Legal interest rate – Reduction to 0.05% from 2020 – Effects for tax and social security purposes

REDUCTION OF THE LEGAL INTEREST RATE

With Min. Decree 12.12.2019, published on the Official Gazette of the Italian Republic no. 293 dated 14.12.2019, the legal interest rate laid down in art. 1284 of the Italian Civil Code was reduced by 0.8% to 0.05% per annum.

START DATE

The new legal interest rate of 0.05% applies from 1.1.2020.

EFFECTS FOR TAX PURPOSES

The change of the legal rate also has effect in relation to some tax provisions, as laid down below.

VOLUNTARY CORRECTION

The reduction of the legal interest rate means a reduction of the amounts due in the event of voluntary correction as laid down by art. 13 of Legislative Decree no. 472 dated 18.12.97.

Indeed, in order to correct failure to pay, insufficient or late payments of taxes by means of voluntary correction, it is necessary to pay not only the reduced fine, but also default interest calculated at the legal interest rate, maturing on a daily basis, starting from the day after the one by which the fulfilment must be made and until the day on which the payment is made.

In this case, the legal interest rate to apply is the one in force in the individual periods, according to a criterion of pro-rata temporis, and is, therefore:

  • 5%, from 1.1.2012 to 31.12.2013;
  • 1%, from 1.1.2014 to 31.12.2014;
  • 5%, from 1.1.2015 to 31.12.2015;
  • 2%, from 1.1.2016 to 31.12.2016;
  • 1%, from 1.1.2017 to 31.12.2017;
  • 3%, from 1.1.2018 to 31.12.2018;
  • 8%, from 1.1.2019 to 31.12.2019;
  • 05% from 1.1.2020 up to and including the day of payment.

 

MEASURES TO AVOID TAX LITIGATION

The   reduction of the legal interest rate to 0.05% is applicable also in the event of opting to pay the amounts due in instalments by effect of the following measures to avoid tax litigation:

  • tax assessment settlement, as laid down by art. 8 of Legislative Decree no. 218 dated 19.6.97; on the instalments after the first, the legal interest is calculated from the date the tax settlement deed is completed;
  • compliance to settlement, pursuant to art. 15 of Legislative Decree no. 218 dated 19.6.97; on the instalments after the first, the legal interest is calculated from the day after the payment of the first instalment;
  • judicial conciliation, as laid down by art. 48 of Legislative Decree no. 546 dated 31.12.92; on the instalments after the first, the legal interest is calculated from the day after that of the report on judicial settlement or the one following communication of the decree that dismisses the lawsuit.

“Crystallisation” of the legal interest rate

In relation to the tax assessment settlement, the memorandum of the Revenue Office dated 21.6.2011 no. 28 (§ 2.16) specified that the measure of the legal rate must be determined with reference to the year in which the settlement deed is completed, remaining constant even if the payment of the instalments continues into future years.

This principle must be considered applicable even in relation to the measures to avoid tax litigation, mentioned above.

The new measure of 0.05% of the legal rate is also applicable for calculating the interest, not determined in writing, in relation:

  • to loan capital (art. 45 (2) of the consolidating law on tax (TUIR));
  • to the interest that contributes to the formation of business income (art. 89 (5) of the consolidating law on tax TUIR)).

However, the reduction of the legal interest rate to 0.05% has no effect in relation to the payment in instalments of the substitute tax payable for recalculating the purchase cost or value of unlisted equities and land, respectively pursuant to arts. 5 and 7 of Law no. 448 dated 28.12.2001 (2002 Budget) and subsequent amendments and integrations.

In this case the interest payable for payment in instalments remains at 3%, insofar as this rate is not connected to the regal rate.

LDP TAX & LAW office remains at your disposal for any further or more thorough information regarding the matters described above.

Dott.ssa Monica Di Oronzo

contact: mdioronzo@ldp-ita.com