Lexia Avvocati is an independent law firm with extensive knowledge and experience in fintech, blockchain technology and Decentralized Finance (DeFi) dynamics. The firm supports Italian and foreign clients, such as banks, funds, exchange platforms, wallet providers and digital asset providers, in the launch and management of their operations in Italy and in dealing with the relevant regulatory authorities. Thanks to its multidisciplinary team, Lexia advises in relation to all issues affecting companies operating in the sector, starting from corporate, tax and regulatory issues to the fields of personal data protection, cybersecurity, intellectual property and consumer protection. We talked about it with Angelo Messore, partner at Lexia, and Francesco Dagnino, managing partner and founder.

What do you believe are the most important challenges to date from a legal perspective that the Fintech world is facing?

One of the main challenges for fintech projects is definitely the absence of a clear legal framework. Indeed, it is well known that technology develops faster than the law. But if the law does not provide a transparent environment for innovation, there cannot be a level playing field between innovative projects and market incumbents (or between domestic players and foreign competitors). An example can be seen in the recent EU regulation on crowdfunding, which Italy has not yet implemented. We know of a number of Italian crowdfunding platforms that are waiting for the Italian state to publish implementing regulations in order to become fully operational on a European scale. In these cases, the lack of a well-defined regulatory environment creates a clear competitive disadvantage for fintech companies.

Are there any major new developments in Europe that those operating in the fintech sector need to be aware of?

European institutions are often criticized for their overly conservative approach to regulating fintech entities compared to other countries. Indeed, they try to strike a balance between consumer and investor protection on the one hand and openness to technology and financial innovation on the other hand – a task certainly not easy to accomplish.
In recent years, the EU has taken several steps to stimulate innovation in the financial market, notably through the Fintech Action Plan and the Digital Finance Package. In this context, a key role in shaping the rules for Fintech operators will be played by the recently approved EU regulation on the “pilot regime” for tokenized financial instruments and the EU regulation on cryptocurrency markets. Other initiatives that Fintech operators should keep an eye on include the ongoing review of the EU anti-money laundering framework, the entry into force of the EU regulation on crowdfunding, the proposed legislation to create a legal framework for the use of artificial intelligence, and the current discussion on the regulation of buy-now-pay-later (BNPL) services.

When you work along with an emerging fintech company, what are the most frequent issues you face and how do you support it?

The crucial challenge we meet with our clients is to bridge the gap between the business idea they have and its implementation in accordance with the current regulatory framework. When working on Fintech projects, there are many technical, operational, business, financial, marketing, and legal issues. However, sometimes Fintech companies decide to postpone legal analysis by focusing on the other aspects of their project. In doing so, they underestimate the importance of the legal framework for defining their business model.
As legal advisors, we must first understand the innovative sector in which the client operates and its business model in order to design the best legal solution. Fintech companies operate in a highly regulated environment and must be aware of all the legal complexities of the sector in which they operate, as well as the opportunities that the regulatory framework offers them. We support founders in defining and structuring their business idea taking into account all relevant legal constraints, as well as in approaching regulators to identify the appropriate legal framework for their project.

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Regulations are constantly evolving and those who want to succeed in the fintech sector should not be left behind. New opportunities are created when the rules of the game change, and the professionals in the community can help by explaining them to us and enabling us to seize them. Raffaello Fossati of Fantozzi Associati explains the latest news on patent box and R&D tax credit.

What changes brings the repeal of the old Patent Box regime? What does the new regime introduce and what advantages it does provide to Fintech?

Art. 6 of the Law Decree 146/2021 introduced significant changes to the so-called Patent Box regime which was further amended in the 2022 Budget Law (hereinafter referred to as “New Regime”). Specifically, the New Regime represents a substantial shift from the former discipline (concerning the tax exemption availed on intangibles-related income) and hereby considers the research and development (“R&D”) costs with the exclusion of any intra-group expenses incurred in relation to the following IPs (either licensed or directly employed):
> copyrighted software;
> industrial patents;
> designs and models.
These costs are deductible for the income tax purposes (both IRES and IRAP) at an increased total rate of 210% (i.e., at 110% more than the actual cost incurred). However, in compliance with the previous indications the option for the regime lasts for 5 tax periods, is irrevocable and renewable (as per par. 1 of the cited Art. 6). Finally, par. 10-bis of the 2022 Budget Law provides that in case if R&D costs were incurred for the development of one or more eligible intangible assets in previous years, the taxpayer can benefit of the referred 110% increased deductibility starting from the moment in which the intangible asset is registered on the overall costs incurred in up to maximum of 9 tax periods.

How does the management change for the patents and new software? Is the New Regime considered as an obstacle or, in turn, as an incentive for the innovation?

In the case of software, the New Regime could be viewed as a very appealing opportunity for increasing investments in innovation in consideration of the constant development activities carried out by “software houses”. In particular, the provisions of the old regime specified certain characteristics of the eligible R&D costs in terms of software development which were quite broad and, if the same applies under the New Regime, software houses would retain complete deductibility of the total operating expenses incurred atthe increased rate.

On an overall basis, however, the new regime reduces the incentive for producing profit generating IPs. What were the changes concerning the R&D tax credit?

As per indications provided in par. 45 of Art. 1 of the 2022 Budget Law, the amendments made with respect to the R&D Tax Credit were the following:
> R&D activity – 20% of allowable expenses up to a maximum amount of 4 mio EUR (for tax periods
2023-2031 the rate is decreased to 10% with maximum amount of 5 mio EUR);
> scientific and technological research as well as design and aesthetic ideation activities – 10% of
allowable expenses up to a maximum amount of 2 mio EUR (for tax periods 2024-2025 5% with a
maximum of 2 mio EUR);
> technological innovation activity – 15% of the allowable expenses up to a maximum amount of 2
mio EUR (for tax periods 2024-2025 5% with a maximum of 4 mio EUR).
Additionally, an indemnity was introduced for taxpayers who incorrectly benefited from R&D Tax Credit during the period 2014-2019, by allowing the ratification of the credit amounts used without a further application of penalties and fines.
Furthermore, it should be noted that the possibility for the simultaneous benefit from the Patent Box regime and R&D tax credit was confirmed.

In your opinion, how will these changes impact an innovative and agile reality like the fintech
community?

The introduced changes in fact could be viewed as an incentive given to the taxpayers for a constant development and adjustment to the rapidly changing technological environment by providing the relevant tax savings in a medium-term perspective and thus releasing funds for the additional investment activities to be carried out by companies like Fintechs and startup.
The overall reorganization of both the R&D tax credit and Patent Box carried out since 2019 was clearly aimed at simplification, certainty and limitation of future challenges’ risks which are considered as important drivers of innovation. Subject to the final clarifications to be provided by the Italian tax authorities on the new Patent Box, we expect that startups and young Fintechs could benefit of both incentives and obtain relevant tax savings.
For instance, a company operating as a software house could avail of the Patent Box regime on the vast majority of its costs and be taxed only on the portion of profits which exceeds such development costs (e.g., no taxes should be due until the EBIT margin is approx. 50%).

To learn more about BonelliErede and why we selected it to join the Marketplace, we interviewed Giulia Bianchi Frangipane, partner and member of BonelliErede’s Innovation and Digital Transformation Focus Team, and Lorenzo Foot.

From a legislative point of view, what improvements could be made for the growth of Italian start-ups?

Although Italy’s VC market has been growing steadily over the years, it is still underdeveloped compared to other European countries. To cite just a few figures, in the third quarter of 2019, VC investments in Italy totalled approx. EUR 200 m, compared to 2.6 bn in the UK, 2 bn in Germany, and 1bn in France (source: Dealroom.co, Quarterly European Venture Capital report, Q3 2019). This goes to show how much harder it is for start-ups to raise equity finance and, hence, to scale up in Italy than elsewhere in Europe. Besides the Italian VC market being a bit behind the times, which is the result of numerous factors to address another day, the current emergency will inevitably have repercussions for the start-up sector.
Against this backdrop, government initiatives to support entrepreneurship and companies in their early stage of growth become indispensable. And this is especially true when aimed at encouraging investment and attracting capital, also from abroad and thereby increasing the competitiveness of start-ups at European and international level.
The government responded to the challenge with the recently enacted Relaunch Decree (Law Decree of 19 May 2020, No. 34). It introduces a series of measures designed to strengthen public support for the incorporation and development of innovative start-ups in Italy. One example is the mechanism that allows non-EU operators that invest in start-ups to obtain a particular type of visa: the minimum investment threshold has been slashed by half to EUR 250 k. Another welcome measure is the increase in the financial endowment and the extension of the capacity of action of the “Smart&Start Italia grant”. This grant is available to companies in Southern Italy and is aimed at reducing the North–South gap, which is considerable also in the VC sector: last year, a whopping 78% of the resources invested in the PE and VC sectors concerned Northern Italy (source: AIFI, 2019, the Italian private equity, venture capital and private debt market).

How do you assist start-ups and scaleups and what are the main issues they address to your law firm?

We assist start-ups from their very outset: from incorporation and the structuring and management of the cap table, through internal relationships, to opening up their capital to investors. Our multidisciplinary team also guides start-ups through all stages of their growth: the development and integration of technologies, the choice and use of tools to protect and exploit IP, the exploitation of data, national and international business development, and the management of client and supplier relationships (simplified through the use of advanced legal tools).
With over 20 years of helping companies reach their business goals – and handling many of the most important deals in Italy’s history – start-ups can rest assured that they will receive fast, efficient and viable advice for every challenge facing them.

Admittedly, the legal framework on innovative start-ups and SMEs (innovative and otherwise) is complex and patchy. But if exploited in the right way, innovative companies can gain greater flexibility than other limited companies, especially in terms of fundraising methods and structuring of the economic and administrative rights of shareholders and investors. That is why understanding the individual needs and challenges of each and every client is so important, as that combined with our in-depth knowledge of the legislation enables us to take full advantage of the legislation to devise investment solutions tailored to the given client’s needs and desires.

Following the Covid-19 pandemic emergency, have you started initiatives or actions to support Italian business system?

At the very outset we set up a task force to give businesses immediate access to concrete help, especially in interpreting and applying the constant slew of measures being introduced. To ensure no stone is left unturned, the task force is made up of experts from all our practice areas, covering: administrative, banking and finance, bankruptcy, civil and commercial contracts, competition/antitrust, compliance, corporate, corporate crime, court proceedings, employment, healthcare and life sciences, international arbitration, privacy, shipping and transport, and tax.
We have also placed our expertise at the disposal of the authorities and have been actively involved in some of their work.
Another key area of focus is contributing to initiatives to give the needed support to the healthcare system. One such example is the Buzzi Children’s Hospital Foundation in Milan, besides joining their fundraising campaign for medical equipment for ICU, we are also helping with the coordination of the working group it set up to help with the supply of indispensable, quality health equipment. The group is forging ahead with a myriad of initiatives, which many of our professionals are putting their skills to work on, including searching for and liaising with suppliers, negotiating the purchase of the most urgently needed equipment, and supporting businesses that are willing to adapt their production lines in order to help meet demand.

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W​hat are the main legal issues that a startup, especially fintech and tech, has to face ​from your point of view​?

What kind of services and support can you provide them?

​H​ave you launched any particular support/assistance initiatives ​for the covid19 emergency​?