Italy’s national strategy for

competitiveness and

innovation

“Industry 4.0” plan and

innovative startups

Workshop – Technology Transfer in Nanotechnology CNR Nanotec, Lecce (Italy) 19 October 2018

Roberto Volpe Directorate General for Industrial Policy, Competitiveness and SMEs Italian Ministry of Economic Development

A tax treatment for digital investors among the most favourable in the world (PwC – ZEW 2017)

Country (Region)

Effective tax rate 2017 Ranking

Ireland -10.32% 1

Italy -8.84% 2

Hungary -6.85% 3

… … …

Switzerland (Zurich) 8.39% 11

United Kingdom 11.11% 16

France 12.39% 18

Spain 12.85% 20

Netherlands 13.61% 22

Germany 22.81% 31

USA (California) 22.82% 32

«Ireland, Italy and Hungary are at the top of the 2017 tax digitisation index. The negative effective burdens reflect the application of R&D incentives and IP Box regimes, which lead to investments in digital business models being more profitable after tax than before tax, or, to put in another way: they are essentially subsidised. […] especially Italy, which traditionally ha[s] rather high tax levels, [is] able to greatly enhance [its] attractiveness.»

2

…how is this possible?

• Patent Box: 50% tax break on IP-related income

• R&D Tax Credit: 50% tax credit on incremental

R&D expenditure

• Super- and Hyper-depreciation: fiscal cost on depreciation for any kind of instrumental goods

is increased by 30%, and by 150% on Industry 4.0 enabling technologies

• Corporate income tax lowered to 24% (from 27.5%)

• 30% tax relief for investors in innovative startups Cap at €1m for individuals, €1.8 for companies

Italy’s Plan for Industry 4.0 (2017) a shock therapy to boost industrial investment

3

R&D Tax Credit new developments after the 2017 Budget Law

The incentive, introduced in 2015 and previously amounting to 25% of the incremental annual expenditure on R&D (i.e. additional expenditure compared to

a fixed average), is raised from 25% to 50%, for both internal and outsourced investment.

The fixed reference for calculating the incentive is the average expenditure between 2012 and 2014 fiscal years.

(if the company, e.g. a startup, was set up later than 2012, the incorporation date is taken as reference)

The maximum amount of the tax credit is raised from €5 million to €20 million.

Moreover, multinational enterprises with a branch in Italy, or that carry out R&D activities on behalf of foreign-based companies, are now eligible for the incentive.

4

Average

R&D exp. 2015

R&D exp. 2014

R&D exp. 2013

R&D exp. 2012

Increment

Hyper-depreciation (iper-ammortamento)

The 2017 Budget Law introduces a 150% hyper-depreciation, on tangible and intangible assets functional for the digital transformation of industry.

As a result, for accounting purpose, the acquisition cost amounts to 250% of the actual costs incurred.

Companies that benefit from hyper-depreciation can also claim an additional 40% depreciation bonus on selected, stand-alone software (e.g. 3D modelling, data analytics clients).

The benefit is available to any company, regardless of its location and activity, and is automatically applied when the yearly balance sheets are deposited.

Key concept of «interconnection»: to benefit from the incentive, the I4.0 instrumental good must be demonstrably «inter-connected», i.e. it must exchange information with internal or external systems (e.g. clients, suppliers, other actors along the supply

chain). 5

Three main categories of goods:

Computer-controlled capital equipment Quality control system Human-machine interfaces

Italy’s Patent Box

Optional tax regime: a deduction by 50% of taxable (IRES) income that demonstrably derives from direct or indirect use (as licensee) of IP, such as: industrial models, patents, formulas, software protected by copyright, know-how.

It transposes into law OECD guidelines on harmful tax practises, being only applicable to the production, development and maintenance activities of IP that are based on real research and development («nexus approach»).

It is a permanent fiscal instrument to reward firms that base their value production on knowledge and IP.

It can be combined with the R&D Tax Credit.

In case of use of internally-developed IP, a ruling agreement with the Italian Revenue Agency is required.

6

R&D «qualified» costs

Total cost of the intangible asset

Eligible income Taxable income

deduction 50%

Main actions for 2018:

Competence Centers: a network for excellence in tech-transfer

Public resources The tender process: milestones

• Total budget: €70 m to support the start-

up costs of the centres and to finance the demand for projects by companies.

• Each centre may receive a public contribution up to a maximum of:

- €7.5 m to cover up to 50% of the costs

incurred for establishment and start-up of the CC

- €200,000 for each project submitted by

customer firms

29/1 30/4

Tender opens

Tender closes

24/5

Provisional ranking

8 projects selected

31/12

Allocation of resources

Politecnico di Torino Università degli Studi di Padova

Politecnico di Milano Università degli Studi di Napoli

“Federico II”

Alma Mater Studiorum Università di Bologna

Consiglio Nazionale delle Ricerche

Scuola Superiore Sant’Anna di Pisa Università degli Studi di Roma

“La Sapienza”

Main actions for 2018:

Tax credit on I4.0 Training

• A 40% tax credit on the cost of personnel employed in training courses for the acquisition and consolidation of skills in “4.0” fields.

• Examples: big data, cloud computing, cybersecurity, 3D printing, AR/VR, robotics, man-machine interface

• Maximum contribution per company of 300,000 € / year

• Validity: on an experimental basis for the year 2018

• Legal basis: Regulation (EU) No 651/2014

• Applicable independently of hyper-depreciation

• The costs incurred for internal teaching or tutoring staff are also eligible.

8

The 2017 Budget Law made it one of

the most generous in Europe (on par with UK’s EIS).

The rate of incentive was raised to:

a 30% deduction from gross income tax (IRPEF)

on the sum invested in innovative startups by individuals,

up to a ceiling of €1 million

a 30% deduction on taxable income (IRES) on the sum invested by companies, up

to a ceiling of €1.8 million.

The minimum holding period allowed for the incentivised investment is 3 years (the

incentive can be claimed before that date, but will have to be repaid in case of non-

compliance).

Since 2012, whoever invests in the equity of an innovative startup benefits from a considerable income tax break.

Access to risk finance: 30% tax relief for seed- & early-stage investments

9

The Italian Startup Act: a legal definition of «innovative startup»

Introduced in late 2012 (d.l. 179/2012), the Italian Startup Act is a comprehensive legislative framework aimed at facilitating the creation and the growth of new hi-tech companies.

“Innovative startups” are defined as newly-founded (less than 5 years old) unlisted limited companies, which have an annual turnover lower than €5 m, and a focus on technological innovation.

The latter is identified by at least one of the following indicators:

1. significant R&D expenditure (>15% of total annual costs)

2. highly-qualified team

3. IP rights

Companies that fulfil the requirements can (self-selection) register as innovative startups at their local Chamber of Commerce and benefit from a vast array of policy measures.

The support measures are designed to help them throughout their whole life-cycle (first steps, growth, maturity) and to affect the national startup ecosystem as a whole (investors, incubators, universities…)

• A more flexible corporate management

• Special rules on fixed-term contracts

• Targeted support from the Italian Trade Agency

• Easier to cover losses

• Stock options and work-for-equity schemes not taxed as income

• Cuts through red tape and waiver on Chamber of Commerce fees

• A Startup Visa for non-EU tech entrepreneurs

Digital, cost-free incorporation procedure over 1,600 startups incorporated online in 2 years (€2,000 in savings per company)

The Italian Startup Act : a tailor-made regulatory framework

30% tax relief for seed- and early-stage investors Over €100m of equity investments by corporates and individuals covered by this incentive in 2016

Equity crowdfunding campaigns €26.3m collected in Q1-Q3 2018 (€45m in total, from over 250 startups)

Funding-related measures:

Smart&Start Italia subsidised finance initiative Endowment: €266m. Approx. €100m still available

Debt finance: fast-track access to a Public Guarantee Fund for SMEs Almost €800m of guaranteed loans issued between 2014 and Q2 2018, to over 2,000 startups. Default rate <3%

The Italian Startup Act : a tailor-made regulatory framework

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If things go wrong: fail fast

Innovative startups are exempted from standard bankruptcy legislation, in a view of making the process faster and less costly.

In case of success: innovative SMEs «Grown-up» startups can turn into «innovative SMEs» and benefit from a very

similar set of incentives, given that they maintain their innovative character.

Innovative SMEs are SMEs as defined by EU law, with no age limit, which meet innovation requirements similar to those provided for startups.

The regime is intended to support startups in their scale-up phase, and tech-intensive firms operating in sectors that entail a very long go-to-market period, hence needing extended public support.

After the startup phase: fail fast and innovative SMEs

The Italian startup ecosystem: Territorial distribution on 1 October 2018

43

Top-5 regions

734

858

919

1.027

2,368

CAMPANIA

VENETO

EMILIA-ROMAGNA

LAZIO

LOMBARDY

Top-5 provinces

312

316

330

916

1,666

BOLOGNA

TURIN

NAPLES

ROME

MILAN

Total:

9.647

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The Italian startup ecosystem: Territorial distribution on 1 October 2018

43

Top-5 regions

734

858

919

1.027

2,368

CAMPANIA

VENETO

EMILIA-ROMAGNA

LAZIO

LOMBARDY

Top-5 provinces

#startups

#new limited

companies

2.74%

15

312

316

330

916

1,666

BOLOGNA

TURIN

NAPLES

ROME

MILAN

Monitoring the Italian Startup Act

A DB of all registered innovative startups and SMEs, freely accessible and editable (.csv format), with a rich set of

information, published on startup.registroimprese.it

4 reports: Italia Startup Visa (it – en)

Digital incorporation SME Guarantee Fund Trends in the Business

Register

Minister’s Report to the Parliament,

based on the work of a M&E Committee

every Monday every 3 months every year

An extensive survey on startuppers has been conducted with Istat (Startup Survey 2016), with the goal of gaining new information on the “human side” of the phenomenon: data has been collected on their educational & professional background, their ambitions, the difficulties encountered, and their advice on how to improve the policy framework.

The Italian Startup Act includes an explicit commitment for the Italian Minister of Economic Development to M&E the impact of the policy, in a view of ensuring accountability and inform future policy interventions.

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Assessing the impact of the Italian Startup Act

The OECD has recently carried out an independent impact assessment on the Italian Startup Act.

Main evidence:

The companies that benefit from the policy, compared to a control sample, show:

• A 10-15% increase in turnover, value added, patent activity and investments in tangible and intangible assets

• Increased likelihood of obtaining bank loans (+8-16 p.p.) at a lower interest (≈1 p.p.)

• A higher probability (more than 2 times higher) of receiving VC in the first 3 years of age

• Since the launch of the policy, the popularity of the startup phenomenon has measurably increased.

OECD-STI report online since 26/09/18 17

Thank you for your attention.

Roberto Volpe Directorate General for Industrial Policy, Competitiveness and SMEs Italian Ministry of Economic Development

Contact:

roberto.volpe.ext@mise.gov.it startup@mise.gov.it pminnovative@mise.gov.it

Visit:

mise.gov.it startup.registroimprese.it italiastartupvisa.mise.gov.it