Tax incentive tools and the main tax credits

15.3.2023

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In more recent times, there has been a particular proliferation of tax incentive institutions

Tax credits are instrumental in the achievement of economic objectives of various kinds, including the development of the business fabric, support for households, and the orientation of consumption
In a recent hearing, the Director of the Internal Revenue Service focused on the tax benefits present in the Italian tax system.

On the one hand, it was pointed out that the current scenario is characterized by a multitude of tax incentives that share the effect of easing the tax burden on beneficiaries; on the other hand, however, emphasis was placed on the circumstance that the introduction of a large number of tax benefits risks making the structure of the taxes on which they affect fragmented and disorganized.

For this reason, it is necessary to monitor the results, objectives, and motives of the use of tax expenditures, lest from being a facilitative tool for the benefit of the taxpayer (and also of the entire tax system), they give rise to adverse effects. Consider, on this point, the negative consequences brought about by the circulation of tax credits, a phenomenon, which has given rise to numerous cases of fraud in the recent period.

Tax credits: how does it work?

Among tax benefits, a prominent place is occupied by tax credits.

As pointed out in the document under review, they are instrumental in achieving economic objectives of various kinds, including the development of the business fabric, support for families in difficult conditions, the consumption orientation in certain goods or services, or the upgrading of real estate assets.

In Italy, the tax credit is attributable to two prominent situations:

the credit resulting from a tax payment over that is actually due
the "facilitation" tax credit represents, instead, a fundamental instrument of economic incentive or support.
Precisely, the facilitation-type tax credit consists of a subsidy granted by the State to the taxpayer to make payments of amounts due. In essence, the tax debt remains intact, but the beneficiary is granted the availability of a sum to be spent exclusively on paying taxes and contributions.

The main categories of tax credits

In Italy, several categories of tax credits are particularly used.

The tax credit for investment in new capital goods is aimed at supporting economic operators resident in the territory of the State (including permanent establishments of nonresidents) who acquire new tangible and intangible capital goods.

The tax credit for research and development, technological innovation, design, and aesthetic conception, aimed at all enterprises resident in the territory of the State (including permanent establishments of nonresidents and regardless of their legal nature, economic sector, or size), usable in percentages varying from 5 to 20 percent, depending on the investment sectors.

The tax credit for investments in the Mezzogiorno was established to support economic growth by encouraging investments destined for productive structures in the regions of the Mezzogiorno. The bonus recipients are companies that acquire new capital goods (machinery, plant, and various equipment) destined for existing or planted production facilities in central and southern Italy.

The investment bonus in ZES (special economic zones) is extended until Dec. 31, 2023, to encourage the creation of conditions useful for developing companies already operating in some regions of the country and establishing new companies. Specifically, entities falling within the SEZs can benefit from several tax breaks and administrative simplifications.

The bonus related to simplified logistics zones (Zls) designed to facilitate investment in capital goods also in strategic port and logistics areas in regions identified by European regulations as "more developed" (i.e., those in which the per capita gross domestic product is more than 90 percent of the EU average), which include at least one port area.

Tax credits for business capitalization: these are facilities aimed at strengthening businesses in terms of liquidity and support for workers. The type of these credits can refer, for example, to the so-called tax credit for equity capital, the tax credit for companies that increase capital, and the tax credit for corporate contributions.