Dealing With Italian Property Tax: When to Engage a Qualified Real Estate Advisor?

Property taxation in Italy is considered relatively high, even if many discussions around the subject lack proper comparisons between the level of Italian property taxation and that of other European countries. If such a comparison were made, it would reveal that the Italian situation is in fact, in several respects, quite favorable for property owners.

For ordinary cases, the reference value for property taxation is determined based on fixed parameters allowing no room for alternative interpretations or professional assessments. This applies to apartments, small offices, retail shops, and ancillary buildings.

However, there are instances where the value of a property is disputed between the Agenzia delle Entrate (Italian Tax Office) and the private landlord. In such cases, engaging an advisor with specific expertise can lead to significant tax savings for the buyer of the property.

The success of the expert’s intervention depends on two key factors:

• Timeliness: Acting at the right moment is crucial and varies from case to case
• Expertise: An ordinary real estate appraiser is not sufficient as you need an advisor with specific experience in real estate taxation and a thorough understanding of the Italian tax office’s procedures.

Therefore, it is important to consider that a precise analysis of each individual case is always necessary to determine the most appropriate and likely successful course of action.

Let’s look at some key situations where an expert plays a crucial role in achieving favorable outcomes:

Property Management of Buildings

Which type of assets?

Buildings which fall under “special” categories such as large offices, shopping centres, logistics platforms, hotels, etc.

When?

Upon completion of the building construction, at the end of major renovation when there is a change in use of the property.

Situation: Ordinarily, buildings are subject to property tax (referred to as IMU which stands for Italian Municipal Property Tax). IMU is paid annually in two half-yearly instalments and is determined based on the “cadastral income”, which is assigned to the property at the time of its construction and is not changed after that, unless there is a major transformation (e.g., a renovation or change in use).

For ‘ordinary’ property types which include residences, small offices, traditional shops, and ancillary buildings, the “cadastral income” is calculated based on the floor area, using predefined tables that consider the property location and quality. This is a very deterministic system, which leaves little room for discussion with the tax office.

On the other hand, for properties categorised as ‘special’, which include large offices, shopping centres, logistic platforms, hotels, etc., the “cadastral income” is determined starting from the property’s market value, appraised by the valuers appointed by the tax office. The appraisal undertaken by the tax office can then be challenged by the landlord through a contradictory proceeding if he considers the value attributed (and the consequent “cadastral income”) unfair.

In these specific situations, engaging a qualified advisor is often the most crucial factor in achieving a satisfactory outcome for the landlord.

Property management of Land

Which type of assets?

Land suitable for development.

When?

On the annual IMU payment, in case of any dispute by the municipality regarding the IMU paid in previous years.

Situation: Land classified by the town planning regulation as suitable for development is subject to an annual IMU payment in two biannual instalments, regardless of whether it is being developed or not.

The IMU rate, which is determined at the municipal level, but as an order of magnitude is around 1%, is calculated based on the market value of the land.

The determination of the value and the calculation of the tax are the responsibility of the landlord. Nevertheless, the municipality may make an assessment in the five years following each tax period, and if they do not consider the amount paid by the landlord to be fair, they may demand an adjustment, with interest and penalties.

It is possible to appeal against the assessment of the higher value, and in this case, it is advisable to involve a qualified real estate advisor to demonstrate the consistency of the value initially considered for the IMU calculation.

It is even more prudent to obtain an appraisal of the market value of the land from the real estate advisor at the same time as the first IMU payment to have an objective document to oppose the possible assessment.

Extraordinary Operations of Buildings and Land

Which type of assets?

Land and buildings of any type

When?

At the time of sale or contribution to a corporation, fund, or Special Purpose Vehicle (SPV)

Situation: On occasion of extraordinary operations, such as the sale or contribution of a property (either land or building) to a legal entity, the tax office may contest the selling price indicated in the notary deed, requesting the buyer to make an adjustment of the tax paid and applying penalties and interests.

This dispute does not challenge the accuracy of the amount indicated in the deed (i.e., it does not represent an accusation of tax evasion) but indicates that, according to the tax office, the market value of the property is higher than the purchase price agreed between the seller and the buyer.

The buyer can challenge the position of the tax office, and the dispute concerning the fairness of the market value of the property calculated by the tax office. In this situation, the intervention of a qualified advisor is advisable to resolve the dispute with the tax office on an adequate professional basis.

Keep in mind that the tax office may challenge the price indicated in the deed within 5 years from the sale after which the statute of limitations intervenes. The ‘a posteriori’ determination of the value of the property at the date of the deed may be difficult, especially in periods of strong market fluctuations or when the property and the area in which the asset is located have undergone significant changes.

Therefore, it is important for the buyer to ask the real estate advisor to prepare an appraisal of the market value at the same time as the sale or contribution so that a document that can be opposed to any future challenge by the tax office can be in the records.

Below is a table summarizing the various scenarios that indicate when engaging a real estate advisor would be necessary to arrive at favorable outcomes for parties involved:

Why Is Engaging a Real Estate Advisor Essential?

Dealing with the complexities of Italian property tax can be daunting, but with the help of a specialized real estate advisor, the process can be greatly simplified, especially for non-standard properties and land. Their expertise guarantees accurate assessments, effective management of tax liabilities, and resolution of valuation issues in major transactions. Knowing when and how to involve these experts can lead to improved financial outcomes and smoother interactions with tax authorities.

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