Revaluation of corporate assets: the various opportunities for companies

In the so-called “August” Decree (Law Decree no. 104/2020), among other measures supporting the economy, there is one of particular interest for Italian companies: the possibility, provided for in Art. 110 of the above-mentioned Decree, of revaluing corporate assets at a very low cost.

The revaluation, unlike previous ones, can also be performed for single identified assets, as long as they result from the balance sheet for the current year as at 31 December 2019. In any case, the revaluation must alternatively concern tangible fixed assets or intangible fixed assets, if they consist in legal protected rights (such as industrial property rights or trademarks), or long-term equity investments in subsidiaries or associated companies. On the contrary, goodwill and multi-year costs cannot be revaluated.

Given the abovementioned objective sphere of application, Art. 110 of the August Decree provided for two different kinds of revaluation, with different benefits.

Firstly, the companies can opt for a revaluation “only for accounting purposes” which, at no cost, can allow the company to increase its net worth, creating a revenue reserve which may potentially be used to cover losses or be distributed among shareholders through specific procedures.

Alternatively, there is the possibility to opt for a revaluation for fiscal purposes, that, this year, is particularly favorable for a number of reasons.

In the first place, the company will be required to pay a substitute tax of only 3% on the greater value of the revaluated assets so that the revaluation is relevant for the purposes of direct taxation. Thus, the savings are twofold:

• capital gains (on revaluated value) will not arise if the asset is sold at least four years after the revaluation (in the absence of which, capital gains would be taxed at a rate of approximately 27.9%, where regional income tax is applicable);
• the greater value can be depreciated starting from the year following the one when the revaluation was performed (also from this point of view, this new provision appears particularly favorable, especially if compared with the previous revaluations occurred over the years, which always provided that the tax relevance was deferred by at least 3/4 tax periods).

In case of “fiscal” revaluation, the positive balance will be recorded in a special tax-suspended reserve which, where the company wants to distribute it, could be “released” by paying an additional substitute tax of 10%on the greater values attributed to the revaluated company’s assets. In this case, the distribution will not generate further fiscal costs for the company (only the shareholders will be taxed under ordinary tax provisions in respect of the amount distributed). On the contrary, if the reserve from fiscal revaluation is not “released”, and later its distribution is deliberated, it will be added to the company’s taxable income (after deduction of the paid substitute tax, according to legal literature, or gross of the substitute tax, according to the Revenue Agency).

Of particular interest to anyone who would take into consideration the hypothesis of revaluating business assets is the circumstance that, while, as said, the distribution of the values “generated” through the fiscal revaluation is particularly onerous, this is not the case if the assets are revaluated for accounting purposes only.

In this case – as already specified by the Revenue Agency in case of revaluations that (mutatis mutandis) had the same characteristics – only the shareholders are subject to taxation on the revaluation positive balance (if distributed). In fact, this is a revenue reserve that is exempt from taxation when recorded and is never included in the company’s taxable income. Moreover there are cases (such as the revaluation of assets of partnerships or sole proprietor business) where the distribution of the positive balance is irrelevant for tax purposes also for the percipients.

As resulting from the above, it is evident that this provision may give rise to considerable and various opportunities for Italian companies that, in this particular historical moment, may find it particularly useful to increase their capital resources in order to cover the losses arising from the current pandemic, generating (or not) amounts deductible from taxable income. It is also possible to see opportunities regarding the M&A operations: a company can generate distributable “profits” before the transaction in order to achieve, if necessary, a pushdown of the debt on the target (with a reduction of the purchase price), that is fiscally advantageous and perhaps alternative to the merge, otherwise necessary in this kind of operations.

Author: dott. Paolo Visconti

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