The tax plus-minus calculation (variazioni in aumento e in diminuzione) is a key step in calculating Italian corporation tax (IRES). It explains why the profit shown in the annual financial statements does not automatically correspond to the amount on which tax is actually payable.
The starting point is the pre-tax profit determined under commercial law. This is then adjusted in accordance with tax regulations. Only then is taxable income derived, on which Italian corporation tax (IRES) is calculated after further deductions have been taken into account.
In simple terms, the calculation can be presented as follows:
| Calculation step | Content |
|---|---|
| Accounting profit before tax as shown in the annual financial statements | Starting figure as per the profit and loss statement |
| + tax additions | Expenses that are not deductible or only partially deductible, as well as taxable income not yet taken into account |
| − tax deductions | Tax-exempt or non-taxable income, as well as expenses that are additionally deductible or only now deductible |
| = tax-adjusted profit | Profit before loss set-off and further deductions |
In a further step, tax losses carried forward, for example, can be taken into account, provided the relevant conditions are met.
For companies, the tax adjustments are shown in the RF section (quadro RF) of the Italian corporate income tax return (Modello Redditi SC).
Commercial law and tax law pursue different objectives. The annual financial statements are intended to provide as true and fair a view as possible of the company's assets, financial position and results of operations. Tax law, on the other hand, determines which income is taxable and which expenses are tax-deductible.
An expense may therefore be recognised in full under commercial law but only partially, or not at all, for tax purposes. Conversely, income may be included in the annual financial statements but not recognised, either in full or in part, for tax purposes.
A distinction is made between permanent and temporary differences:
A company reports a pre-tax profit of €100,000 under commercial law. This includes expenses of €10,000 that are not tax-deductible.
€100,000 profit
+ €10,000 addition
=
€110,000 taxable profit
A company reports a pre-tax profit of €100,000 under commercial law. This includes income of €5,000 that is not recognised for tax purposes.
€100,000 profit
− €5,000 tax deduction
=
€95,000 taxable profit
Items that may increase the taxable profit include, in particular:
Whether an addition is required, and to what extent, always depends on the nature of the expense, whether it was incurred for business purposes, and the applicable provisions.
A reduction in the taxable profit may arise in particular from:
Tax losses carried forward may reduce the final IRES tax base. Under Article 84 of the TUIR:
In addition, special provisions apply, including those relating to restructurings and changes in shareholdings.
The plus-minus calculation described here relates to the determination of taxable income for IRES purposes. Separate rules apply to the regional tax on productive activities (IRAP). The IRES adjustments cannot therefore be automatically carried over to the IRAP tax base.
The tax reconciliation forms the link between the annual financial statements and the determination of taxable income for IRES purposes. It ensures that expenses and income recognised under commercial law are correctly classified in accordance with tax regulations.
For companies, the correct treatment of expenses with limited deductibility, temporary differences and tax losses carried forward is particularly crucial. As deduction limits and formal requirements may change, the legal position applicable in the relevant tax year is always decisive for the specific calculation.