The tax liability of the transferee for transferor’s tax debts
A recent Order of the Supreme Court (no. 7545 of 17 March 2021) provides an opportunity to dwell on the liability regime of the transferee of business concern, for tax debts attributable to its transferor.
The tax liability regime
As known, this regime is governed by article 14 of Legislative Decree no. 472/1997, which distinguishes between a subsidiary and limited liability (paragraphs 1 to 3) in the event of a lawful transfer and a joint and unlimited liability in case of operations carried out to defraud the Treasury (paragraph 4).
The first case (the subject of this intervention and the aforementioned Order) envisages a liability of the transferee that is limited as follows:
- for the transferor’s tax debts, which refer to violations committed in the tax period in which the transfer took place and in the two previous ones, as well as those already imposed and contested in the same period, regardless of the tax period in which they were committed (time limit)
- within the limit of the value of the going concern transferred (value limit)
- subject to the benefit of prior enforcement of the transferor (procedural limit).
In addition, the second paragraph envisages a quantitative limit, equal to the total value of tax challenges already made to the transferor company and resulting from a tax clearance certificate issued by the Italian Tax Authorities at the time of the transfer. In order to benefit from this limitation, the transferee has the burden of requesting from the Italian Tax Authorities this certificate which shows (i) the debts crystallized but not yet satisfied by the transferor, (ii) the pending tax challenges but still not defined between the latter and the Italian Tax Authorities, (iii) the ascertainment of violations that have not yet been formalized in a notice of assessment or payment injunction. Where this amount is less than the value of the transferred business, it represents the maximum quantitative limit of the transferee’s liability.
And so, in the event that no tax debts emerge from the certificate, it will provide “the transferee with full discharge of any tax liabilities “. The same effect is obtained if the Italian Tax Authorities do not issue the certificate within forty days from the date of the request (paragraph 3).
Obligation to enforce the transferee only when the transferor is unable to pay (Beneficium excussionis)
The liability regime contemplates the obligation of prior enforcement of the transferor; this means that, although qualified as “joint and several”, the transferee’s liability can indeed be asserted by the Tax Authorities only after having unsuccessfully (in whole or in part) concluded the executive phase against the transferor, then challenging against the former any residual credit which has remained unpaid.
In this sense, it is considered that the Tax Authorities must prove that they have carried out the aforementioned executive action or the impossibility of proceeding against the transferor, for example, due to a lack of assets.
Order no. 7545 of March 17, 2021
In the case under examination, the transferor company, debtor to the Treasury, had been cancelled and extinguished prior to the issue of an enforceable title .
The Tax Authorities stated the enforcement procedure directly against the transferee company, which contested the payment notice objecting, inter alia, to (i) the voidness in the enforceable title because it was issued to a party that no longer existed (the transferor company that had been extinguished) and (ii) the failure to enforce the principal debtor in advance, pursuant to the beneficium excussionis.
The Supreme Court has thus decided on the exceptions raised:
- the enforceable title must be issued in the name of the party that is the debtor of the taxes claimed, “regardless of whether or not the same is, at the time of such registration, still in existence“, and therefore it is irrelevant that in this case the debtor company was extinct in the meanwhile;
- if, in principle, it is true that, in order to observe prior enforcement, the Tax Authorities must prove that they have not been able to satisfy themselves out of the assets of the transferor, before being allowed to enforce those of the transferee, it is equally true that, where the insufficiency of the debtor’s assets has been demonstrated by other means, even for a partial compensation of these credits, it is not necessary to take executive action to provide the same type of proof.
Having stated these principles, the Supreme Court ruled in favour of the Italian Tax Authorities.
What is important to highlight, for the purposes of this commentary, is that the beneficium excussionis, placed in favour of the transferee, cannot be abused for defensive purposes, and the prior enforcement procedure against the transferor is not necessary where it is, in any case, possible to demonstrate that the latter is unable to fulfil its tax debt.
The extinction of the transferor company represents a clear cut proof of the insufficiency of debtor’s assets and, therefore, a logical cause triggering the the transferee responsibility and direct enforcement.
The regime here described constitutes a legal and mandatory effect of the transfer of a business concern, because it is set up to protect a public interest, i.e. the tax credits of the Treasury.
However, this does not prevent the parties from regulating their private relationships in such a way that the transferor undertakes to indemnify the transferee against these kind of claims , raised by the Tax Authorities for tax debts which the latter has not incurred.
It is therefore advisable, at the time of the transfer of a going concern, to put in place all the technical measures (from drafting specific clauses in the transfer contract to the provision of special guarantees or tailored insurance policies of which the transferee is qualified as the guaranteed party or the beneficiary) that allow the transferee to limit its financial exposure, in the event of enforcement of this tax liability by the Italian Tax Authorities.