Real estate taxation in Italy: from ISI to IUC…

by way of ICI, IMU and TRISE

December 2013

The property tax was introduced in Italy in July 1992 by the Amato Government. It was originally conceived as an extraordinary taxation (Imposta Straordinaria Immobiliare-ISI), to be applied exclusively to the year 1993.

The ISI: !   was borne by the owners of any kind of real estate,

regardless of intended use, and building areas; !   had a rate of 0.2% for the main house and 0.3% for other

properties.

With the reorganisation of the local entities’ finances in December 1992, the tax became ordinary:  

the Real Estate Municipal Tax (Imposta Comunale sugli Immobili - ICI) is established.

   

1992: real estate taxation is introduced in Italy  

ICI: how did it work?  

It applied to real estate, building areas and agriculture lands,

regardless of intended use.

It was borne to property owners and those holding in rem rights.

It was levied directly by the Municipalities.

It had a rate determined by single Municipalities, in the range 0.4% - 0.7%.

ICI: the tax deductions  

For main dwellings, Municipalities could apply a tax deduction of up to Lire 200,000 (€ 103.29). The 2008 Budget introduced a further deduction on main dwellings of 0.133% up to € 200, in addition to the already established € 103.29 one. The fourth Berlusconi Government, in May 2008,

suppressed

the application of ICI on first dwellings.

The fourth Berlusconi Government introduced, in March 2011, the current real estate taxation, the IMU (Imposta Municipale Unica), providing: !   its entry into force in 2014; !   its applicability only to real estate different from the main dwellings.

The so-called “Saving Italy” package (manovra “Salva Italia”) adopted by the Monti Government in December 2011: !   anticipated the operability of IMU to 2012, on an experimental

basis, and then to 2015 in a standard regime; !   extended the applicability of IMU to main dwellings and

significantly increased the tax base, by means of specific multipliers of land rents (for the main house the expected multiplier was 160);

!   reserved to the State an amount equal to 50% of the revenue resulting from the IMU applying to real estate different from the main dwellings.

The IMU  

The tax base was calculated by multiplying the cadastral value or the generated income, with an appreciation of 5% and 25% respectively, with the specific multiplier for the relevant cadastral category.

The rates applied to the tax base were: !   0.4% for the main dwelling, with the possibility for

Municipalities to lower it to 0.2%; !   0.2% for rural buildings for the farmer’s personal use.

Municipalities can reduce it to 0.1%; !   0.76% for properties that do not produce income and land

leased, modifiable up to 0.4%; !   0.76% for the remaining cases, adjustable by Municipalities

within the range 0.46% - 1.06%. The IMU revenue for 2012 was around € 4 billion for main dwellings and € 19.7 billion for the other properties.

The IMU  

ICI has been criticised, since it only took into account the value of the real estate and not its owner’s income. This would prefigure a violation of Article 53 of the Italian Constitution, under which the taxation shall be progressive on the basis of the citizen’s own economic conditions.

IMU tried to solve this alleged unconstitutionality, by introducing:

!   a system of exemptions based on the number of household’s members;

!   a review of the cadastral system, to bring real estate revenues closer to real market values, which has however never been implemented;

!   a significant difference between the rate applying to the main dwellings and those for other properties.

ICI and IMU, an unconstitutional tax?

The suppression of the first installment on the main dwellings…

 

The suppression of the IMU, among the priorities in PdL political agenda, was put by the Silvio Berlusconi’s party as a condition for supporting the coalition Government led by Enrico Letta, which took office after the February 2013 elections.

In May 2013 the Government Letta suspended the payment of the IMU first installment to be paid in 2013 on main dwellings. It permanently suppressed it the following August. The Government planned to fund the resulting revenues reduction with: !   a cut in public spending; !   a higher taxation on games&betting; !   an expected increase in VAT revenues stemming from the € 10

billion tranche allocated to PA arrears payment.

On 27 November 2013 the Cabinet abolished also the second installment of the 2013 IMU.

The expected € 2.15 billion drop in tax revenues

will be funded:

!   by requiring banks and insurance companies to pay as much as 130% of the 2013 tax on corporate income (IRES). In the case of other companies, an advance payment up to 102.5% will apply;

!   by increasing by 8.5% (from the current 27.5% to 36%) the IRES rate paid by banks and insurance companies on their 2013 incomes;

!   by requiring financial intermediaries for a 100% advance payment on the tax on Assets under Management.

   

… and of the second installment  

2014 Budget. From TRISE…

The Draft Budget 2014 adopted by the Cabinet provided for the introduction of a new tax replacing the IMU, the Tribute on Services (Tributo sui Servizi-TRISE).

The TRISE is composed of: !   the TASI, tribute on indivisible services; !   the TARI, tax on waste management services.

The drop in tax revenues stemming from the suppression of IMU as well as those services provided by the Municipalities in the interest of the Community, from public lightning to waste management, should be funded by the collection of TRISE, managed by the Municipalities.

During its works on the Draft Budget 2014, the Senate Budget Committee highlighted that the TRISE would eliminate deductions and exemptions currently provided for the IMU. The taxation on non-main dwellings, to offset the lower revenue stemming from the exclusion of the main ones from the scope of the taxation, was also considered as excessively high.

It was therefore proposed to replace the TRISE with the TUC (Tributo Unico Comunale), later renamed IUC (Imposta Unica Comunale).

On 26 November 2013

the Senate approved the Draft Budget, and therefore the introduction of the IUC. The text was submitted to the Chamber of Deputies for its consideration.

… to IUC  

How would the IUC work?  

If eventually introduced, the IUC will be based on two assumptions: !   one related to property. The IMU will apply to real estate

owners, except for main dwellings. The tax base will be the same established by the Monti Government in December 2011;

!   one related to the use of those services performed by the Municipalities. The TASI, borne by the owner and any tenant, and the TARI, borne by the user of the service for the collection and disposal of waste, will apply.

The IUC would be directly collected by the Municipalities.

The Draft Budget provides that the sum of the IMU and TASI rates shall not exceed the maximum rate applying under the prior version of IMU, i.e. 1.06%. The maximum TASI rate for 2014 shall not exceed 0.25%.