From ISI to IUC… by way of ICI, IMU and TRISE. ICI: how did it work? How does the IMU work? How would the IUC work?

1. Real estate taxation
in Italy: from ISI to IUC…
by way of ICI, IMU
and TRISE
December 2013

2. 1992: real estate taxation is introduced in Italy
The property tax was introduced in Italy in July 1992 by
the Amato Government. It was originally conceived as an
extraordinary taxation (Imposta Straordinaria ImmobiliareISI), 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.

3. 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%.

4. 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.

5. The IMU
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.

6. 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.

7. ICI and IMU, an unconstitutional tax?
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.

8. 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.

9. … and of the second installment
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.

10. 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.

11. … to IUC
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.

12. 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%.