With law n. 669/96 the basis of calculation of withholding taxes to be applied to royalties payable to non residents has been modified.

The payment of royalties represents the attribution of an economical benefit to the creator of non-material goods on the part of those people making use of it.

The new disposition is of great importance for those corporations that operate in the market by using, after having paid a fee for the said use, patents, trademarks and copyrights, that is processes, formulations and information relative to experiences acquired in the industrial, commercial or scientific branch, belonging to non residents.

Law n. 669/96 has modified the method of taxable base determination of income deriving from the use of patents corresponded starting from the 1st of January, by defining the relief for expenses in the measure of 25% of its gross amount. Previously the said percentage amounted to 20%.

Meanwhile also the limitation of 100 millions has been abolished: before the enactment of the said law it was in fact provided that over the amount of 100 millions the deduction for expenses wouldn't have been permitted.

Also in relation to the withholding tax applicable to fees for the use of trademarks, patents and copyrights law n. 669/96 has modified the previous provisions: royalties were in fact previously subjected to a withholding tax amounting to 30% proportionate to the 70% of their gross amount, that is a definite tax of 21%. As provided by the new law withholding tax may be applied on their taxable part that is in line with the 75% of what has been corresponded, that is a definite tax of 22,5%.

The enactment of law n. 669/96 leaves anyway unaltered the enforceability of Tax Treaties when they provide for the tax payer for a more favourable tax treatment.