The split through demerger, introduced by article 2506.1 of the Italian Civil Code, effective from March 22, 2023 and applicable from July 3, 2023, allows for the transfer of part of a company’s assets to one or more new companies, assigning the shares (or quotas) of the newly formed beneficiary company not to the shareholders of the split company, but to the split company itself, as in contribution transactions.
Following this new legislation, the transfer of a business unit as well as individual assets and liabilities from the split company to a newly formed beneficiary company can occur either through a contribution transaction or a split operation.
As provided by law, the split through spin-off cannot be carried out by companies in liquidation that have already started distributing their assets. Furthermore, the reduction of the opposition period for creditors from 60 to 30 days does not apply if the split company and the beneficiary company, or companies, are not joint-stock companies.
Unlike the split under article 2506 of the Civil Code, the split through spin-off:
- does not involve an exchange ratio, and therefore the expert report on its adequacy is not required.
- there is no requirement for a report from the administrative body that explains and justifies the legal and economic aspects of the transaction.
Although the tax aspects of the operation are not expressly regulated, it is believed that the split through spin-off falls within the scope of the tax neutrality regime (article 173 of the Income Tax Consolidation Act) and the fixed-rate registration tax (article 4 of the Registration Tax Consolidation Act) provided for split transactions. This would represent a novelty for “spin-off” operations that until now could only be carried out in the form of a contribution transaction, which, except in the case of a contribution of a business or control or connection interests, involves the realization of the contributed assets at their normal value for income tax purposes and the application of proportional registration tax. In addition, the application of the tax regime for splits to the spin-off operation automatically transfers to the beneficiary company a portion of the tax attributes (losses and excesses of passive interests and of ACE) accrued by the split company in proportion to the transferred net assets, and the limitations provided by article 173, paragraph 10 of the Income Tax Consolidation Act do not apply since the beneficiary company must be newly formed.
The choice between “demerger” and “conferment” should not give rise to abuse under Article 10-bis of Law no. 212/2000, as both operations appear to be physiologically suitable for transferring assets to a newly constituted company wholly owned by the transferor. The same Article 51, paragraph 3 of Legislative Decree no. 19/2023 (which introduced Article 2506.1 of the Italian Civil Code) confirms this interpretation, stating that the new provision allows companies to transfer assets and liabilities to one or more newly constituted companies, “also using the legal framework of scission”, i.e. as an alternative operation to conferimento.
The tax value of the participation assigned to the split-off company following scorporo should be determined by applying the criteria contained in Article 176, paragraph 1 of the Italian Income Tax Consolidation Act (TUIR), i.e. by transferring the tax value of the share of net assets attributed to it onto the newly issued participation of the beneficiary. In the case of scorporo, in fact, the tax value of the participation held in the beneficiary is created ex novo, which should coincide with that attributable to the share of net assets split off, in line with the neutrality of the operation.
If there were a subsequent sale of the participation in the beneficiary, the following scenarios would apply:
- demerger involving business units: it is reasonable to assume that, for tax purposes, given that it is an operation under the continuity principle of tax values, it would be possible to immediately benefit from the PEX regime provided for in Article 87 TUIR;
- demerger concerning non-business activities: in most cases, due to the absence of commercial activities carried out by the newly constituted beneficiary, the participation would not meet the requirements for PEX treatment, and therefore the capital gain resulting from the sale would be subject to ordinary taxation.
Any subsequent sale of the participation, even if aimed at a subsequent merger with the acquiring company, would therefore not lead to any potentially undue tax benefit that could be contested under Article 10-bis of Law no. 212/2000.
For stamp duty purposes, the operation would be evaluated using the same interpretative criteria adopted by recent case law in relation to the conferimento of a business unit followed by the sale of the participation, in light of the amendments introduced to Article 20 of the Italian Stamp Duty Act by Article 1, paragraph 87, letter a) of the 2018 Budget Law. Under these amendments, the duty is applied according to the intrinsic nature and legal effects of the deed presented for registration, to be determined based on the elements deducible from the deed itself, regardless of any extratextual elements or deeds related to it.
The amendments to the Italian Civil Code regarding scission, as of 3 July 2023, will have a positive impact on corporate reorganization operations. However, we hope for a clarifying intervention by the Tax Administration that will allow any interpretative doubts regarding the tax aspects of the operation to be resolved.