Benefit corporation: tax and legal framework of a growing phenomenon

The Law Decree no. 34 of 19 May 2020 (“Decreto Rilancio”) introduced a tax credit for the incorporation costs and for the costs related to the transformation into benefit corporation, incurred between 19 July 2020 and 30 June 2021. However, since the tax benefit could be extended, it is worth providing an overview on the topic.

The benefit corporation has been introduced in Italy (first State after the United States) by law no. 208 of 28 December 2015. The companies of such a kind, carrying out their activity, pursue both the profit sharing and the common benefit, which is the production of one or more positive effects or the reduction of the negative ones, on people, communities, territories and environment, assets and cultural and social activities, entities and associations and other stakeholders. Therefore, in addiction to the aim of profit sharing, the benefit corporations also pursue the social and public utility.

In relation to the legal form, the benefit corporation could be a share capital company, a partnership or a cooperative company.

The benefit corporation must comply with specific obligations.

Firstly, the common benefit purposes must be expressly specified in the company object (while there is the possibility but not the legal obligation to introduce in the company’s name the words “società benefit” or the abbreviation “sb”). The company, already established, shall become a benefit corporation after the introduction of the above mentioned specification in the company object, without the necessity of a shareholders’ resolution.

In order to prove the pursuing the common benefit, the benefit corporation must draw up an annual report which, according to Article 1, paragraph 382, law no. 208 of 28 December 2015, must contain:

“a) the description of the specific goals, the methods and the actions carried out by the directors for pursuing the common benefit and also the circumstances that have prevented or slowed down the pursue of the common benefit;

b) the evaluation of the produced impact through the external evaluation standards indicated by the Attachment 4 of Law no. 208 and comprehensive of the evaluation areas indicated in the Attachment 5 of Law no. 208;

c) a section dedicated to the description of new goals that the company aims to pursue in the subsequent financial year.”.

The annual report must be attached to the balance sheet. However, the legal auditor is not required to verify the annual report, as the auditing duties required to it are of different nature (1). If the company has a specific website, the annual report is published on it.

Pursuant to Article 1, paragraph 384, law no. 208 of 28 December 2015 (2), the benefit corporation must appoint a responsible person entrusted with the specific actions and duties for pursuing the common benefit. In accordance with the combined provisions of Article 1, paragraph 380 and 381, law no. 208/15, this person is appointed by the administrative body, which, in this choice, must thake into consideration the interests of both the shareholders and the beneficiaries of the company’s activity. With reference to its duties, the person in charge must: (i) ensure that the company’s divisions are involved in plan for the pursuit of the common benefit, (ii) support the directors by providing information in relation to the business, (iii) promote the transparency of the company’s results through its publication (3).

According to Article 1, paragraph 384, law no. 208/15, the benefit corporation which does not pursue the common benefit is subject to Legislative Decree no. 145/2007 with regard to misleading advertising and to Legislative Decree no. 206/2005 (Consumer Code).

In relation to the tax treatment, it is worth mentioning the deductibility of costs incurred by the benefit corporation in pursuing the common benefit. As known, by general principles, only the business-related costs – as necessary to make profits – can be deducted, while the deduction of personal costs incurred by the entrepreneur and/or the deduction of the external costs are not allowed. All the costs and expenses strictly related to the business are deductible (4). However, since (in addition to the pursuit of the profit) the pursuit of the common benefit is also part of the benefit company’s purpose due to a specific disposition of law, the deduction of the costs incurred by the company to pursue the common benefit, even if these costs are not directly related to the production of profits (which however could be increased by the improvement of the company reputation) (5), cannot be denied.

Strictly connected is the topic of the treatment as revenues of any sale of good or services carried out for not business-related reasons. This classification is allowed because the common benefit falls within the corporate object.

As mentioned, the Legislator has introduced a favourable tax treatment for the incorporation costs and for the costs related to the transformation into benefit corporation. The “Decreto Rilancio” has provided a tax credit to the extent of 50% of these costs, incurred between the date of entry into force (19 July 2020) and the 31 December 2020 (deadline extended to 30 June 2021 by law 77/20), establishing a fund equal to 3 million euros for the year 2020.

As of today, more than 500 benefit corporations are enrolled, many of which were incorporated or transformated during the lockdown (6). The tax benefit is expired but many are foreseeing that it will be extended. Regardless of the choice of the Legislator, the benefit corporation is interesting not only for the ESG (environmental, social and governance) issues, but also for its approach to business, which may result attractive for the new generations of consumers. It is necessary to know well the matter at issue, in order to properly amend the Article of Association and modify the business model, in such a way that all the deriving benefits and opportunities are exploited and enjoyed in compliance with the law and without risks of contestations.

Published by: Dott. Nicola Pardini

Ph: designed by Rawpixel

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(1)​ Tagliabue, Il modello “società benefit” nel contesto della pandemia, Cooperative e enti non profit, 2021, 3; Linee Guida sul Reporting delle Società benefit del Network Italiano Business Report, gennaio 2019.

(2)  Because of the silence of the law, the director could be appointed as the responsible for pursuing the common benefit. Nevertheless, it is not possible to appoint the entire administrative body because there could be a conflict of interests between controlling and controlled entities. Gallarati, Incentivi e controllo del mercato nella società benefit. Un’analisi economica e comparata, 2018/2, p. 824.

(3) Linee Guida sul Reporting delle Società benefit del Network Italiano Business Report,, january 2019.

(4)  According to Article 109, paragraph 5, d.p.r. 1986/917 “Expenses and other negative components other than interest expense, with the exception of tax, social security and utility charges, are deductible if and to the extent that they relate to activities or assets from which revenues or other income are derived that contribute to the income or do not contribute towards to the income because they are excluded.”.

(5)  Procopio, Il trattamento tributario dei costi relativi al sostegno delle società benefit, Diritto e pratica tributaria, 2017, p. 98.

(6) Tagliabue, Il modello “società benefit” nel contesto della pandemia, Cooperative e enti non profit, 2021, 3.