Newsletter. Legal - Tax Company law and taxation. Summary. no Ban on contingency fee deal: The Supreme Court specifies the precise limits

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1 Newsletter Legal - Tax Company law and taxation Summary Ban on contingency fee deal: The Supreme Court specifies the precise limits SISTRI: yet another extension, but the initial penalties begin Awarding of tender contracts by public companies: exemption from public contract code In-house award and the concept of similar control Tenders unified tax contribution: Hearing in the European Court of Justice Reverse charge: the invoice cannot contain the VAT number of the tax representative Tax news for 015: clarifications by the Agency Rent to buy: The Revenue Agency illustrates the tax regime 3 3

2 Ban on contingency fee agreements: The Supreme Court specifies the precise limits With the judgement nr dated the nd October 01, the Supreme Court has supplied important clarifications regarding the problems of the so called ban on contingency fee agreements. To understand the aforementioned pronunciation, it is necessary to briefly review the more important aspects relative to the problems of the ban on the contingency fee agreements, with particular attention to the regulatory changes in recent years. As known, the ban on the contingency fee agreements was foreseen by art. 33, 3 rd paragraph, of the civil code which prohibited lawyers, prosecutors and advocates to stipulate with their clients agreements relative to assets subject to disputes entrusted to their patronage. This provision was initially reformed by the Law 8/006 (conversion law of the so called Bersani Decree), which established that all agreements stipulated between lawyers and authorised practitioners with their clients would be made void only if they had not been prepared in written form. Subsequently, however, the law 7/01 (which has reformed many aspects of the legal profession), while recognising that the stipulation of fees between lawyers and clients is freely determined, has specifically established the ban of agreements by which lawyers perceive as compensation, entirely or partially, a portion of the assets subject to the services or reason of the litigation, so reintroducing the so called ban on contingency fee agreement. As already mentioned, with regard to the above topic, the Supreme Court has clarified further aspects inherent to the ban on contingency fee agreements. The case which gave rise to the pronunciation of the Supreme Court concerned a labour consultant who had been commissioned by a company to identify legal and/or administrative solutions to obtain tax relief on Social Security contributions, also proceeding to recover contributions paid in excess. The parties had agreed a contingency fee corresponding to 5% of the social security contributions already paid and recovered, establishing therefore a contingency fee agreement. The company had taken legal action asking for the annulment of the agreement, as the content was to be considered in violation of the ban cited in art. 33, 3 rd paragraph, of the Civil Code. The Court highlighted art. 33, 3 rd paragraph of the Civil Code which states unequivocally the ban on contingency agreements only for advocacy activities entrusted to the defender. Therefore, the invalidity of this agreement refers exclusively to activities carried out by professionals authorised to practice before courts and not administrative accounting activities as, for example, that carried out by the labour consultant within the social security sector and aimed at obtaining tax relief. s Art. 33, 3 rd paragraph civil code L. 8/006 Art. 13, th paragraph L. 7/01 Supreme Court. Sez. II, dated nd October 01, nr SISTRI: yet another extension, but the initial penalties begin The so called Milleproroghe decree (Legislative Decree 31 st December 01 Nr. 19) has also mentioned SISTRI, the electronic control system for the traceability of waste, born in 009 but which has never become fully operational. A (new) deferral is foreseen for the 31 st December 015, to abandon the dual system under which companies obligated to adhere to SISTRI are held to the double registration of waste (products, received, transported) both on paper (Form, Register loading/unloading, MUD) as well as electronic (Chronological registry, SISTRI - Handling Area form). Article 9 of the Legislative Decree 19/01, has also deferred until 1 st march 016 the application of the penalties foreseen for the breach of obligations regarding SISTRI. Applicable from the 1 st February 015 are the penalties relative to the violation of the obligation to register to SISTRI and the payment of the relative annual fee (although an amendment proposed by the Constitutional Affairs Committee and Budget of the Chamber seems to have postponed the deadline for the application of the penalties until 1 st April 015). In any case, those currently required to register with SISTRI are: entities or companies initial producers: (i) of hazardous waste from agricultural or agro-industrial activity, with more than 10 employees; (ii) special hazardous waste, with more than 10 employees; (iii) sludge deriving from drinking water and waste water treatment; (iv) special hazardous waste which perform tank storage activities; (v) special hazardous waste deriving from activities of commercial fishing/aquaculture, with more than 10 employees; entities or companies who carry out operations of pre-processing, mixing or other operations which change the nature and composition of the waste, giving origin to hazardous waste; entities or waste management companies, which (i) collect or transport hazardous waste professionally;(ii) carry out treatment operations, recovery, disposal, trade and brokerage of urban and hazardous waste; (iii) safeguard hazardous waste without initiating the relative intermodal transport; (iv) provide collection, transport, recovery and disposal of waste (hazardous and not) operating the Campagnia region, in order not to risk incurring the heavy administrative penalties foreseen (from Euro to Euro and only for exceptional circumstances relative to non-hazardous waste from.600 Euro to Euro). The 1 st March 015 is the expiry date for the conversion into law of the Milleproroghe decree. Decree Law dated 31 st December 01 Nr. 19 Extension of deadlines foreseen by legislative provisions, published in the Official Journal dated 31 st December 01, general series Nr. 30. Awarding of tender contracts by public companies: exemption from public contract Code With the judgement nr. 97 dated 3 rd February 015, the State Council has reiterated the principle according to which contracts awarded by public companies for purposes unrelated to the specific sector to which they belong, are not subject to the application of the Legislative Decree

3 163/006 (Public Contract code, or even Code). In particular, in the test case it was contested by a company excluded from the procedure, the award of a contract for the design and implementation of a snowmaking system and a water supply system. Firstly, the Contracting Authority of the procedure in question was classified as a public company, being a subsidiary company with a majority of public capital and that operates as a public concessionaire, i.e. with special and exclusive rights in the transport sector. In addition, the State Council considered the objective element of the activity subject to the entrusted contract. In the case in which it was discussed, the procedure was convened for the award of the design and realisation of a snowmaking system and a water supply system, such activities can not be included in the activities considered under the specific sector of transport, but at the most are functional to them. As stated by the Plenary Conference of the State Council Nr , to determine the jurisdiction of the administrative court and to apply public rights to the tender contracts pursuant to the Legislative Decree 163/006 it is necessary to look first to those who proceed to award the contract. They should be held to the application and in compliance of the public contract standards. With this in mind, the parties who operate in the special sectors must apply in a restricted manner to some specific requirements. These requirements leave the contracting authorities greater freedom of choice for the economic operators precisely because of the specialities which characterise the parties required by their application. In this case, the State Council has established that it was in the presence of an outside contract to the application area and not only to the special sector standards pursuant to art. 17, Legislative Decree Nr. 163/006, but to the entire Public Contract Code in that the public company, which is a contracting entity in the special sector but not contemplated between the contracting administrations in the ordinary sector, does not qualify to be held by the Code standards in this last sector. The State Council has therefore qualified the activities subject to the tender contract as outside also to the special sector and has pointed out that it is not possible to bring the contract at issue to these areas even under an instrumental constraint of the transport sector, for two different reasons: the restricted interpretation of the requirements which delimit the special sectors; the instrumentality in the case is not subsistent. In fact, it is not possible to find inside a tender contract such as that discussed, the connection to public transport operated by the contracting authority by virtue of a concession, but on the contrary they should be retained instrumental to an activity performed by a company in the construction and ski slopes sector. The State Council concluded that it must be considered applicable the forecast of art. 17 of the Public Contract Code which establishes that the regulations of the special sectors do not apply to the tender contracts which the contracting authorities award for purposes other than the performance of their activities provided for in articles 08 to 13. State Council, judgement 3 rd February 015, Nr. 97. In-house award and the concept of similar control The State Council has spoken on the subject of in house award retaining self-executing the regulations contained in the Directive 01//UE, not yet adopted by the Italian legislator (the Senate is examining the law authorising the Government the transposition). The Council retains that the wording of art. 1 of the directive mentioned is sufficiently detailed/unconditional and precise, that it can be implemented effectively without waiting for the intervention of the national legislator. In particular, in art. 1 of the directive, containing the regulation of the Public contracts between entities in the public sector area, some requirements have been specified which must be met in order to be considered legitimate in-house award. Among these can be found the prevalence of activities carried out towards public consortium entities to the extent of 80% of the activities of the controlled legal body. With respect to this, parameters have been established to be considered when determining the percentage of the activity (such as the average total turnover or suitable alternative measure based on the activity, the cost incurred by the legal body or contracting authority in question in the service field, the supply and the works for the three years preceding the award of the contract). Finally it is specified that the controlled legal body must not have any direct participation of private capital, with the exception of private capital participation which does not involve control or power of veto, required by national laws, in accordance with the treaties, however, these do not exercise a decisive influence on the controlled legal body. The situation in which a contracting authority exercises a dominant influence over both the strategic objectives and significant decisions of another legal entity from the first subsidiary is defined by the European directive as a control similar to that exercised on their own services. s Directive 01//UE State Council (Sez. II, Section Meeting th October 01 and the 17 th December 01) nr. 98/015 the 31 st January 015. Tenders unified tax contribution: Hearing in the European Court of Justice On the 11 th February 015 a hearing was held at the European Court of Justice concerning the compatibility of the EU law with the Italian forecast of a high unified contribution for the proceedings before the administrative judge regarding tender contracts. The conclusions of the General Attorney are still being waited for and they will be deposited by the 30 th April, but the defence of the European Citizens consumer association who intervened at the hearing has underlined the interest manifested by the European judges regarding the amount of the rather large unified contribution regarding procurement when a party wants to propose an appeal to the administrative judge. During the hearing the proportion between the unified contribution requested for the appeal of a tender contract and its correlation with the actual cost of the administrative judge was discussed. Also considered were the other aspects of the expenses of the appellant when deciding to appeal against a procedure of a public contract award and from this the question was also raised with regard to the fees which the party who participates in a public procedure must incur if the preliminary inquiry relief is applied pursuant to art. 38, paragraph -bis of the Public Contract Code. 3

4 s Art Legislative Decree. 163/006 Art. 1 Directive 01//UE DPR 30 th May 00, nr. 115; art. 38, paragraph -bis Legislative Decree 163/006. Reverse charge: the invoice cannot contain the VAT number of the tax representative The invoice issued with the Italian VAT number of the tax representative of a foreign tax payer (resident in the EU or outside the EU) for the sale of goods - who is already in Italy - carried out for a tax payer resident in Italy, is to be considered not issued. In its place, therefore, the invoice must be requested directly to the foreign supplier. This was clarified by the Revenue Agency, in the Resolution dated 0 th February 015, Nr. 1/E, in answer to the request for clarifications regarding how to behave in the case in which an Italian tax payer receives the invoice, issued with an Italian VAT number, without reverse charge of VAT pursuant to article 17, paragraph, of the Presidential Decree Nr. 633/197, and without any indication of the VAT number of the foreign supplier. The Agency has clarified that the document issued with an Italian VAT number of the tax representative of a foreign tax payer resident in the EU (or non-eu) for a sale made to a VAT tax payer resident in Italy, must be considered not relevant as an invoice for VAT purposes and therefore in its place the invoice must be requested directly from the foreign supplier. From an operational point of view, the seller should: number the invoice of the foreign supplier, integrating it with the fee converted in Euro and with the other elements which form the tax base of the operation, as well as the VAT amount, calculated according to the applicable rate; write the integrated invoice in the sales VAT register, by the 15th of the month following that of receipt, indicating also the fee expressed in foreign currency; write the integrated invoice also in the purchase VAT register, in order to make any entitled deductions; issue a self-invoice by the 15th of the third month following that of the transaction - in the case of non-receipt of the invoice of the foreign supplier by the second month following the transaction - and write within the issue time limit and with reference to the previous month. Finally, the resolution has specified that anyway the tax representative of the foreign body is allowed to issue toward the resident transferee a document not relevant for the purposes of VAT, indicating that the VAT of this transaction will be paid by the transferee. Revenue Agency, Resolution 0 th February 015, Nr. 1/E. Tax news for 015: clarifications by the Agency The Revenue Agency, in the Circular dated 19th February 015, Nr. 6/E has collected the answers which were supplied during a series of meetings with the specialized press regarding tax news for 015, such as those regarding the communication of transactions with operators located in Black List countries, the new regulations related to the letters of intent, the new single certification, the pre-compiled 730 form, the mechanisms of the split-payment. In particular, with reference to the new method of transmitting the letter of intent, the Agency has clarified that there is no obligation for the supplier to transmit for the declarations of intent received according to the previous method and referring only to operations made between 1 st January and 11 th February 015. Many clarifications were made regarding the new mechanism of the split payment for the payment of VAT in the case of an invoice issued for the sale of goods and services to Public Administrations. In particular, in the circular Nr. 6/E/015 it has been clarified that, in the absence of an explicit provision of law, this mechanism does not apply to transactions subject to special VAT schemes, which do not provide evidence of the tax on the invoice, for example, that of the regime del margine provided for travel agencies. Regarding the changes to the regulations of companies in systematic loss, i.e. the extension of the tax period from three to five years, so called period of observation for the application of the same, the circular specified that the first tax period theoretically useful for the application of this is represented from the seventh year following that of constitution. Finally, with regard to the new rules on voluntary disclosure, it has been clarified that they also apply to violations which as of 1 st January 015 have already been recorded by the office but have not yet been affected by tax assessments or payment orders. Revenue Agency, Circular dated 19 th February 015, Nr. 6/E. Rent to buy: The Revenue Agency illustrates the tax regime The Revenue Agency, in the circular Nr. /E dated the 19 th February 015 supplied some clarifications regarding rent to buy contracts, both in statutory and tax terms. a) Statutory framework From the point of view of civil law, the Agency has specified that article 3 of the legislative Decree Nr. 133/01 recalls the application of the rules foreseen by art. 65-bis of the civil code where is stated the obligation to transcribe for preliminary contracts having the subject of the conclusion of one of the contract at numbers 1), ), 3) and ) of the article. 63 of the civil code, if they result from a public deed or private document with authenticated signature or legally confirmed. In particular it is clarified with specific reference to the rent to buy contract the terms of the transcription of the same, instead of being three years, it is raised to the entire length of the contract but in any case for not more than 10 years. In addition, the transcription produces the effects above nine years in order to make the contract in question enforceable to third parties. Furthermore in the contract, the parties are held to establish the share of the fee to be charged to the property sale fee and the share of the fee charged to the amount which must be returned in the case of failure to exercise the right to buy within the agreed time. However, it seems possible that the said share is not indicated in the contract and therefore, if the tenant does not exercise the right to buy, the transaction is not completed and the seller must return to the tenant the same share as the fee paid in advance on the sale price of the property.

5 b) Tax treatment for the transfer of the property for businesses The contract can be stipulated not only by private individuals but also by those who carry out entrepreneurial activity. It follows that the figure of grantor or tenant can be assumed by a company, by an individual entrepreneur or by operators in arts or professions. Moreover, art. 3 of the Legislative Decree Nr. 133/01 does not identify specifically which properties are subject to the contract, therefore, the benefit and purchase can regard residential or instrumental buildings as well as land in general. On this point the Circular Nr. /E015 illustrates the exercise of the right to buy and transfer of the property for those who act as a company, specifying that if the tenant exercises the right to buy with the subsequent transfer of the ownership of the property - for the entrepreneur grantor results a positive income component In particular: if the property is sold it re-enters among merchandise assets, the fee deriving from the sale gross of the advance payments is considered as revenue which forms part of the business income; if instead the sold property re-enters among the capital or patrimony assets, the difference between the sale price, gross of the advance payments and the tax cost deriving from the sale of the same it is qualified as taxable capital gain. Both revenue and capital gains are relevant for IRAP. Regarding VAT, the time of the sale is identified in the right of purchase by the tenant. The tax base of the transaction is given by the sale price of the property, less advance payments on the sale paid up until that moment by the tenant. In the case that the building is sold for residential purposes, the exemption is applied irrespective of the taxable seller with the exception of sales made by construction or restoration companies to which the tax regime applied is that when the property is sold within the fifth year of their completion or when restoration has been carried out. Upon expiry of the five years of the build or restoration, the sale is VAT exempt, except for the tax option by the construction or restoration company. For instrumental buildings, their sale re-enters into the natural regime of exemption. However, sales made by companies who have built the property or have carried out restoration re-enter among the tax transactions if the sale is made within the five years from the end of the work. For instrumental buildings the possibility remains, allowed to companies which are not construction or restoration to choose the tax regime. The applicable rate is that in force at the moment of the sale: %, 10% or %, applicable depending on the requirements of the buyer (first home) or keeping account of the property transferred (instrumental building). As for the registration, mortgage and cadastral taxes, the circular Nr. /E/015 has clarified that for property sales relevant for VAT purposes, the registration tax is applied as a fixed amount equal to 00,000 Euro. However, at the sale of residential buildings exempt from VAT, the registration tax is applied in proportion and at 9% or % if a first home, with mortgage and cadastral taxes equal to 50,00 Euro each. For sales of instrumental buildings, both exempt and taxable, the registration tax is paid at a fixed amount of 00,00 Euro, with mortgage and cadastral taxes of 3% and 1%. Revenue Agency, Circular dated 19 th February 015, Nr. /E. 5

6 Contacts Milan - Headquarters Via della Moscova, Milano Tel Fax info@crowehorwath.it Rome Via Barberini, Roma Tel Fax Crowe Horwath - Studio Associato Servizi Professionali Integrati Crowe Horwath - Studio Associato Servizi Professionali Integrati is a leading Italian professional services firm offering legal, tax and labour law consultancy. With more than 160 professionals and offices in Milan, Rome, Turin and Venice, the Firm offers high-level professional consultancy, integrating varied professional experience with sector specialisations. The Firm's strategy is to focus on the highest-standard specialisations in the different areas of law, whilst maintaining an interdisciplinary spirit of teamwork amongst its professionals. This approach enables us to provide clients with timely responses aimed at resolving specific problems. The Firm is a member of Crowe Horwath International - one of the top 10 global networks - and a privileged partner of FA FIS ANTEX, which provides Human Resource and Finance & Administration services in outsourcing. Turin Corso Matteotti, Torino Tel Fax Venice Viale Ancona, Mestre (VE) Tel Fax Crowe Horwath International Crowe Horwath International, one of the top 10 global accounting firms, is an International Network with 167 independent accounting and advisory services firms with 650 offices and more than 8,000 professionals and staff in 109 countries around the world. Crowe Horwath International's member firms are committed to impeccable quality service, highly integrated service delivery processes and a common set of core values that guide our decisions daily. Each firm is well-established as a leader in its domestic market and, thanks to the in-depth knowledge of local laws and customs of its professionals, supports clients undertaking new ventures or expanding into other countries. Legal - Tax Newsletter Registration no. 33 of 17 July at the Court of Milan All rights reserved 6