Italy’s Economic Measures to Mitigate the Effects of COVID-19

On March 17, 2020, the Italian Government issued a new decree-law (the “Decree”)[1] introducing a package of measures to mitigate the effects of the ongoing Coronavirus Disease 2019 (“CoViD-19”) outbreak on the national economy.

The measures envisaged by the Decree consist of various forms of financial support to companies and households, including tax deferrals, relief and state-backed guarantees for certain borrowers, and broader access to temporary layoff schemes for employees in most business sectors. The Decree also updates certain measures set forth in previous Government decrees (e.g., concerning judicial proceedings during the outbreak) and enables companies to hold virtual annual shareholder meetings to mitigate health risks.

The actions set forth in the Decree have been reported to entail a Euro 25 billion expenditure.

This memorandum follows up on our prior alert memoranda outlining certain legal considerations on the key legal issues for businesses arising from the virus outbreak.[2]

I.         Tax

The Decree introduces a number of urgent tax measures, generally (i) easing tax-related administrative, payment and enforcement deadlines, (ii) converting certain deferred tax assets into tax credits, and (iii) enabling special allowance for CoViD-19-related charitable contributions.

A.        Tax and Social Security Payment and Reporting Deadlines’ Deferral

Payment of income taxes, VAT, social security and compulsory insurance premiums due between March 8 and March 31, 2020 may be postponed until May 31, 2020, and made thereafter in one instalment or spread interest-free on a straight-line basis over a five-month period as of May 2020.

The measure applies to any business or professional located in Italy[3] and having 2019 revenues not exceeding Euro 2 million. However, regardless of 2019 revenues, the deferral applies to all taxpayers located (i) in the 11 municipalities initially quarantined[4] and (ii) only with respect to VAT, in the provinces of Bergamo, Lodi, Piacenza and Cremona.

Moreover, taxpayers located in Italy having 2019 revenues not exceeding Euro 400,000 may opt not to be subject to withholding taxes with respect to payments received between March 18 and March 31, 2020, if they have not incurred any employment-related expenses in the previous month. Such deferred taxes will be due no later than May 31, 2020 and paid in one instalment or spread interest-free on a straight-line basis over a five-month period as of May 2020.

All tax and social security-related reporting obligations[5] due between March 8 and May 31, 2020 are postponed to June 30, 2020.

B.         Tax Administration and Enforcement Deadlines’ Deferral and Statute of Limitations Postponement

All administrative and enforcement actions to be performed by the tax authorities, such as rulings, audits, assessments, collections, and litigation,[6] are suspended from March 8, 2020 through May 31, 2020. Collections due during such period are postponed through June 30, 2020 (penalties and interest are waived).

Any tax statute of limitations expiring on December 31, 2020 is postponed to December 31, 2022.

C.         Certain DTAs Converted into Tax Credits

Upon payment of a 1.5% fee,[7] deferred tax assets (“DTAs”) arising from tax losses or allowances for corporate equity may be converted into tax credits for an amount not exceeding 20% of the face value of non-performing loans[8] transferred to a third party[9] in exchange for consideration no later than December 31, 2020. A Euro 2 billion receivable face value cap applies to third-party transfers made by companies members of the same corporate group.

The conversion of the DTAs into tax credits occurs upon the receivables’ transfer. Such tax credits can be used to pay current taxes and any excess can be refunded.

This measure does not apply to companies in distress.

D.        CoViD-19 Charitable Contributions

Businesses may entirely deduct cash or in kind charitable contributions made in 2020 to public institutions or not-for-profit organizations to finance the CoViD-19 emergency. Individuals are entitled to a 30% tax credit, up to Euro 30,000.

II.        Financial support to affected companies and lenders

Further to the debt moratorium measures previously adopted,[10] [11] the Decree affords small-medium enterprises (“SME”)[12] various forms of financial support.

In particular, SMEs owing debt to banks, financial intermediaries or other entities authorized to grant credit in Italy may obtain the following relief (provided they self-certify to have suffered a temporary shortage of liquidity as a direct consequence of the CoViD-19 pandemic):

• outstanding lines of credit (used or unused) to become irrevocable until September 20, 2020;
• bullet loans with contractual maturity before September 30, 2020 to be automatically extended (together with any security or guarantee) until September 30, 2020 on the same terms;
• with respect to mortgages and other loans repayable in instalments, the payment of instalments or lease payments falling due before September 30, 2020 to be deferred until that date, and the repayment schedule to be extended without additional costs for either parties; SMEs may also opt to request the suspension of principal payments only.

In turn, lenders are entitled to obtain (free of charge) a guarantee by the Central guarantee fund for SMEs (Fondo centrale di garanzia per le PMI) covering 33% of the additional drawdowns on credit lines, of loans whose maturity is extended, or of the instalments that are suspended, as a consequence of the above-mentioned measures.[13]

III.      Labor support measures

Along with prior Government decrees,[14] the Decree introduces measures supporting employers in the re-organization of their activities throughout the duration of the state of emergency.

In particular, the Decree enables eligible employers to apply for Ordinary Wage Guarantee Fund (Cassa Integrazione Guadagni Ordinaria - “CIGO”)[15] in a simplified and expedited manner, for up to nine weeks, from February 23, 2020 and until the end of August 2020. The Decree also introduces for the first time a general temporary layoff scheme applicable to every employer for the same time period. This scheme will have to be implemented by regional governments.

Moreover, the Decree affords employees with children up to 16 years of age various forms of support, including a partly-paid leave or an unpaid leave, protected against dismissal.[16] Other benefits are provided for quarantined employees.[17]

In addition, for a period of 60 days after March 17, 2020, any ongoing lay-off procedure is suspended and all employers are prohibited from proceeding with individual dismissals of any employee for “justified objective reasons”.[18]

Finally, the Decree includes certain income-protection measures for self-employed workers and certain categories of employees (e.g., seasonal employees in the tourism sector, agricultural employees and entertainment business employees). These indemnities are in general awarded and payable by the national social security agency.

IV.      Shareholder meetings

The Decree allows all Italian companies to approve the 2019 financial statements within 180 days after the end of the financial year (even if their by-laws provide for a shorter term).

The Decree also facilitates holding this year’s annual shareholder meetings without the physical attendance of shareholders, even if not provided in the company’s bylaws.[19] Specifically:

• all companies may allow their shareholders to vote electronically or by mail and/or to attend the shareholder meetings through telecommunication means; companies are also permitted to hold their shareholder meeting in fully virtual mode;
• all limited liability companies (società a responsabilità limitata) may adopt shareholder resolutions by written consent or written consultation; and
• all listed companies (whether on a regulated market or a multilateral trading facility) and other widely-held companies are entitled to appoint a designated representative to whom shareholders may grant proxies and hold shareholder meetings with the attendance only of the designated representative.

V.        Judicial proceedings

The Decree further impacts the organization of judicial proceedings and related deadlines during the outbreak.

All civil and criminal hearings scheduled between March 9 and April 15 have been adjourned and will be re-scheduled to a date after April 15, 2020.

In addition, all procedural deadlines for civil and criminal proceedings are suspended until April 15, including deadlines to start ordinary and enforcement judicial proceeding as well as to challenge court decisions. The suspension also applies to out-of-court settlement procedures governed by specific legal provisions (e.g., mandatory mediation).

The Decree also confirms that the above-mentioned provisions do not apply to certain urgent matters. As regards civil proceedings, hearings continue to be held in the following cases: (i) family and personal rights and status (such as adoption, minors, and alimony obligations); (ii) interim measures to protect fundamental human rights; and (iii) all cases where a delay could cause a serious harm to the parties, and where this harm is established by the judge by a specific decision.

Finally, until June 30, 2020, courts are allowed to: (a) adopt measures limiting access to the courts, with the exception of urgent activities; (b) postpone future hearings to a date after June 30, exception for the urgent proceedings outlined above; and (c) replace in-person hearings with video or audio-conference hearings and/or written submissions and out-of-court decisions by the judge.

VI.      Other

Under the Decree, compliance with the restrictive measures thereunder is to be taken into account for purposes of reducing or excluding debtors’ liability for non-performance of contracts with government entities (including as to the application of forfeiture deadlines and liquidated damages provisions).