Practical guide on how to declare music royalties income in Italy

About this article

This article is a guest contribution by Joe Sapienza, a tax lawyer and Of Counsel to ANote Music. It provides a general overview of how individuals residing in Italy may need to declare income and capital gains derived from music royalties.

While this guide focuses on the Italian tax framework, it does not exclude the possibility that income from royalties may be subject to taxation in other countries. Investors are strongly advised to consult a local tax advisor to understand the rules applicable in their local legislation.

Whether you're earning royalties through a platform like ANote Music or directly from rightsholders, understanding your tax obligations is essential.

This guide covers key concepts: how royalty income is classified, where to report it, and what to watch out for during tax season in Italy.

Please note: the information presented is based on legislation and administrative practices available at the time of writing and may not reflect recent changes. Always consult a qualified tax advisor for personal advice.

Before reading further, see the full disclaimer at the end of this article.

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Table of contents:

• How are royalty interests taxed in Italy? – A general overview of how royalty income is treated under Italian tax law     
  
  • Royalty Interests are not taxed as a Financial Instrument
• How to declare your earnings from music royalties investments? – Step-by-step guidance for Italian taxpayers
  
  • Royalties received: How to report this income on your tax declaration
    
    • Where to find it on the ANote Music platform (‘Portfolio Report’)
    • Other possible tax treatments for royalties income
  • Capital gains: How to report this income on your tax declaration
    
    • Where to find it on the ANote Music platform (‘Portfolio Report’)
    • Other possible tax treatments for capital gains
• Disclaimer – Important legal and compliance notes

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How are royalty interests taxed in Italy?

This article analyses the treatment applicable to two types of income:

1. Royalty income periodically received by the investors;
2. Capital gain/loss realized upon the sale of the acquired portion of the royalty interests

In Italy, there are two main tax return forms for individuals: 

• the Modello 730 (“730”) and 
• the Modello Redditi Persone Fisiche (formerly known as "Unico"). 

The 730 is designed for employees and retirees, offering a simplified process where any tax due or refund is automatically settled through the payroll or pension system, without requiring manual calculations. 

The Modello Redditi (“Unico”) is more comprehensive and used by individuals with more complex income situations such as: self-employment, business income, foreign income or those without an employer acting as a tax withholding agent. 

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In Italy, Royalty Interests are not taxed as a Financial Instrument

Italian tax law does not provide an ad hoc classification for royalty interests traded via ANote Music platform.

The starting point is to consider that the acquired royalty interests qualify as an intellectual property right and not as a financial instrument.

According to Art. 1(2) of the Italian Finance Code (“TUF”), financial instruments include shares, bonds, derivatives, and other tradable securities. Although the value of royalty interests is tied to the commercial performance of an underlying asset (music catalogue) their legal structure is fundamentally different from that of financial instruments. 

They do not represent equity interests, debt obligations, or derivative contracts. There is no promise of repayment, and no issuance of instruments negotiable in regulated markets such as bonds, certificates, or structured notes.

ANote Music does not act as a financial intermediary in the sense required by financial regulations; it serves as a digital marketplace for the direct transfer of economic rights related to intellectual property.

For these reasons, royalty interests fall outside the definition of financial instruments under Article 1(2) TUF.

The Italian Tax Authority (Agenzia delle Entrate, interpello 329/2023), examined the sale of music catalogue rights and emphasized the nature of the transaction as an acquisition of a portion of rights to exploit intellectual property.

Consequently, the tax treatment of the income generated via royalty interests should follow the one of the exploitation of intellectual property (“utilizzazione economica di opere dell’ingegno”).

How to declare your earnings from music royalties investments?

When the investor receives royalties derived from their royalty interests acquired on ANote Music platform, the royalties are considered as taxable income.

Article 67(1)(g) of the Italian Tax Code (“TUIR”), covers the “income derived from the economic exploitation of works of authorship, industrial patents, and processes, formulas, and information related to experience acquired in the industrial, commercial, or scientific fields” (“redditi derivanti dall'utilizzazione economica di opere dell'ingegno, di brevetti industriali e di processi, formule e informazioni relativi ad esperienze acquisite in campo industriale, commerciale o scientifico”) and lists this type of income under “miscellaneous income” (“redditi diversi”).

Article 71(1) TUIR specifies that “income referred to in letter g) of paragraph 1 of Article 67 TUIR constitutes taxable income for the amount received during the tax year, reduced by 25 percent if the rights from which such income derives were acquired for consideration” (“i redditi di cui alla lettera g) del comma 1 dell'articolo 67 costituiscono reddito per l'ammontare percepito nel periodo di imposta, ridotto del 25 per cento se i diritti dalla cui utilizzazione derivano sono stati acquistati a titolo oneroso”).

This means that, for instance, on €100  of royalties received, only €75 are subject to tax and €25  are considered as a deemed deduction. The €75 are then added to your total taxable income of the year and subject to the progressive tax rate of the Italian personal income tax (“IRPEF”).

This also means that you are not able to deduct any other expenses related to this income (such as fees, interests, etc.) because the deduction is deemed and determined by law.

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Royalties received: How to report this income on your tax declaration?

Where to find it on the ANote Music platform ‘Portfolio Report’

There are two forms that you can use to declare the income received from royalties: 

The amount to be inserted in RL13 or D4 Code 6 can be found at section “Total royalties received during the period (C)”. 

Remember not to insert the full amount you find in “Total royalties received during the period (C)” but only the 75% of it.

Example: if your ANM Profit and Loss Report shows €100 in “Total royalties received during the period (C)”, you have to put €75 in the corresponding RL13 or D4 Code 6.

Other possible tax treatments for royalties income

There are two other potential tax treatments which we believe are not applicable to the case and only inserted here for sake of completeness:

1.  As business income, if the investor carries out a habitual economic activity;
2. Subject to a 26% substitute tax, treating the income as financial investment proceeds.

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1. Business income  – not applicable

Royalty income qualifies as business income only when the exploitation of intellectual property is conducted on a habitual, organized, and professional basis. This does not apply to typical investors who merely collect passive income from acquired rights. In the absence of entrepreneurial structure or regular activity, Article 55 TUIR does not apply, and the income should not be taxed as business income.

2. 26% regime  – not applicable 

The 26% substitute tax applies to financial income derived from instruments such as shares, bonds, or foreign financial assets. Royalty payments received by investors are not financial returns but are linked to the exploitation of intellectual property. As such, they fall outside the scope of the financial income regime and must be treated under the rules applicable to miscellaneous income.

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Capital gains: How to report this income on your tax declaration?

If the investor sells their royalty interests on the platform (ie, to another user), the difference between the sale price and the original purchase cost constitutes a capital gain or loss.

To determine its correct qualification, it is important to distinguish ongoing royalty income from a one-time capital gain. 

Royalty income refers to the periodic payments derived from the continued owning of royalty interest, linked to the concept of economic exploitation as referred to in the Italian Tax Law. 

A capital gain or loss arises if an investor resells the royalty interests via  a final disposal of them.

To reinforce the fact that royalties and disposal of royalty interest should be treated separately, the law sets similar examples: when it comes to dividends and capital gains on stocks, the Italian Tax Law treats the two events differently, dividends as “capital income” (“redditi di capitale”) and capital gains as “miscellaneous income” (“redditi diversi”).

In relation to the treatment of capital gains or losses derived from the disposal of royalty interests (or intellectual property rights in general), the Italian Tax Law provides no express guidance.

Lacking any specific provisions, the more correct approach is to consider this type of income under the generic category of “miscellaneous income” (“redditi diversi”).

Art. 67(1)(l) TUIR regulates the tax treatment of capital gains in the case of “income derived from self-employment activities not carried out on a habitual basis or from the assumption of obligations to do, not to do, or to permit” (“i redditi derivanti da attività di lavoro autonomo non esercitate abitualmente o dalla assunzione di obblighi di fare, non fare o permettere”). 

In particular, the “obligation to permit” is linked with atypical civil obligations such as the assumption of an obligation to allow the use of intellectual property. 

As the nature of the right received with royalty interests originates from the concession of use of intellectual property by the catalogue owner, also the subsequent transactions should follow the same qualification.

Therefore, what is fiscally relevant is the net result (sale price minus purchase cost), to be included in the investor’s taxable income for IRPEF:

• If the net result is positive, the profit is taxed under progressive IRPEF rates (capital gain).
• If the net result is negative, the capital loss arising from the sale of royalty interests can be offset against other miscellaneous income of the same nature in the same tax year (capital loss). Any excess losses may be carried forward for up to four years, provided they are properly reported in the tax return.

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Where to find it on the ANote Music platform ‘Portfolio Report’

There are two forms that you can use to declare the income received from capital gains: 

The amount to be inserted in RL16 or D5 Code 3 can be found at section “Total realized capital gain/loss (F)”. 

The amount should be inserted for its full value as it already represents the total gain/loss.

Example: if your ANM Profit and Loss Report shows €100 in “Total realized capital gain/loss (F)”, you have to put €100  in the corresponding RL16 or D5 Code 3. If it shows (-€100), you have to put (-€100).

Other possible tax treatments for capital gains 

There are four other potential tax treatments which we believe are not applicable to the case and only inserted here for sake of completeness:

1. Subject to a 26% flat tax, if the asset is treated as a financial investment;
2. Not taxable, if the asset is not listed among taxable categories;
3. Applying the 75% taxable basis used for royalty income under Article 71 TUIR.
4. Taxation under first part of Article 67(1)(l) or Article 67(1)(i)

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1. 26% regime – not applicable

The 26% substitute tax applies exclusively to capital gains realized on financial instruments or other types of investments. It is also provided for the transfer of pecuniary claims; however, by their very nature, royalty interests cannot be qualified as such. In addition to the uncertainty regarding their value, there is also uncertainty regarding the very existence of the claim. This element of unpredictability makes the acquired right substantially different from a pecuniary claim that is certain, liquid, and enforceable. As already noted, royalty interests are not financial instruments, nor are they traded or managed through qualified intermediaries as required by Article 67(1)(c-quinquies) of the Italian Income Tax Code (TUIR), which governs the broader category of financial instruments and similar assets. Therefore, it is considered that the 26% substitute tax regime does not apply to this case.

2. Tax exemption – not applicable

Italian tax law does not impose a blanket capital gains tax on all asset sales as only those specifically enumerated in Art. 67 TUIR. There is an argument to be made that the TUIR lacks an explicit provision for certain intellectual property sales by individuals. In theory, an investor could take an aggressive position that their gain is a non-taxable capital realization, since it’s not expressly covered. However, this is risky and not supported by the Italian tax authority’s general approach. It’s unlikely they would concede a full exemption on a deliberate investment profit. 

3. Miscellaneous income (with 25% flat deduction)  – not applicable

Article 71 of the Italian Income Tax Code (TUIR), which governs the taxation of royalty income, applies solely to income derived from the exploitation of intellectual property, not to the sale of royalty interests. Furthermore, this tax regime allows only a flat 25% deemed-cost deduction and does not permit the deduction of actual acquisition costs. As a result, applying this rule to the sale of royalty interests would lead to an illogical outcome: the taxpayer could be taxed even in the event of a capital loss, due to the inability to deduct the original purchase price.

4. Taxation under first part of Article 67(1)(l) or Article 67(1)(i)  – not applicable

Letter first part (l) covers “income derived from self-employment activities not carried out on a habitual basis, (…).” (“redditi derivanti da attività di lavoro autonomo non esercitate abitualmente (…)”) and letter (i) covers “income derived from commercial activities not carried out on a habitual basis” (“redditi derivanti da attività commerciali non esercitate abitualmente”). Regarding the first part of letter (l), the law only requalifies the royalty income as self-employment activity if the recipient is the author, so it does not apply to the case in which the right is acquired for consideration. With reference to letter (i), this type of income lacks the elements of an entrepreneurial form (there is no organized activity, nor any promotion or marketing). Both these forms of revenue are reported in the Modello Redditi under different lines (specifically lines 15 and 14) and in the Modello 730 under different codes (Codes 2 and 1, respectively). Since the tax treatment is the same under the solution we consider correct (the second part of letter (l)), this distinction is not practically relevant.

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Disclaimer

This article is intended for informational purposes only. It provides a general interpretation of Italian tax rules concerning royalty income and capital gains related to music rights.

Nothing in this article should be construed as tax, legal, or investment advice. Neither ANote Music nor the author provide individual tax advice through this article, and they do not assume any responsibility for decisions made based on its content.

While the information has been carefully reviewed and is based on the legislation, public rulings, and administrative practices available at the time of publication, tax treatments may vary depending on individual circumstances, and relevant laws are subject to change.

Readers are strongly advised to seek guidance from a qualified tax advisor before taking any action.

By reading this article, you acknowledge that no client-professional relationship is established, and all responsibility for tax compliance rests solely with you.

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