Resolution No. 57 of 07/09/2021 of the Italian Tax Authority has been published, with reference to the facilitation rules on the transformation into tax credits of deferred tax assets relating to tax losses and ACE surpluses, following and as a result of business combinations.
The relief introduced by the Budget Law
The relief (introduced by the 2021 Budget Law) allows certain deferred tax assets to be converted into a tax credit in the event of a business combination (merger, demerger or transfer of a business) between independent parties which is approved or resolved upon by the administrative body of the parties (or the transferor) by 31 December 2021.
The purpose of the tax relief is to encourage business combinations in order to reduce the competitiveness differential between small and large enterprises, which is very high in Italy compared to foreign countries.
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The clarification of the Italian Tax Authority
According to the interpretation of the Agency, the discipline can also be applied in the hypothesis in which the aggregation operations involve more than two subjects, because the same methods of calculation of the amount of deferred tax assets transformable indirectly refer to the case of participation of more than two subjects.
In the case of mergers and demergers, deferred tax assets are limited to 2% of the sum of the assets of the parties involved, without taking into account the party with the largest amount of assets (or 2% of the sum of the assets in the case of a contribution). In this case, the provision refers to a single business combination involving several parties, but the rules may also be applied in the case of several separate transactions approved or resolved upon by 31 December 2021.
Therefore, the rules apply irrespective of the number of corporate transactions carried out, implicitly admitting that the rules on the transformation of deferred tax assets into tax credits may also be applied in the presence of several corporate transactions involving several entities; The essential requirement is that the transactions are approved or resolved by 31 December 2021 and that the same asset can be used only once to determine the amount of the convertible deferred tax assets in each transaction (therefore, if in one transaction the assets of a participant have contributed to determine the amount of convertible deferred tax assets, the same asset cannot be considered in a subsequent transaction).
Merger between Alfa, Beta, Gamma, with Alfa as the incorporating company.
The benefit is available both in case Alfa incorporates the other two companies in a single transaction and in case the incorporation takes place through two separate transactions.
Therefore, irrespective of the number of transactions carried out and the parties involved, the benefit must be quantified by considering the transactions as a single aggregation transaction, in which the assets of the parties involved must participate only once in the determination of the convertible deferred tax assets.