Budget Law 2020: The Reform of Industry 4.0

A series of measures aim to support more effectively the process of digital transition which companies are undergoing: it is mostly large companies that are following the path of Industry 4.0, while smaller ones are not keeping abreast of the times

by Claudio Bertoli

In the past parliamentary term, the Government had presented the National Industry 4.0 Plan, a program of measures to support technological innovation in the Italian entrepreneurial system, characterized mostly by small and medium-sized enterprises operating in the manufacturing sector and by a slow growth in productivity. The starting point was basically the consideration that, in order to have an impact on the weak productivity trend, a broad promotion of interventions and skills in the process of digital and technological transformation of the country was necessary.

Investments and skills
Investment in technology needed to be accompanied by the development of related skills, considering that the fragmentation of the production system into small enterprises causes a slowdown in the digitization process, since isolated investments by small enterprises cannot benefit from economies of scale or a coordinated approach.
The Plan, whose development time span was the 2017-2020 period, thus outlined some strategic guidelines for intervention, which were then mainly launched with the budget adjustments for 2017. In the current term, some regulatory interventions have implemented, extended and then reformed some of the support measures already introduced. Other interventions took the form of contributions to businesses for technological investments and for the development of digital skills, some others took shape as “indirect” interventions to support access to credit for investments in 4.0 technologies, while others were fiscal in nature, mainly being implemented as tax relief.

Legislative measures towards the Transition 4.0 plan
Considering therefore that there is no regulatory definition of Industry 4.0, nor a list of support measures which may be attributed to it, the following main legislative measures, introduced or implemented in the last and also in the current legislature, have been conventionally ascribed to the Industry 4.0 Plan (which this year took the name of Transition 4.0): super-amortization on I4.0 assets; hyper-amortization; tax credit for research, development and innovation; facilitation measures for investments in technological capital goods by micro, small and medium enterprises (“Nuova Sabatini” law); extension and strengthening of facilitation for investments in startups and innovative SMEs; highly specialized competence centres within the National Industry 4.0 Plan; Tax credit for Training 4.0; Refinancing and strengthening of the SME Guarantee Fund. Finally, there are other recent interventions, such as the Innovation Manager Voucher, introduced by the 2019 Budget Law. In addition to the channels indicated above, there are other measures, such as Development Contracts, the so-called Patent box and Innovation Agreements used for the same purpose.

From hyper depreciation to tax credits
According to the data available at MISE (the Ministry of Economic Development), it is mainly large companies that have taken the Industry 4.0 route, while smaller companies seem to lag behind in the adoption of new production technologies. Besides, it has been pointed out that after a record 2017 in internal orders for machine tools, as from 2018 a progressive decrease in orders has been recorded, further reinforced in the first nine months of 2019.
It is precisely from this assumption that a restyling of super amortization and hyper amortization was carried out as from 1 January 2020, replacing these measures with a tax credit. There will not be a simple extension for super and hyper amortization; the 2020 budget law will clearly revolutionize the two facilitation measures for investment in capital goods, and instead of the two deductions, the above mentioned double tax credit will be introduced, which may only be used as compensation. The tax credit varies from 40% (up to 2.5 million) to 20% (up to 10 million).

Some practical examples
If the order was issued in 2019 and at least 20% of the value was paid in the same year, the hyper amortization rule is applied as long as the asset is installed by 2020. If, on the other hand, the order was issued in 2020, or was accepted by the seller in 2019 but no advance payment was made, the new rule applies, which implies a tax credit. Finally, if the goods are ordered in 2020, they can be installed by June 2021, provided that an advance of at least 20% of their value is paid in 2020.
The revision of the measures aims to support more effectively the process of digital transition of companies and private expenditure in research and development and technological innovation, within the context of circular economy and environmental sustainability and the protection of Made in Italy, as well as the rationalization and stabilization of the reference facilitation framework over a time period of several years, compatible with public finance objectives.