COMPANY BENEFIT: TAX CREDIT FOR FORMATION OR TRANSFORMATION EXPENSES
The tax benefit
Article 38-ter, entitled “Promotion of the benefit companies system“, of Legislative Decree 34/2020 (so-called “Relaunch Decree”, whose conversion law no. 77/2020 was definitively approved last 16 July), provides that benefit companies established or transformed during 2020, specifically from 19 July to 31 December 2020, enjoy a tax credit equal to 50% of the expenses incurred.
This measure is aimed at supporting the strengthening, throughout Italy, of the benefit company system, as per Article 1, paragraphs 376 et seq. of Law no. 208 of 28 December 2015.
Benefit companies (the ones actually recorded in Italy about 270) are profit-making companies which may take one of the different corporate forms allowed in Italy (partnerships, corporations, or cooperatives). In order to make profits, benefit companies are aimed at improving the environmental and social context in which they operate. Practically, through benefit companies, economic results are combined with the need to satisfy different interests from those of the shareholders, through responsible and sustainable use of the resources necessary to carry out the production process.
Benefit companies are therefore characterized by the dual purpose and the identification of the common benefit in the statutory clauses. Article 1, paragraph 376, Law no. 208/2015 states that this kind of company in the exercise of its economic activity, “beyond” the lucrative or mutualistic purpose, “also” pursues one or more purposes of common benefit to be indicated in its corporate purpose, operating in a responsible, sustainable and transparent way towards all stakeholders. According to the above-mentioned law, stakeholders are people, communities, territories and environment, cultural and social assets and activities, bodies and associations, and other stakeholders who are in any case involved in the business activity.
Set-up and transformation of the benefit company
For the set-up or transformation of an ordinary company into a “benefit” company, it’s necessary to provide for some specific clauses in the articles of association, first of all with regard to the corporate purpose, in which the aims of common benefit to the exercise of economic activity and to stakeholders must be identified.
Criteria must be defined to identify one or more persons responsible for the pursuit of the common benefit to be entrusted with functions and tasks aimed at achieving the purposes indicated; moreover it must be pointed out that among the duties/powers of the directors include balancing the interests of the shareholders with the pursuit of objectives of common interest and with the interests of the categories indicated in the corporate purpose.
Benefit companies are required to prepare an annual report on the pursuit of the common benefit, which must be attached to the company’s financial statements and published on the company’s website.
Why becoming a benefit company
Benefit companies represent a new way of doing business. The acquisition of the status of benefit company brings numerous advantages for stakeholders, the company, customers and suppliers, shareholders and management, among which we can mention:
- redefinition of management responsibility: the need to legitimize the pursuit of purposes other than profit protects the actions of directors from possible responsibilities towards the company and its shareholders;
- strengthening the rights of shareholders and investors: the legal form of benefit company gives investors the certainty that a company will retain responsibility for pursuing its mission in the future and this can help companies to attract investment capital;
- reputational strengthening: the opportunity to be a pioneer in change and to bring value to the community and the environment leads to important reputational recognition;
- attracting young talents: increasingly more young workers want to be part of something bigger, something virtuous, and benefit companies are a strong attraction for these workers, who can feel an active part of the change;
- greater access to private capital investment: the legal form of benefit company is more attractive to investors, as it offers greater legal protection, as well as responsibility and transparency in pursuing its mission;
- increased attractiveness to retail investors: benefit companies offer an investment opportunity for informed consumer segments that already pay attention to sustainability, organic, fair trade, and short and transparent supply chains.
Methods and criteria of benefit
A specific tax credit is now recognized on the expenses for the “set-up” of the benefit company and those for the “transformation” of an ordinary company into a benefit company. The tax credit relates to reference costs (notary fees, taxes and charges during the incorporation phase, professional advice, etc.) incurred during incorporation or transformation.
These expenses must be incurred in the period from 19 July to 31 December 2020. The tax benefit, in the form of a tax credit equal to 50% of the expenses incurred, is recognized until the maximum amount allocated of 7 million euros, to be used as compensation through the F24 model from 1 January 2021.
Article 38-ter, paragraph 3, also provides for an additional endowment fund (for a total of 3 million) for the year 2020 aimed at promoting this type of company.
For more specific details on the application of the new provisions, it will be necessary to wait for a specific decree of the Ministry of Economic Development (the so called “MISE”), in agreement with the Ministry of Economy and Finance (the so called “MEF”), to be issued within 90 days from the date of entry into force of the conversion law, i.e. towards mid-October 2020. The decree will specify and clarify limits, methods and criteria for the implementation of the facilitation rule for benefit companies.
LDP Tax & Law is available to provide more information on benefit companies and to discuss the possibility of establishing a benefit company or transforming an ordinary for-profit company into a benefit company.