Italian Revenue Agency Research Articles

Italy: The updated provisions on the taxation of income distributions from foreign trusts and similar entities residing in ‘privileged tax jurisdictions’

Abstract The article provides an in-depth analysis of Italy’s updated provisions, effective late 2019, on the taxation of income distributions from foreign trusts and similar entities residing in ‘privileged tax jurisdictions’. It highlights the Italian Revenue Agency’s efforts to clarify the tax treatment of these distributions, as well as the challenges posed by the deemed-income-characterization provision whereby any distribution made by such trusts and entities is presumed to be income unless the recipient may document the contrary (ie the characterisation as capital). The article provides a thorough overview of the regulatory landscape, highlighting critical areas and addressing interpretative challenges.

Tax Policies for Housing Energy Efficiency in Italy: A Risk Analysis Model for Energy Service Companies

The Superbonus is an Italian tax relief policy aimed at encouraging residential buildings’ energy and seismic efficiency. Only the energy part of the legislation is analyzed here. The tax deductions of the Superbonus exceed the nominal value of the project, making the interventions convenient even for economically disadvantaged citizens and small construction companies. However, the measure has only found wide diffusion in single-family housing, while it proceeds more slowly for multi-family buildings, where procedural complexities greatly amplify the risk of the financial failure of projects. The purpose of the paper is to analyze how urban planning and technical and administrative problems affect the Return on Investment (ROI) when the Superbonus is applied to multi-unit buildings. Therefore, a financial risk analysis is conducted from the perspective of an ordinary Energy Service Company (ESCo), which assumes the burden of carrying out energy efficiency measures. The property considered has all the requirements of an ordinary multi-family building for which the Superbonus is generally used. The works considered are also those carried out most frequently. The study shows that only three out of five energy interventions are financially sustainable. This result is in line with the data provided by the Italian Revenue Agency.

Italian Revenue Agency Provides New Guidance on the Taxation of Trusts

In this article, the author examines Circular Letter No. 34/E of 20 October 2022 on certain aspects of the taxation of trusts, which provides guidance on two specific issues, i.e. the tax treatment of “attributions” in favour of subjects resident in Italy from trusts established in “privileged taxation jurisdictions” and the form of application of the inheritance and gift tax in respect of assets transferred to a trust fund.

Economic Status and Elections: The Voting Behaviour and Economic Hardship in Rome

Empirical research shows the existence of a relationship between the electoral behaviour of citizens and their economic condition. The economic voting theory explains that in periods of economic growth citizens-voters reward the government considered the author of their well-being; on the contrary, in times of crisis, the population punishes it. The peculiarity of these studies, based on the analysis of secondary data designed for other primary purposes, is to have national territorial dimension, where the percentage of votes collected by government/opposition parties in political national elections is associated to the country’s macro-economic indicators (for example, GDP or unemployment rate). Nevertheless, up to now, only few scholars have analysed this relationship at local level, due to the lack of local statistical data on citizens’ economic conditions. This study tries to fill this gap. It is conducted in the city of Rome, to understand whether the electoral behaviour of Roman citizens changes in function of their economic hardship, in each of the 15 Municipalities of the capital city of Italy. To this end, two different data sources are integrated: Electoral Statistical Office of Rome and Italian Revenue Agency. The results offer empirical evidence to strengthen the local relation between electoral behaviour and economic conditions.

Italian Revenue Agency Provides New CFC Guidance

Although Italy revised its CFC legislation in 2018 (Legislative Decree 142) in order to implement the EU Anti-Tax Avoidance Directive (2006/1164), it was not until December 2021 that it provided guidance on implementation in Circular letter 18/E. This article addresses the most significant aspects of the Circular, in particular in light of comments received during the public consultation that preceded its release.

2-step Gradient Boosting approach to selectivity bias correction in tax audit: an application to the VAT gap in Italy

The revenue loss from tax avoidance can undermine the effectiveness and equity of the government policies. A standard measure of its magnitude is known as the tax gap, that is defined as the difference between the total taxes theoretically collectable and the total taxes actually collected in a given period. Estimation from a micro perspective is usually tackled in the context of bottom-up approaches, where data regularly collected through fiscal audits are analyzed in order to provide inference on the general population. However, the sampling scheme of fiscal audits performed by revenue agencies is not random but characterized by a selection bias toward risky taxpayers. The current standard adopted by the Italian Revenue Agency (IRA) for overcoming this issue in the Tax audit context is the Heckman model, based on linear models for modeling both the selection and the outcome mechanisms. Here we propose the adoption of the CART-based Gradient Boosting in place of standard linear models to account for the complex patterns often arising in the relationships between covariates and outcome. Selection bias is corrected by considering a re-weighting scheme based on propensity scores, attained through the sequential application of a classifier and a regressor. In short we refer to the method as 2-step Gradient Boosting. We argue how this scheme fits the sampling mechanism of the IRA fiscal audits, and it is applied to a sample of VAT declarations from Italian individual firms in the fiscal year 2011. Results show a marked dominance of the proposed method over the currently adopted Heckman model in terms of predictive performances.

Combining Network Visualization and Data Mining for Tax Risk Assessment

This paper presents a novel approach, called MALDIVE, to support tax administrations in the tax risk assessment for discovering tax evasion and tax avoidance. MALDIVE relies on a network model describing several kinds of relationships among taxpayers. Our approach suitably combines various data mining and visual analytics methods to support public officers in identifying risky taxpayers. MALDIVE consists of a 4-step pipeline: (i) A social network is built from the taxpayers data and several features of this network are extracted by computing both classical social network indexes and domain-specific indexes; (ii) an initial set of risky taxpayers is identified by applying machine learning algorithms; (iii) the set of risky taxpayers is possibly enlarged by means of an information diffusion strategy and the output is shown to the analyst through a network visualization system; (iv) a visual inspection of the network is performed by the analyst in order to validate and refine the set of risky taxpayers. We discuss the effectiveness of the MALDIVE approach through both quantitative analyses and case studies performed on real data in collaboration with the Italian Revenue Agency.

Disentangling Tax Evasion from Inefficiency in Firms Tax Declaration: An Integrated Approach

In this article we present a new methodology to support fiscal monitoring by the Italian Revenue Agency (IRA) with the aim of improving current taxpayers fiscal compliance and fighting tax evasion within small and medium enterprises. In fact, given the methodology behind the Sector Studies (Studi di Settore - SdS) system, there is room for firms to implement tax evasion strategies by simply adjusting revenues (and costs) toward an estimated average threshold (known ex-ante), the so called presumptive revenues, and achieving the fiscal congruity status. By estimating a production function through stochastic frontier analysis we avoid estimating the average threshold know ex-ante and can combine information on firm economic efficiency with those on fiscal congruity, thus being able to disentangle underreporting of revenues due to potential firm tax evasion behaviours from underreporting due to firm inefficiencies. We apply this framework to two samples of Italian firms belonging to two Sector Studies. Our results confirm the potentiality of the approach, although more work is needed before moving to a large scale implementation for policy purposes.

VAT and Tax Amnesty in Italy

In late October 2018, Italy enacted a Law Decree providing for several tax amnesty rules. Some of those rules could be regarded as conflicting with EU law, either because they allow taxable persons to pay to the Italian Revenue Agency less than the VAT due, or because they could qualify as illegal State aid. In this article, the author discusses whether these provisions indeed breach EU law.

Visual querying and analysis of temporal fiscal networks

We present TeFNet, a new system for the visual analysis of temporal networks in the fiscal domain, aimed to contrast tax evasion, fiscal frauds, and money laundering. The design of TeFNet has been driven by domain experts (tax officers) and the system is currently used by the Italian revenue agency, Agenzia delle Entrate. TeFNet is based on a powerful visual query language that allows users to easily define suspicious patterns involving temporal constraints. To efficiently execute graph pattern matching algorithms on large networks, TeFNet exploits modern graph database technologies. Besides its visual query language, TeFNet is equipped with graph visualization techniques to quickly convey time-varying information during an interactive exploration of the subgraphs that match a desired pattern. Both the query language and the visualization techniques rely on a suitable timeline approach, which maps the time dimension to the space dimension. The system has been tested in a real working environment. We demonstrate its effectiveness by discussing use cases on real suspicious patterns and the results of experiments conducted with expert tax officers on real data. Furthermore, we performed a qualitative evaluation to get additional insights about advantages and limits of our system.

Sustainability reporting practices and their social impact to NGO funding in Italy

Abstract This study analyses the growing social trends of sustainability reporting practices in non-governmental organisations (NGOs). Taking a preliminary step toward NGO funding, we consider the current lack of information disclosure in existing reporting practices, which are diverse and unsustainable. We investigate key organisational information in order to discover any potential links between funding sources and disclosure practices. In Italy, today there is an on-going effort to encourage public engagement in civil society. A percentage-tax law allows taxpayers to dedicate ‘cinque per mille’ (one-half percent) of their income to NGOs, which is then deducted from their tax obligation (Hereafter, ‘5 per thousand’). Our primary research objective is to understand if there is a link between the ‘5 per thousand’ donations that NGOs receive for providing social impact, and their reporting practices. Therefore, we critically analyse if and how sustainable reporting practices are achieved within the top 100 most funded NGOs that receive the ‘5 per thousand’ donation. We examine public data from official government records published by the Italian Revenue Agency. The findings suggest that sustainability reporting offers a number of financial and social advantages, including social impact that builds trust towards the idea of civil society and its funders.

Urban Wage Premia, Cost of Living, and Collective Bargaining

In this paper, we estimate the urban wage premia (UWP) in Italy, with its economy characterized by the interplay between collective bargaining and spatial heterogeneity in the cost of living. We implement a reduced-form regression analysis using both nominal and real (in temporal and spatial terms) wages. Our dataset for the 2005-2015 period includes, for workers’ characteristics, unique administrative data provided by Italian Social Security Institute and, for the local CPI computation, housing prices collected by Italian Revenue Agency. For employees covered by collective bargaining, we find a zero UWP in nominal terms and a negative and non-negligible UWP in real terms (-2.6% when all controls are included). To capture the role played by centralized wage settings, we also consider various groups of self-employed workers, who are not covered by national labour agreements, while living in the same locations and enjoying the same amenities as employees. We find that, differently from employees, self-employed workers enjoy a positive UWP in nominal terms, and do not suffer from urban real wage penalties. Results hold under a large array of robustness checks.

A visual analytics system to support tax evasion discovery

This paper describes TaxNet, a decision support system for tax evasion discovery, based on a powerful visual language and on advanced network visualization techniques. It has been developed in cooperation with the Italian Revenue Agency, where it is currently used. TaxNet allows users to visually define classes of suspicious patterns, it exploits effective graph pattern matching technologies to rapidly extract subgraphs that correspond to one or more patterns, it provides facilities to conveniently merge the results, and it implements new ad-hoc centrality indexes to rank taxpayers based on their fiscal risk. Moreover, it offers a visual interface to analyze and interact with those networks that match a desired pattern. The paper discusses the results of an experimental study and some use cases conducted with expert officers on real data and in a real working environment. The experiments give evidence of the effectiveness of our system.

Evidence-Based Threat-of-Audit Letters: Do Taxpayers Respond Strategically in a Complex Environment?

We study the impact on tax compliance of a letter sent by the Italian Revenue Agency in 2009 to taxpayers suspected to have overreported some costs in order to decrease their taxable income without increasing the probability to be audited. We find strong and robust evidence that the letter did reduce manipulation of targeted costs, but that the impact on taxable income was much smaller. This difference is likely due to a strategic response by the taxpayers who increased other costs that they perceived were not targeted by the Revenue Agency and were able to do so without increasing the probability to be audited. This shows that strategic responses are likely to appear also in an institutionally complex environment.

The End-use Electric Energy Consumption in Urban Areas: A GIS-based methodology. An application in the city of Naples.

This work is part of the scientific research sector concerning the Government of Urban and Territorial Transformations in order to promote efficiency and reduction of energy consumption in urban areas. The contribution proposes a further deepening of the research work already carried out under the project Pon Smart Energy Master by the research group of the Laboratory of Territory, Mobility and Environmental (TeMA Lab) of Department of Civil, Architectural and Environmental Engineering, University of Naples Federico II. The aim is to assist public authorities, that also deal with the Urban Energy Governance, in determining the quantitative distribution of domestic and non-domestic electric energy consumption. Toward this goal, we use the Big Data, the Open Data and the Geographic Information System (GIS) techniques. In particular, this work developed a innovative GIS-based methodology that allows the knowledge, classification and representation of real electric energy consumption at micro scale for the domestic and non-domestic. Also, we validate the GIS-based methodology by an application at the city of Naples. We used the electric energy consumption data of year 2011 were given by Municipality Authority and Italian Revenue Agency. This will allow the identification of the electric energy problems present in the area of analysis in order to plan any intervention strategies. This contribution is divided into three main parts. In the first part, an analysis of the scientific literature is proposed on the theme of the Government of urban and territorial transformations and opportunities arising by Big Data, Open Data and GIS in the reduction of electric energy consumption. The second part explains the theoretical and technical phases that led to the development of the GIS-based methodology. In the last part, the application of the GIS-based methodology at the City of Naples is described.

The Effect of Audit Activity on Tax Declaration

This article provides an empirical contribution to deterrence analysis by evaluating the effect of tax audits on compliance taxpayer behaviors over the 2004 to 2009 period. We use two unique databases: the Tax Return Register (Anagrafe Tributaria) and Italian Revenue Agency (IRA) audits data, with a focus on self-employment and sole proprietorships. The difference-in-differences approach has been applied as estimation strategy to evaluate the effect of three IRA audit policies: on-site audit (i.e., soft audit), desk audit (i.e., deep audit), and a combination of on-site and desk audit activities. Our results show an overall positive effect of tax audits in terms of deterrence. In particular, the contemporaneous presence of soft and deep audits has the greatest effect on compliance reporting behaviors. Moreover, on-site audits show greater effects compared to desk audit activities. Reasons can be found in different purposes for which various policies are designed.

Functional Case Test Design to Optimize the Software Development in Italian Tax Processes (Part I): Methodology Definition

In Europe's general context of economic integration, the National States have preserved a few competences. Among them, the most important competence is taxation management, which has now become an important lever to stabilize the State's budget and to meet the economic parameters set by the European Agreements. From this perspective, it is crucial to identify a software development mode to reduce the time spent for the implementation/adjustment of the tax payment software application and, at the same time, to minimize the overall risk level. In software development, approximately 40% of time is spent in a series of testing activities: this stage of the development process is mostly placed at the end of the implementation activities. Consequently, since many testing activities have to be waived in order to meet the deadlines for software delivery, applications that are not entirely in compliance with the user's needs and/or entailing non-compliance are more likely to be introduced. This paper focuses on improving the testing process in tax procedures. The proposed method aims to improve the process, by introducing an integrated procedure based on Axiomatic Design. The approach developed will facilitate a reduction both in the testing preparation time and in performing the test cases. In this scenario, it will be possible to optimize the data compilation process, to verify the compliance within the technical specifications as provided by the Italian Revenue Agency, to identify possible critical scenarios with a proactive approach, and to avoid classes of non-conformities.

Agency Theory Applied to the Italian Revenue Agency: Accountability Policies as Bonding Costs

This paper aims at studying the consequences of the Agency Theory application at the case of the Italian Revenue Agency (afterwards IRA). The major countries in the world entrust the tax administration to the Agencies that make use of various strategies to manage tax revenue and to contrast tax avoidance. In the last years the Organisation for Economic Co-operation and Development (afterwards OECD) has invited many States to increase the tax compliance between Public Tax Administration and Taxpayers and to improve the relationship with these. There are more scientific contributions about the themes like the Agency Theory, the Stakeholder’s Theory and other more on Governance and Accountability policies: many of these will be discussed in this work. In the light of these observations the research question is: given that IRA plays a central role in the tax administration, what happen if we apply the Agency Theory on this? What are the Agency costs in this case? To answer to these question we have studied the Law provisions in the Italian tax field and the “way to do” of the IRA. So, this work not is only a theoretical analysis of the scientific literature but it move to analyse the implications of these on the real case. The conclusions achieved in this paper are based on the analysis of the Italian case that only partially brings a solution to this question. However it represent the first point for us to beginning a future comparison between the evidences in the international context.

Improvement of the Compilation Process of the Italian Income Certifications: A Methodology Based on the Evaluation of the Information Content (Part 1)

In recent years the Italian tax system has been affected by significant changes. Important legislative reforms have revolutionized the relationship between citizens and public administration. These changes tried to simplify the relationship between citizens and public administration, reducing the burden of bureaucracy on the lives of citizens and businesses. To simplify the completion of income statement taxpayers, the Italian Revenue Agency started to use precompiled statement from 2015. However, many manual actions are still necessary to correct or complete the statement. This paper focuses on the improvement of compilation and control of income certifications in order to reduce non-compliance poured into precompiled statements. The proposed method aims to improve the process by introducing a robust procedure based on Axiomatic Design that is able to quantify the information content of a software project by measuring the information content through the Function Point technique. The developed approach will be able to prevent the generation of non-compliances. In this way, to identify possible critical situations in a proactive way and to avoid classes of non-conformities, it will be possible to optimize the data compilation process to verify compliance with the technical specifications of the Italian Revenue Agency. The goal of the proposed approach is to simplify the collection of fiscal data and create a clearer path for taxpayers.

News and Clarifications on the Tax Residence of Collective Investment Vehicles and on the Corporate Tax Exposure for European Investment Fund Managers

The authors comment on the new provisions introduced in Italy with regard to the tax residence of collective investment vehicles and on the positions taken by the Italian Revenue Agency in that regard, as well as with regard to the corporate tax exposure for European investment fund managers constituting collective investment vehicles under Italian law.