A few weeks after our previous article, it is time to come back to the topic of the step-up of business assets.
The recent publication of the interpretation document no. 7 “Accounting aspects of the revaluation of company assets and shareholdings” by the OIC (“Organismo Italiano di Contabilità“, which is the Italian Accounting Standards Board) has provided important clarifications on the scope of the step-up discipline.
We would like to focus on the assets not recorded in the balance sheet. This is, in fact, one of the most discussed issues by insiders, given the importance of such case for many companies.
In particular, we consider below two classes of assets:
- Intangible assets that have never been recorded in the balance sheet.
- Assets that have already completed the depreciation/amortization process and have therefore a book value equal to zero.
For both classes, the OIC has provided a definitive opening to an extensive interpretation of the regulatory provisions, as described in detail below.
The step-up of business assets that have never been recorded in the balance
An example: a company has developed a trademark internally and has recorded all related costs directly to the P&L. The same considerations potentially apply to costs relating to other kinds of legally protected intangible assets such as licenses, patents, etc.
The standpoint of the OIC is quite clear. The fifth paragraph of the interpretation document no. 7 literally reports: “Intangible assets that are still legally protected at the closing date of the financial statements in which the revaluation is carried out can also be revalued, even if the relative costs, although capitalizable in the balance sheet, have been charged entirely to the profit and loss statement“.
A restrictive interpretation of the rule, reports the OIC in the technical notes, would lead to an unjustified disparity of treatment based only on the application in the past of a different accounting model.
We remind that intangible assets that do not constitute legally protected rights (i.e., capitalised long-term costs, goodwill, expired trademarks and patents, etc.) are not eligible for the step-up.
From a tax point of view, the extensive view provided by the OIC seem to have also been accepted by the Italian Tax Authority, which, in a recent response to a ruling (no. 956-343/2021), confirms the feasibility of the step-up of intangible assets never recorded in the balance sheet also for tax purposes.
The Italian Tax Authority based its response on the existing close correlation between the accounting rules and the correspondent tax qualification.
Fully depreciated assets in the step-up of business assets FY20
The OIC standpoint about the feasibility of the step-up for fully depreciated assets is positive. In fact, the interpretation document no. 7 reports that: ” […] Assets that meet the definition of tangible assets pursuant to OIC 16 and intangible assets pursuant to OIC 24 can therefore be revalued, even if they are fully depreciated.”
In this sense, it is clear that for the OIC the main requirement must be sought in whether the asset effectively belongs to the company’s assets and still has a verifiable value for the business.