Legal experts have long been discussing the halving of the corporate income tax for some categories of non-profit organizations, especially for the clergy, provided for by Art. 6, D.P.R. no. 601/1973.

At last, the Revenue Agency has replied to a taxpayer’s query, stating that a public body’s real estate incomes must be subject to the corporate income tax at the full rate (query no. 152/2018).

An article by our associate Dott. Gianni Mario Colombo, administrative and tax expert.


Gianni Mario Colombo, Corriere Tributario, January 2020.

The Abrogation Suspension

The immediate criticism of the abrogation rule brought on by the organizations involved led the Government to backtrack. In truth, the cure seems worse than the disease.

First, it must be noted that it is not a restoration of the original norm that is being proposed, but rather the suspension of the rule inserted in the Budget Law (see Art. 1, comma 52, Law n. 145/2018, as adjusted by Law Decree n. 135/2018) .

The new 52-bis paragraph states that future law provisions will create preferential conditions for non-commercial bodies performing social activities, compatibly with EU laws on the matter.

Firstly, as we said, it is a temporary provision that requires further clarification on the subject, which seems to be rather problematic.

As for the beneficiaries of the rule, the organizations specified in Art. 6, D.P.R n. 691/1973 are replaced, more in general, with non-commercial bodies performing social activities. The vagueness and ambiguity of this judgment is self-evident.

In the Third Sector Code (Art. 79, paragraph 2) the phrase has the meaning of “non-profitability”.

In order to establish the non-commercial nature of the organizations, its effective costs must be equal or higher than the compensation for the activities it carries out.

The D.M. n. 200/2012 takes the non-commercial nature of the organization as the basis criterion to establish the IMU tax relief applying to non-commercial bodies for social activities (see Law Decree n. 504/1992, art. 7, lett. i).

Lastly, it is to be noted that, in order to pinpoint the entities that benefit from the tax break, the rule seemingly considers them objectively rather than subjectively. To be sure, that kind of reasoning is not unheard of in the judicial precedent.

While we await a clarification on the lawmaker’s part, we are witnessing several conflicting legal verdicts issued by the courts and a restrictive interpretation of Art. 6, D.P.R no. 601/1973 adopted by the Revenue Agency.

This is exemplified by the Agency’s reply to a query regarding this subject.

Query Reply n. 152/2018

In response to a taxpayer’s query on whether the “Beta” entity, a public organization involved in the assistance of orphaned children, could benefit from the corporate income tax halving provided for by Art.6 of D.P.R., particularly concerning incomes deriving from real estate leasing, the Revenue Agency made it clear that “the disposition provided for by Art. 6 does not apply to incomes deriving from real estate leasing, as this activity does not appear to be directly and immediately instrumental to the activities favored by the lawmaker”.

This phrasing is borrowed from the Revenue Agency Resolution no. 91/E/2005, concerning state-recognized religious entities. The Resolution established that the link between activity and religious purpose as a necessary condition for the tax relief under consideration.

The above case is explanatory of the Agency’s stance, which is supported by the long-established legitimacy opinion on the Court of Cassation’s part .

According to the Supreme Court (see, among others, verdict no. 1633/1995), “to the purpose of identifying the beneficiaries of the IRPEG rate halving, as provided for by Art. 6, lett. h), D.P.R. September 29th 1973, no. 601, in favor of entities deemed equivalent to education and charity organizations, such as ecclesiastical entities with religious purposes, it is not sufficient that said entities have been established with those purposes, but it must also be ascertained that the activity effectively carried out is not exclusively or mainly commercial; moreover, a minor commercial activity must be directly and immediately instrumental to those religious purposes, and therefore is not simply carried out in order to gain the necessary economic means. In that case, the activity is to be classified as a “different activity”, and subject to ordinary taxation.”

In actuality, the Supreme Court’s stance links the means (activities) to the purposes (religious purposes) on the functional point of view, so that the activity must be directly instrumental to the purposes.

However, as we shall see, in the case under examination (real estate leasing) no commercial activity is carried out.

In support of the Revenue Agency’s restrictive interpretation, we can find a Council of State opinion (no. 1296, October 8th 1991) stating that the corporate income tax halving is not due to the fact that an organization belongs to one of the categories listed in the rule, but it is objective, subordinate to the performance of certain activities and limited to the income generated by those activities.

In light of the precedents and the verdicts quoted – the Agency concludes – what is established by Art. 8 does not apply to incomes deriving from real estate leasing, since it seems that it is not directly and immediately instrumental to the activities favored by the lawmaker.

In that regard, it must be noted that the tax break established by Art. 6 is subjective in nature rather than objective: it applies exclusively to organizations belonging to the listed categories. So much so that Art. 6 of D.P.R no. 601/1973 is contained in Section I – “Subjective tax breaks”, while the tax breaks granted to specific activity sectors are established in the following sections of the aforementioned decree .

The Agency highlights that paragraph 3, art. 6 establishes that “the reduction does not apply to organizations in the National Third Sector registry”.

Now, Art. 89, paragraph 6 of the Law Decree no. 117/2017, by stating that “the reduction does not apply to organizations in the National Third Sector registry”, simply asserts the subjective nature of the tax break under consideration. In fact, it highlights that the tax break does not apply to Third Sector entities, but does not mention the activities carried out by them and the way they are performed. Abrogating that provision (Art. 6) has subjective consequences: it prevents the subjects involved in Art. 6 from taking advantage of the corporate income tax halving.

It must also be noted that the Court of Cassation precedent mentioned by the Agency concerns a completely different case than the one being examined, more specifically retirement homes or nursing homes (that is, social services managing economic activities and potentially making revenues).

Our case, on the other hand, is that of a public entity with the purpose of assisting orphaned children through scholarships and/or allowances. Social assistance provided free of charge to persons in need is certainly not relevant from a fiscal viewpoint.

The entity under examination has real estate incomes, that is, incomes related to real estate that have been rented in order to gain the necessary economic means to carry out its activity. There is clearly an instrumentality to the institutional activity, since those incomes are necessary for the existence of the activity itself.

From a fiscal viewpoint, real estate incomes are not active incomes (like corporate incomes), but rather assets related to real estate properties.

In that regard, we may simply quote their legal definition in Art. 25 of T.U.I.R, which establishes that “real estate incomes are incomes related to properties and buildings on the national territory”; on the contrary, corporate incomes are defined in art. 55 as “incomes deriving from the regular and non-exclusive performance of the activities listed in art. 2195 c.c.”

The difference between the two cases seems clear; in the former, the incomes are “related” to the properties; in the latter, the incomes derive from the corporate “activities”.

As we said, in our case (property leasing) there is no commercial activity being performed.

On that note, it seems appropriate to quote the C.M. no. 32, June 21st 1991: “Using those real estate properties in order to collect rent falls in the economic use of one’s property, not in corporate activities, not even in regard to Art. 4, D.P.R. 633/1972, since it is not a commercial activity. Therefore, real estate leasing does not constitute a corporate activity for the non-commercial entity”.

In conclusion, we might say that not only is real estate leasing instrumental to the performance of institutional activities, but it also cannot be considered a commercial activity.

Future Prospects

Social purpose, non-commercial activities.

Paragraph 52-bis, Art.1, Law no. 145/2018 establishes that future law provisions shall create preferential conditions for non-commercial bodies performing social activities in accordance with the solidarity and subsidiarity principles, compatibly with EU laws on the matter and.

This is a temporary solution before the clarification of the matter, which appears problematic. As for the beneficiaries of the rule, entities listed in Art. 6, D.P.R no. 601/1973 are replaced, more in general, with non-commercial bodies performing social activities.

This phrasing is ambiguous, since an activity is either fiscally commercial or non-commercial.

The Pending Issue

Subjective nature of the tax break.

According to the Revenue Agency, art. 6 D.P.R no. 601/1973, which establishes the corporate income tax halving for incomes deriving from real estate leasing, does not apply to the incomes deriving from real estate leasing that does not appear directly and immediately instrumental to the activities favored by the lawmaker.

The tax break provided for by art.6 is subjective in nature rather than objective: it only applies to subjects belonging to the categories explicitly listed in the rule, which the Revenue Agency agrees on.

So much so that Art. 6 of D.P.R no. 601/1973 is contained in Section I – “Subjective tax breaks”, while the tax breaks granted to specific activity sectors are established in the following sections of the aforementioned decree.

Cahill-Caizzone & Associates is the Registered Trading name of Cahill Caizzone & Associates Limited, incorporated in Ireland, Reg. No.369596.