1996, as amended in the medium term).

General opinion is that the reference in the draft legislative decree to ‘income‘ deriving from business activities transferred to Italy does not preclude the possible combined application of ‘reshoring‘ relief with the so-called ‘step-up‘ of the tax values of the transferred assets already provided for in Article 166-bis of the TUIR. Thus, higher depreciation and/or lower capital gains could be allowed, to further reduce the tax base excluded from taxation by 50% of the relevant amount.

In any case, the application of the ‘reshoring‘ relief (in combination – or not – with the ‘step-up‘ regime provided for in Article 166-bis of the Consolidated Income Tax Act) will have to be assessed taking into account the other provisions contained in the draft legislative decree on ‘international taxation’, in particular those relating to the implementation of the so-called ‘Pillar 2‘, and the possible QDMTT (Qualifying Domestic Minimum Top-Up Taxes) that could be applied to profits subject to IRES and IRAP at an effective rate of less than 15%.

The transferred ‘economic activities’ subject to relief also include business activities carried out by companies belonging to groups. For these particular purposes, the “stand alone” origin (non-EU and EEA) of the “economic activities” transferred to Italy should be relevant, regardless of the composition of the group to which it belongs.

The reference in the draft legislative decree to ‘economic activities’ would by definition include any transfer to Italy of business branches as they produce business income. Take as facilitated, for example, the transfer of a ‘production line’ in a factory already existing in Italy.

The attractiveness of this new incentive will be tempered by the interpretation of the Revenue Agency.

It must be said that, in the context of European Union law, ‘economic activity’ is considered to be ‘any activity consisting in offering goods or services on a given market‘ (CJEU, judgment of June 18, 1998, Case C-35/96; CJEU, judgment of 30 March 2000, Case C-513/93; CJEU, judgment of January 10, 2006, Case C-222/04).

For its part, the Italian Revenue Agency (Ruling No. 460 of October 31, 2019) has clarified that the regime for the valuation of “inbound” assets, pursuant to Article 166-bis of the TUIR, is to be understood as referring to all persons having a business income, according to the domestic legal system, regardless of the economic activity carried out by the same. Consequently, qualification as a holding company would not be an obstacle to the applicability of the relevant regime.

Similar considerations should apply to the ‘reshoring‘ discipline, given the rule’s reference to ‘economic activities’ and ‘income from business activities‘.

The question arises as to whether (and how) the “reshoring” regime might apply to and benefit entities which are already established in Italy which undergo a “conversion” where their “functional” profile is modified (and the assets available) in the “value-chain” of the group. We might take as an example the case of the conversion of a “low-risk distributor” into a “fully-fledged” entity, perhaps carrying out manufacturing activities and even so far as commissioning them to third parties.

The taxpayer is required to maintain separate accounting records suitable for verifying the correct determination of the income and value of the net production eligible for relief.

In the case of ‘economic activities’ transferred to Italy and generating 50% exempt foreign source income – e.g. royalties – the foreign tax credit abroad must be reduced accordingly, as provided for in Article 165(10) of the TUIR (see Principle of Law No. 15 of May 29, 2019).

It is worth recalling that “reshoring” operations are potentially included among the “relevant investments” for the presentation of the so-called “new investments ruling”. Circular No. 7/E of 28 March 2023 of the Italian Revenue Agency refers, in this regard, to “operations (i) of “repatriation” of assets by persons who have previously relocated abroad or (ii) of return of such persons (so-called “in-shoring” or “reshoring”), as well as of transfer of tax residence in Italy of foreign persons, provided that such investment is quantifiable (today) in at least €15 million and positive employment effects are produced“.

Activities Carried Out in the Previous 24 Months

It is envisaged that ‘economic activities’ transferred to Italy may fall within the scope of ‘reshoring‘, provided that they have not been exercised in the territory of the State in the preceding 24 months.

This preclusion is evidently aimed at avoiding transfers abroad of ‘economic activities’ instrumental to their subsequent ‘repatriation’ for the sole purpose of benefiting from the new incentive regime.

Therefore, ‘economic activities’ which have never been exercised in Italy, as well as those already exercised in Italy at a time earlier than the ‘surveillance’ period of 24 months prior to the transfer to Italy, may benefit from the special ‘reshoring‘ regime.

The possible ‘repatriation’ to Italy of foreign permanent establishments of Italian companies (regardless of the regime applied to them, i.e. branch exemption or tax credit) may not fall under this exclusion, since the draft legislative decree expressly refers to activities ‘exercised in the territory of the State in the 24 months preceding their transfer’.


The advantage ceases to apply if, in the five tax periods following the expiry of the incentive (which lasts, as a rule, six tax periods, i.e. the one in which the transfer takes place and the following five tax periods), the beneficiary transfers out of the territory of the State, even partially, the ‘economic activities’ that were the subject of the previous transfer to Italy.

In the event that the beneficiary is a so-called ‘large enterprise’ (Commission Recommendation 2003/361/EC) the ‘recapture‘ period is extended to 10 years following the expiry of the incentive.

Similarly, to what is provided for the ‘recapture‘ period following the expiry of the preferential period, it should be concluded that the taxpayer also forfeits the advantage if they transfer the ‘economic activities’ abroad in the five tax periods following the ‘reshoring‘ in Italy. In essence, the transferred “economic activities” are “bound” to the territory of the State for 10 years (15 years, in the case of “large enterprises”), in addition to the tax period underway at the time of the “reshoring” in Italy.

It must be said that, with respect to the first draft circulated, the ‘bulleted’ version of the legislative decree scheme provides for the forfeiture of the benefit in the event of a generic transfer of the activities outside the territory of the State. The first version of the legislative decree scheme referred, instead, to the transfer of the ‘economic activities’ to a non-EU and EEA State. The question arises as to whether the forfeiture condition now extended to any transfer abroad is consistent with the principle of freedom of establishment under Article 49 TFEU.

Forfeiture of the relief is also foreseen in the case of ‘partial’ transfer abroad of the ‘economic activities’ that were the subject of the previous transfer.

The considerations made above with respect to the identification of qualified ‘economic activities’ also apply in the case of migration from the national territory. It is unclear whether a functional reorganisation that, by affecting the ‘value-chain‘, reduces functions and/or risks in favour of non-resident entities can be considered a cause for disqualification.

In the event of forfeiture, the tax authorities will recover the unpaid taxes, as a result of the facilitation scheme, with interest but without penalties.


As clarified by the Agenzia delle Entrate, the definition of ‘large enterprise’ must be derived ‘by difference’ in the sense that ‘medium-sized enterprises are those that at the same time have less than 250 employees and an annual turnover not exceeding €50 million or an annual balance sheet total not exceeding €43 million. Enterprises that do not fall within the above parameters are to be considered large enterprises” (Circular No. 34/E of 3 August 2016).