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Circulars 8/2004 - The End of Tax Interference and Budgetary Policies

The End of Tax Interference and Budgetary Policies

It should be noted that article 109 of Presidential Decree of 22 December 1986, n.917 introduced by article 1 of Legislative Decree 12 December 2003, n.344 sanctioned, with effect from the tax period starting after on 31.12.2003, the end of the tax interference. This circular is intended to provide a first overview of the main innovations that have taken place.

The previous discipline of business income, in principle, conditioned the deductibility of a cost to the relative recognition in the income statement, except for the exceptions listed below. For these reasons, the old civil law (Article 2426 paragraph 2 of the Italian Civil Code) allowed value adjustments and provisions subtracted from any civil-management motivation to be charged to the income statement of the financial statements, in order to allow companies to benefit from advantages or benefits provided by the tax law, otherwise not usable.

In this pre-reform framework, the company could therefore legitimately charge the income statement with accelerated depreciation of technical fixed assets, credit write-downs and anything else the tax authorities allowed as a deduction from taxable income, regardless of the actual existence or otherwise of civil-managerial conditions. However, such an approach led to a conflict between rules of equal rank, but of different ends, giving rise to the problem of the interference of taxation on the information capacities of the financial statements of companies.

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