The Italian tax on excess profits of banks is finally approved

12.10.2023 The Italian Parliament has finally approved the Italian excess profit tax for banks, affecting Italian banks and Italian branches of foreign banks. The new tax was introduced by Article 26 of the Law-Decree No. 104 of August 10, 2023 (Decree), which the Parliament amended on October 5, 2023.

The main amendments to the Italian excess profit tax for banks relate to:
• determination of the tax base;
• opportunities for banks to reserve an undistributed reserve in the amount of at least two and a half times the amount of tax payable instead of the corresponding payments.

The amendments are a compromise on the part of the right-wing government of Georgia Meloni after the fall in shares of Italian banks and criticism from the European Central Bank.
The consequences of this reform are still unclear, but the government expects an inflow of funds to the budget in the amount of almost 3 billion. euro.

According to the amendment to the law, banks can refuse to pay tax if they allocate as inaccessible reserves an amount 2.5 times higher than the amount due to strengthen the capital adequacy ratio of the first level. If these reserves are subsequently distributed as dividends, the banks will have to pay the tax in full plus interest for the delay.

The tax will be levied on 40% of the excess profits of banks, defined as the difference in net interest income between 2023 and 2021, exceeding a 10% increase. According to the amendments, the new draft is designed in such a way as to bring the same income to the state as the original version of the tax adopted in August.

Link to source: https://www.senato.it/leg/19/BGT/Schede/Ddliter/57434.htm