Prepared by Elena Robicci, Nancy Saturnino and Silvia Agostinetto
With the entry into force of the Law Decree no. 18 of March 17, 2020 (the “Decreto Cura Italia”)[1] and the Law Decree no. 34 of May 19, 2020 (the “Decreto Rilancio)[2] – hereinafter also the “Decrees” – a number of important tax incentives were introduced into the Italian law.
In particular, the mentioned Decrees have introduced into the Italian law some tax incentives connected with both investment expenditures (e.g. eco and sismabonus) and current expenditures (e.g. rental fees for non-residential premises). These tax incentives apply to households or companies, are due on the basis of a percentage of the expenditure incurred (which in some cases reaches as much as 110%) and are provided in the form of tax credits or tax deductions (which can be converted into tax credits upon option).
The tax incentive measures mentioned above have extended the perimeter of the tax credits that can be purchased from third parties (e.g. companies and financial intermediaries, etc.), including insurance companies. In particular, the tax credits may be used by insurance companies to offset taxes and contributions, in accordance with the same rules as those applied to the original beneficiary, or they may be further transferred (in whole or in part) to third parties.
Considering the peculiarity of the tax credits introduced by the aforementioned Decrees (e.g. rental fees for premises not for residential use and eco and sismabonus), on March 24, 2021 the Institute for the Supervision of Insurance (hereinafter referred to as IVASS or the Supervisory Institute) published a clarification on the treatment of the aforementioned tax credits for the purposes of their registration among the assets covering the technical reserves[3], the inclusion of the tax credits among the assets for the calculation of the return of the separate management schemes[4] and the accounting treatment in the financial statements[5].
In particular, with the aforementioned clarification the Supervisory Authority has clarified the following:
- given the prohibition for insurance companies to provide direct financing to natural persons and micro-companies pursuant to the article 38, paragraph 2, of the Insurance Code, insurance companies can only purchase tax credits from the original beneficiary, natural person or micro-business, at the time when the credits have accrued for the transferor;
- the tax credits introduced by the aforementioned Decrees may be recorded among the assets covering the technical provisions if the investment portfolio, as a whole, complies with the criteria of safety, quality, liquidity and profitability and is consistent with the risk profile and duration of the liabilities of the insurance company pursuant to the article 4, paragraph 2, of IVASS Regulation no. 24/2016;
- if the tax credits are eligible to cover the technical provisions in the sense clarified above and are suitable to generate a remuneration, they can be included among the reference assets for the calculation of the return of the separate management schemes pursuant to the art. 9 of ISVAP Regulation no. 38/2011;
- for the purposes of preparing the annual financial statements, for insurance companies that apply the national accounting standards[6], the following accounting treatment is envisaged:
- the tax credits shall be posted to the item E.III of the assets “Other receivables”;
- the related income and charges must be entered under income statement items III.7 “Other income” and III.8 “Other charges”, respectively. The income, also for the purpose of determining the average rate of return of the separate management schemes, are shared on the basis of the effective interest rate calculated at the time of initial recognition of the tax credit in accordance with the provisions of OIC15 (at amortised cost method). Following the initial recognition, the company reviews its estimates of future cash flows, with particular reference to the capacity of its debt position with the State, and if necessary, it adjusts the value of the tax credits.
The IVASS concludes the interpretative clarification by specifying that the companies must define suitable governance and risk management policies and processes so as to ensure that the plafonds for the purchase of the tax credits are determined on the basis of the current and prospective debt position with the tax authorities, thus avoiding the purchase of an amount of credits that is not consistent with the debts that can be used for compensation.
[1] Converted into law by Law no. 27 of April 24, 2020
[2] Converted into law by Law no. 77 of July 17, 2020
[3] Pursuant to IVASS Regulation no. 24 of June 6, 2016
[4] Pursuant to ISVAP Regulation no. 38 of June 3, 2011
[5] Pursuant to ISVAP Regulation no. 22 of April 4,2008
[6] For companies that apply international accounting standards, reference should be made to Banca d’Italia/Consob/Ivass Document no. 9 “Table of coordination between Banca d’Italia, Consob and Ivass regarding application of IAS/IFRS”.
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