The Italian Supreme Court’s decision no. 18117 of 24 June 2021 allows us to reflect again on the liability of the transferee of a business concern for the transferor’s tax debts. It delineates two different scopes of application, whose extension (lesser or greater) would depend respectively on the request or not of the certificate provided for by Article 14 of Legislative Decree no. 472/1997.
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Tax liability of the transferee of a business concert for tax debts of the transferor
This regime is governed by Article 14 of Legislative Decree no. 472/1997 (hereinafter “Article 14”), which distinguishes a joint, subsidiary and limited liability (paragraphs 1 to 3) in case of lawful transfer and a joint and unlimited liability for transactions carried out instead in fraud of Tax Laws (paragraphs 4 and 5).
The first case (which is the subject of this intervention and of the above mentioned order) provides for a liability of the business transferee limited as follows:
- to the tax debts of the transferor, which refer to violations committed in the tax period in which the transfer took place and in the two preceding ones, as well as to those already imposed and challenged in the same period (including the tax audit reports not yet notified but for which the audit is closed), regardless of the tax period in which they were committed (time limitation),
- within the limit of the value of the transferred business or branch of business (value limitation),
- subject to the benefit of prior enforcement of the transferor (procedural limitation) (see para. 1),
- for the amount of the debt resulting from the records held by the Tax Authorities at the date of the transfer (quantitative limitation) (see para. (2)).
From the wording of the first two paragraphs it appears that the transferee is liable only for the transferor’s debt “resulting, at the date of the transfer, from the records of the offices of the tax authorities” (paragraph 2) and not, generically, for all those which refer to the tax period of the transfer (paragraph 1).
The “Certification of the existence of disputes in case of transfer of business” ex Art. 14
In order to be aware of such debt, the third paragraph provides that the offices of the Tax Administration must issue, upon request of the transferor or transferee, a certificate showing (i) the debts crystallised but not yet satisfied by the transferor, (ii) the disputes pending but not yet settled between the transferor and the Tax Administration, (iii) the violations challeged by tax audit reports which have not yet been notified . This is, in essence, the evidence of the potential overall debt exposure, as it results “from the records of the offices” of the Tax Administration.
In the event that no outstanding debts or disputes emerge from the certificate, it will have “full release effect on the transferee“. The same effect is obtained if the Tax Administration does not issue the certificate within forty days from the date of the request (paragraph 3).
The order in comment describes the effects on the transferee’s liability if the latter does not request the certificate under Art. 14(3).
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Order No. 18117 of 24 June 2021
In the case at hand, the transferee company acquired the business concern in 2006, without requesting the certificate referred to in Art. 14. It was served with payment notices for debts of the transferor, relating to the previous three years (i.e. 2004), but assessed after the transfer, i.e. in 2007.
The company therefore pleaded that there was no legal basis for the liability under Article 14, consisting in the fact that the debts had to result “from the records of the offices of the Tax Administration“, “on the date of the transfer“, whereas such debts could not have resulted from any records of the Tax Administration on the date of the business tranfer, since they were challenged afterwards.
The Supreme Court, hearing the case, premised on (i) the special nature of Article 14 with respect to Article 2560, paragraph 2, of the Civil Code and (ii) its alleged “anti-avoidance feature“, and held that it had to extend the joint and several liability of the transferee also to violations “committed” in the three-year period, although “ascertained” at a date subsequent to the transfer of the business.
In fact, it held that in order to limit its liability up to the “date of transfer“, the transferee has the burden of requesting the certificate ex Art. 14; on the contrary, “If the transferee does not comply with such diligent conduct, a sort of “strict liability”, “a blank liability“, of the transferee itself derives, with reference to all the tax debts of the transferor relating to the “three-year period” preceding the transfer, even if at the time of the transfer they are not challenged yet, anchoring such liability precisely to the omissive conduct of the taxpayer“.
The Supreme Court therefore concluded that Art. 14 contemplates two distinct hypotheses of lawful joint and several liability: the first, provided by paragraph 1, relating to taxes and penalties already challenged to the transferor or referable to violations “committed” in the three-year period regardless the moment they are challenged (therefore even after the transfer date); the second, limited only to debts resulting from the records of the offices of the Tax Administration, at the date of the transfer of the business, only if the transferee “has previously communicated the transfer of business to the Tax Administration, with a specific request for certification of the debt position of the transferor” (paragraphs 2 and 3).
The conclusions reached by the Supreme Court do not seem to be agreeable, for the following reasons:
- from a literal point of view, the text of Art. 14 does not place any burden or obligation on the transferee: para. 1 identifies in abstract terms the violations and the relevant tax periods, including obviously also the one in which the transfer takes place, for which the transferee may be jointly and severally liable with the transferee; para. 2 unconditionally circumscribes the object of such liability “to the debt resulting, at the date of the transfer, from the acts of the offices of the financial administration“;
- from a teleological point of view, the request for the certificate appears to be an option of the transferee (who may obtain a picture of the potential debt for which he may be liable), which instead corresponds to a real obligation of the Administration: this is confirmed by the full release effect that the failure to issue, within 40 days from the request, produces;
- moreover, providing for two different extensions of the transferee’s liability, depending on the request for the certificate and on compliance with an alleged duty of diligence, does not respond to the protection of any fiscal and public interest, but probably conflicts with the constitutional principle of equality;
- from a systemic point of view, just as in Article 2560 of the Civil Code the accounting records have the constitutive effect of civil debts, for which the transferee is jointly and severally liable, so, in parallel, the same constitutive effect of the transferred tax debt must be recognised to the “records kept by the Tax Administration“, which are its legal grounding prerequisite, and not to the certificate, which is only a picture of the debt carried by these same acts at certain period of time.
If this is the position of part of the Supreme Court case law (contra Cass. Civ. Sent. no. 17264 of 13 July 2017), it is deemed that there are valid reasons to disagree on the presence of such a burden on the transferee and that the perimeter of its liability should be limited to the debt emerging from the records of the Tax Authorities, not beyond the moment of the transfer of the business concern.
These considerations make it possible to clarify the position taken in the previous paper, in which it was said that it would be the taxpayer’s burden to request the certificate under Article 14, in order to benefit from the limitation to the objections already made to the transferor of the business and resulting from the acts of the tax authorities at the time of the transfer.