I. Changes in the participation exemption regime related to deductibility of
depreciation of participation in the capital of entities

a) Old system:

Participation exemption: Total or partial exemption on dividends and gains on disposal of qualified shares and exemption of profits from foreign PE.
Depreciation of participations and losses from foreign PE were considered in general terms as tax deductible (with some limits).

b) New system:

Participation exemption is maintained. However, no exemption is applicable on the
dividends or income from the sale of the subsidiary up to the amount of previous year depreciation that had been considered tax deductible.

Non-deductibility of:
• depreciation of the participation in the capital of entities; and
• losses generated by permanent establishments abroad.
Reversion of depreciation is attributed firstly to the amounts that had been considered tax deductible.

Losses may be deducted upon transfer of the shares of the subsidiary or liquidation of the PE. However in cases of intra-group transfer of shares, losses may only be tax deducted upon the sale of the shares to a non group entity.
New rules are applicable immediately, so to be taken into account in current tax year as well as in CIT Advance payments to be made in December 2013.

II. “Extraordinary” measures applicable for 2012 and 2013, are extended to years

2014 and 2015:
a) Limitation to offsetting of losses carry-forward. This limitation is applicable to entities whose turnover has exceeded EUR 6M (big enterprises).

b) Increase of CIT advance payments

• Participation exemption regime on dividends and capital gains of foreign source is limited to 75% of gross income.

• Increase of percentage applicable to calculate payments in advance in case of
entities which net turnover has exceeded EUR 10M in the prior FY.

Those companies with a turnover of more than EUR 20M, have a minimum threshold
• 12% of accounting profits. Carry forward losses cannot be offset for such

• 6% of accounting profits if at least 85% of the gross income qualifies to participation exemption or full tax credit.

c) Reduction of the annual depreciation of goodwill, including financial goodwill to 1 per cent (standard rate 5 per cent).

An exemption of 50% on future capital gains deriving from the transfer of urban
property acquired between 11 May and 31 December 2012 has been introduced,
provided that they do not rise from related-party transactions. Entitlement to the
exemption will arise in the financial year in which the transfer takes place.
This exemption will be applicable to capital gains subject to Personal Income Tax,
Corporate Income Tax or Non Residents Income Tax.

This exemption entered into force on May 11, 2012.

d) Tax credit limitation

Tax credit limitation to 25 per cent of tax due upon double taxation credits and tax
reliefs (standard limit is 35 per cent). Limit may be doubled to 50 per cent for R&D
investments exceeding 10 per cent of tax due upon double taxation credits and tax

Unused tax credits due to the aforementioned limit may be carried forward to the
following 15 fiscal years (18 years in case of R&D tax credits).



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