Taxation in Spain The grAde

Taxation in Italy

In Italy, individuals are responsible for the following taxes, according to PwC (2017):

· National income tax

· Regional income tax

· Municipal income tax

Individuals who are residents of Italy for tax purposes are responsible to report their worldwide income, and individuals who are not residents of Italy for tax purposes are responsible to report their income earned in Italy. Italy has a progressive tax rate, meaning the amount of taxes to be paid will increase with an increase in income. National income tax rates are as notes below:

Taxable Income (in euros)	Tax Rate
0-15,000	23%
15,001-28,000	27%
28,001-55,000	38%
55,001-75,000	41%
75,001+	43%

Source: Pwc (2017)

Beginning in 2011, and up to December 31, 2016, Italy introduced a solidarity tax of 3% for those who earned a gross income over EUR 300,000 (PwC, 2017).

Personal income taxes have long been an important source of revenue for Italy. The percentage of revenue raised by taxation raised from 8.3% to 9.6%. The tax burden was constraining economic growth, and it was thought to be too high. In 2003, the personal income tax reform in Italy had a goal to reduce this tax burden. The tax rates varied significantly before the tax reform, they were between 10% and 51%, and there were seven income brackets. Italy had a variety of income brackets to remain progressive (Centre for Tax Policy and Administration, n.d.). The chart below, provided by the Centre for Tax Policy and Administration (n.d.), shows the differences of the income tax brackets between the years 1995 and 2005:

The focus of the reform was to reduce statutory tax rates - revenue raised from personal income taxes was reduced by 11.4 million euro. The first step in the tax reform saw a shift from tax credits, to a tax allowance (income that will not be taxed). The basic allowance was 3,000 euros. The second stage of the reform changed the number of tax brackets to four, and dependent tax credits were changed to tax allowances. This tax reform has reduced the tax burden for large families who are in the middle-income bracket, and families with low income (Centre for Tax Policy and Administration, n.d.).

The corporate tax reform had a goal to reduce the tax burden on companies, as well as simplify their corporate taxation system. Italy wanted their tax system to be more similar to other tax systems in the European Union, as it could attract more foreign investment. The corporate tax reform saw the corporate tax rate drop from 36% in 2002 to 33% in 2004. The reform also provided a system for capital gains exemption, and the method used to eliminate double taxation of dividends was replaced with a (partial) exemption method, which allowed company level profits to be taxed (Centre for Tax Policy and Administration, n.d.).

One key component to this tax reform was that companies who belonged to the same group could consolidate their taxes. This means they would be able to offset their profits and losses, which would require them to pay less income tax as a whole. This reform also saw a participation-exemption regime, which allowed inter-corporate capital gains to be exempt from taxation, and dividends become exempt from taxation. These rules were put in place to avoid double taxation (Centre for Tax Policy and Administration, n.d.).