Italy’s New Countermeasures to Mitigate the Impact of Covid-19


While Europe continues to recover from the initial socio-economic impact of Covid-19, the Euro-area economy unexpectedly lost some momentum this month after a sudden resurgence in cases.

In a report published at the end of the week, IHS Markit said its composite measure of private-sector activity dropped to 51.6 in August from 54.9 in July, while the services gauge plunged to just 50.1.

This sharp slowdown was felt in nations such as Italy, which was one of the worst-affected European nations when the first wave of cases hit the continent in March. As a result, Italian businesses have sought to introduce new countermeasures to mitigate the sustained impact of coronavirus and potentially drive a continued recovery.

Introducing the Law Decree No. 104 – What Does it Mean?

The main countermeasure took the form of Law Decree No. 104, which introduced new tax measures to mitigate the socio-economic impact of Covid-19 spikes on August 14th.

Primarily, this sought to reopen the window for individual and corporate taxpayers to optimise their accounting value (or tax basis of business assets) or consider the further postponement of specific tax payments.

Ultimately, ‘the Decree’ gives Italian corporations and commercial entities an opportunity to access a bespoke temporary tax regime, based on their current circumstances and the underlying value of their business assets. Contrary to previous interpretations of this law, this set of rules will offer far greater generosity to taxpayers while enabling them more autonomy when accounting for value and extending this to the tax basis.

For example, adopters of the Decree may choose to increase the value of any individual business asset (either tangible or otherwise), including equity holdings of at least 20% voting rights in any ordinary shareholding meeting.

This enables companies to make the most of the updated and impermanent tax legislation, although fixed value assets can also be included as part of this process.

How Effective will this and Similar Countermeasures Ultimately Prove?

Perhaps the biggest benefit of this countermeasure is that it affords companies the opportunity to postpone certain tax payments, which is ideally-timed given that Italy’s GDP shrank by an unprecedented 12.4% during Q2 2020.

According to detailed research gathered by RMS, this will have a significant impact on Italy’s sizable range of large businesses with 26% of all private sector ventures in the country currently employing more than 250 people.

By helping these firms to optimise their tax-set up and postpone certain payments, the new Decree could well save huge sums of cash which can subsequently be reinvested into job retention and driving short-term growth.

An impressive 55% of Italian companies also boast an annual turnover in excess of €15 million, with these entities also benefiting hugely from the new legislation.

This also ties into the actions already taken by individual Italian businesses in response to Covid-19, with 14% of companies having analysed assets for potential sales in a bid to boost short-term liquidity.

This option is also being considered by the 34% of firms who have given thought to debt management in the near-term, and there’s no doubt that even temporary tax relief can aid this type of endeavour.

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