The draft of Irpef-Ires Decree introduces important innovations regarding the transfer of shares (Article 177 of the TUIR) aimed at improving and rationalizing the tax discipline of the transfer of both controlling shares (paragraph 2) and qualified minority shares (paragraph 2-bis). Before proceeding with the analysis of these innovations, which are not yet definitive, it is deemed useful to carry out – in this first article – an examination of the current discipline as well as of some aspects that are currently problematic.
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Transfer of shares: the current situation
The operation of transfer of shares through contribution represents a realization operation assimilated to an onerous transfer. This entails the application of Art. 9 of the TUIR (so-called “ordinary regime” of the fair value) with the emersion of a possible capital gain (or loss) resulting from the difference between:
- Fair value of the shares or quotas contributed, and
- Tax cost/value of the shares or quotas contributed.
In case of a positive value (meaning a fair value exceeding the tax relevant value [also known as fiscally recognized cost), a capital gain is generated; otherwise, a capital loss. Subject to specific requirements, the current Italian legislation provides for the application of some derogatory facilitation regimes for the determination of the (possible) income of the contributing entity. Of interest, the derogatory controlled realization regime is applicable in the following cases:
- 177, paragraph 2, TUIR: in case of transfer of shares allowing the acquisition of control or the integration control due to a legal obligation or statutory constraint over the transferred company;
- 177, paragraph 2-bis, TUIR: in case of transfer of qualified minority shares made through contribution and provided that the company receiving the contribution is a single-member company, meaning entirely owned by the contributor [introduced by the Growth Decree, DL 35 of 2019].
Controlled realization and induced neutrality: effects
If the controlled realization regime applies, the consideration is determined based on the value of the equity items of the company receiving the contribution resulting from the contribution’s operation (generally, the value will coincide with the one of the contribution participation recorded in the balance sheet of the company receiving the contribution). Therefore:
- the capital gain will be equal to the difference between:
- Value of the contribution participation recorded in the balance sheet of the company receiving the contribution (e., increase in Net Equity in relation to the contribution), and
- Fiscally recognized cost of the participation in the hands of the contributor;
- the capital loss will be determined in accordance with Art. 9 of the TUIR.
The current regulation outlines a valuation criterion for the contributed participation directly linked to the accounting behaviour adopted by the company receiving the contribution (and therefore, controllable).
This derogatory regime is precisely defined as a controlled realization regime because through the increase in Net Equity, the company receiving the contribution can control (or rather, pre-determine) the emersion of a capital gain/loss and the related tax effect.
If the increase in Net Equity is equal to the fiscally recognized cost of the participation, the operation would be perfected in a context defined as of induced neutrality.
The integrative transfer of majority/controlling shares (paragraph 2)
Currently, the transfers of shares which fall under the scope of Article 177, paragraph 2, TUIR are the ones in which, at the end of the transfer, the transferee:
- acquires a controlling interest (in terms of having a majority of the voting rights exercisable at the ordinary assembly), or
- increases, by virtue of a legal obligation or statutory constraint, the percentage of control in the exchanged company.
Therefore, transfers of shares that increase control (simply in terms of voting rights) in the exchanged company without being the result of an increase due to a legal obligation or statutory constraint are currently excluded from the favourable regime under discussion.
Transfer of qualified minorities (paragraph 2-bis)
Since the end of June 2019, Article 177 of the TUIR has been integrated with paragraph 2-bis concerning the transfer of qualified minority interests.
Specifically, in order for the transfer of a minority interest to benefit from the facilitated regime of controlled realization, the following conditions must be jointly satisfied:
- the transferred interests are of a qualified minority (meaning they confer 20% of voting rights at the assembly or 25% of the share capital/assets, reduced to 2% and 5%, respectively, in case of listed companies);
- the qualified minority interests are transferred in an existing or newly established company wholly owned by the grantor (the company receiving the grant must therefore be a single-member company, generally a holding company).
In light of the above, under the current wording, the facilitated derogatory regime excludes the granting of qualified minority interests in multi-member companies (including family holdings).
Demultiplier effect (“Effetto demoltiplicatore”) and PEX (paragraph 2-bis)
Two important aspects related to the discipline of the exchange of qualified minority interests concern:
- the so-called “demultiplier effect” (if the transferred company can be classified as a holding); and
- in the event of the transferring company, the extension to 60 months of the term (ordinarily 12 months) provided for by art. 87, paragraph 1, letter a) of the TUIR for the purposes of applying the PEX regime in case of disposal.
Demultiplier effect
In the event of a transfer of holdings, the percentages of qualified minority interests must be verified with reference to all indirectly held companies engaged in commercial activities. In carrying out this verification, it is necessary to consider the demultiplier effect produced by the ownership chain (since the indicated percentages must be exceeded for all companies indirectly held by the holding company engaged in commercial activities). It is therefore necessary to check if each indirectly held interest by the transferring entity in the commercial company held by the exchange holding meets the percentage requirement provided for by the regulation.
The difficulties in the current wording of this provision, in addition to being related to the lack of a clear definition of a holding company (as the regulation merely refers to the concept of a “company whose activity consists exclusively or predominantly in acquiring holdings” [“società la cui attività consiste in via esclusiva o prevalente nell’assunzione di partecipazioni”] without providing actual quantitative parameters or regulatory or practice references), lie in the exclusion from the facilitative regime of transfers of qualified minority interests where, in the ownership chain of the transferee, even if only a marginal interest that does not meet the quantitative limits is identified downstream (e.g. in the last level of the chain).
Upcoming news
The facilitated regimes commented above, in their current formulation, have some aspects and elements that limit their effective use in the event of complex operations. As a consequence, the application of said provisions is in some cases rather restricted if not even rigid.
The upcoming new dispositions of possible future introduction (whose content, perhaps in the final version of the decree and not in the one subject to possible modification by the competent authorities, will be the subject of a forthcoming article) seem to address many situations of uncertainty, doubt, or rigidity.