Instrumental real estate, subsidized operations also for the rented company

Deductibility of costs for structural interventions

The costs paid by the tenants to adapt shops, warehouses and offices to Phase 2 protocols are deductible (and VAT is deductible).

The necessity of operations

The social distancing of employees and customers and the increased need for ventilation and remote connection will in the very short-term result in a “remodeling” of workspace, with significant burdens on real estate. It will very often be the tenants of the premises who will have to bear the burden, both because these interventions are necessary for the pursuit of professional or business activity and because they must be carried out with extreme urgency. On the other hand, the owner, who may have had to accept a deferment of payments or a temporary reduction in rent, may be reluctant to bear these costs.

The Agency’s objections

In the past, the Italian Tax Authority has often challenged the deductibility by the tenant of the expenses related to interventions on the buildings, criticizing them from the point of view of the pertinence and legal ownership to support them. According to the Italian Tax Authority, the tenant, by incurring in expenses of an extraordinary nature and therefore not pertinent to him, would make a sort of “donation” to the owner and, for these reasons, it would be illegitimate to deduct the cost, as well as the related VAT.

The orientation of jurisprudence

The orientation of jurisprudence is very different: the Italian Supreme Court on several occasions (ex multis, let us cite Order no. 11907/2019) has reiterated that, beyond the civil law distinction between “ordinary” and “extraordinary” expenses and the obligations arising from the contract, the correct approach must look at the usefulness of the expenses incurred and their connection with the business or professional activity. In essence, therefore, it does not matter who is the owner of the property and who would theoretically have the legal title to bear the expense, but rather the fact that the costs are incurred in order to achieve the best performance of the business or professional activity and to increase its profitability and result from the accounting documentation.

How best to protect yourself

In order to avoid any possible dispute, it is advisable to formalize in writing, with a firm date, the owner’s consent to the interventions and any derogation from the contractual and Italian civil code-based rules relating to the incurring of expenses. It is also advisable to avoid references to “exchanges” between work to be carried out and reduction of the rent, which, for tax purposes, could be qualified as a barter.

LDP is willing to prepare all the documentation necessary to enable the company to comply with the legal requirements for the deductibility of costs incurred.