Prepared by Pasquale Salvatore, Alessandro Marzorati, Francesco Bordin and Riccardo Golda Perini
The Law Decree n. 104, enacting “Urgent measures to support and relaunch the economy” (the “Decree” or “August Decree”), published in the Official Gazette on 14 August 2020, re-opens the voluntary revaluation of the assets, with the application of a very favorable substitutive tax rate (3%) in case of election for the tax recognition of the higher values that shall be disclosed in the Financial Statements as at 31 December 2020. The provision will become definitely effective with its conversion into law which shall occur no later than 13 October 2020.
With reference to the beneficiaries of the measure, article 110 of the Decree offers the possibility to step up the assets’ values to the subjects reported under art. 73, paragraph 1, lett. a) and b) of Presidential Decree 917/1986 (“T.U.I.R.”), including corporations and other public and private entities that carry out commercial activities, provided that they adopt the national accounting standards (so-called OIC adopter); the revaluation is also possible for partnerships carrying out commercial activities, sole proprietorships, non-commercial entities and non-resident subjects with a permanent establishment in Italy.
In particular, the revaluation may be applicable to tangible and intangible assets as well as to participations in controlled and associated companies, as defined by article 2359 of the Italian Civil Code, which are recorded among the fixed assets in the financial statements as at 31 December 2019.
Real estates and other immovable properties which are built or traded in the context of the business purpose of the owning taxpayers are excluded from the scope of the present provision.
The Decree recalls the discipline applicable to the previous revaluation’s law provisions of the business assets, provided by the Law no. 342/2000, however, unlike many of the previous versions of the same measure, each individual business asset may be object of step up without the obligation to extend the revaluation to all assets belonging to the same homogeneous category.
Pursuant to the explicit reference to art. 11 of Law no. 342/2000, the revaluation shall not exceed the values actually attributable to the assets taking into consideration their consistency, their production capacity, the effective possibility of economic utilization in the business as well as their fair values and the prices negotiated in Italian or foreign regulated markets.
With specific reference to the maximum value attributable to the assets, it is appropriate to jointly apply the provisions of the aforementioned art. 11 with the interpretative document n. 5 issued by the OIC (Italian accounting standards’ committee) which rules the accounting treatment of the revaluation of assets and establishes that “both the use value and the market value criteria” (or fair value) are eligible methodologies for its determination.
Furthermore, although there is not a mandatory requirement for a technical appraisal for the attribution of the stepped up value to the assets, the directors and the board of statutory auditors shall indicate, in their respective annual opinions, the criteria applied for the determination of the higher values, attesting also that the latter were determined in compliance with the limits indicated in article 11 of Law no. 342/2000. It is therefore recommendable, at least for the assets with significant values, to support the revaluation with technical estimation or sworn appraisals, preferably drawn up by independent professionals.
The beneficiary subjects of the measure may choose to carry out the revaluation only for statutory/accounting purposes with a consequent capital strengthening, or to opt also for the tax recognition of the higher values by means of payment of a substitutive tax equal to 3%, applicable both to the depreciable and non-depreciable assets. In both cases, the attribution of the higher values of the assets in the balance sheet will imply the recording of a corresponding revaluation reserve in the net equity.
As anticipated, the revaluation shall be disclosed in the financial statements or in the accounting report following the one in progress as at 31 December 2019. Therefore, for the entities having a financial year coinciding with the calendar year, the revaluation must be disclosed in the financial statements as at 31 December 2020. Furthermore, the revaluation shall be reported in the inventory book and in the notes to the financials statements.
Lastly, for those subjects who adopt the international accounting standards (the so-called IAS adopters), the Decree provides for the possibility to step up, for tax purposes only, any higher book value disclosed in the Financial Statements as at 31 December 2020 by means of payment of the substitutive tax equal to 3%.
Following, we recap some of the main features of the law provision.
The tax recognition of higher values of the stepped up assets
The tax recognition of the higher values attributed to the assets for the purposes of income taxes and IRAP (Regional tax) is performed by means of payment of a substitutive tax at 3% rate on the revaluation carried out.
The higher values will be recognized starting from the tax period in progress on 31 December 2021 with effect, among others, on the deductibility of depreciations, on the determination of the plafond for maintenance costs’ deduction, as well as on the computation of the operating test set forth by the so called “dormant companies” provision.
As for the previous revaluation laws, a “claw back” period is provided in case of realization of the stepped up assets. In particular, it is established that in cases of sale, assignment to shareholders, destination outside the business purpose or personal consumption of the stepped up assets, which has occurred on a date preceding the start of the fourth financial year following the one in which the revaluation has been carried out (i.e. on a date prior to 1 January 2024, for subjects with a tax period coinciding with the calendar year), the capital gains and losses shall be determined over the assets’ tax basis prior to revaluation.
The reserve under tax suspension
In case of tax recognition of the higher values attributed to the assets, a corresponding amount (equal to all the higher values resulting from the revaluations) shall be disclosed in the net equity as share capital or as income reserve in tax suspension, excluding any different destination according to art. 13 of Law 342/2000.
In particular, pursuant to art. 13, paragraph 3, the use of the revaluation reserve for attribution to the shareholders implies an increasing adjustment to the taxable income for the same amount, inclusive of the amount of the substitutive tax paid.
However, it is also possible to opt for the tax recognition of such a revaluation reserve by means of payment of a substitutive tax equal to 10% of the amount of the reserve.
In case of subjects who adopts the international accounting standards, as a consequence of the tax step up of the higher accounting values, it will be necessary to bind an equity reserve under tax suspension for an amount corresponding to the tax step up values; the reserve may, in its turn, become again tax free by means of payment of the substitutive tax equal to 10%.
Payment of the substitutive tax
Both the substitutive tax on the higher values attributed to the assets and on the amount of the revaluation reserve must be paid within the deadline for the balance payment of the income taxes relating to the tax period in which the revaluation has been carried out. (i.e. the last day of June 2021 for the subjects having the financial year coinciding with the calendar year).
It is possible to perform the aforementioned payments in 3 annual installments of the same amount with the first installment having the same deadline as above. The subsequent ones will expire within the deadline respectively provided for the balance payment of the income taxes relating to the two subsequent tax periods.
Furthermore, these amounts may be paid by offsetting other tax credits, pursuant to Legislative Decree no. 241/1997.
Statutory recognition of higher values on stepped up assets
As previously mentioned, the taxpayers may decide to opt for a “statutory” revaluation only: the higher values recorded in the financial statements will not be recognized for tax purposes and the taxpayer will not pay any substitutive tax.
In addition, the revaluation reserve disclosed in the net equity against the higher values attributed to the assets will not be “in tax suspension” and its use will not be subject to any restriction or tax adverse consequence.
This last aspect is very beneficial in case of realization of operating losses or in case of distribution to the shareholders. Indeed, the revaluation reserve, being freely available, can be used to cover operating losses without the need of its reconstitution and, in principle, can also be distributed without generating any taxable income in the hands of the distributing entity.
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