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“August Decree”: revaluation (step-up) of corporate assets

  • Italy
  • General

07-09-2020

Background

The Italian Government has repeatedly issued special regulations aimed at allowing the revaluation of corporate assets, lastly by means of the so-called “August Decree” (see art. 110 of Law Decree August 14, 2020, no. 104).
The revaluation consists in the possibility of stepping-up the value of certain company assets for civil law and accounting purposes and, upon payment of a substitutive tax, for tax purposes as well.
Companies adopting International Accounting Standards with reference to the preparation of the financial statements cannot carry out the revaluation at stake.

“August Decree”

“August Decree” provides for the possibility of carrying out in the financial statements as at December 31, 2020, the revaluation of corporate assets, giving the taxpayer the option to choose among the following alternatives:

  • carrying out the revaluation only for civil law and accounting purposes (in this case no substitutive tax will be due); 
  • carrying out the revaluation also for tax purposes (in this case a 3% substitutive tax will be due).

Revaluation applies to tangible and intangible assets (excluding immovable properties held for trading purposes) and to participating interest, held as at December 31, 2019.
It is worth noting that the revaluation applies to both depreciable and non-depreciable assets and, what matters most, the revaluation can be carried out in respect of single assets and not necessarily in respect of all those of the same kind (as required by all the previous regulations related to the revaluation of corporate assets).
The revaluation takes fiscal relevance upon payment of a 3% substitutive tax (which has to be remitted in a maximum of three annual instalments of the same amount).
In case of revaluation relevant also for tax purposes, the higher values recorded in the financial statement will be recognized starting from FY 2021 for:

  • the calculation of the deductible depreciations;
  • the calculation of the deductible maintenance costs
  • the shell companies’ rule.

If the revalued assets are sold, the higher values are recognized for tax purposes only starting from FY 2024.
The positive revaluation balance must be set aside in a special reserve that, in case of revaluation with tax relevance, will be considered as a tax-suspended reserve; taxpayers have the option to redeem such reserve by paying an additional 10% substitutive tax (which would allow the distribution of such reserve without triggering a taxable event in the hands of the company).

Conclusions

The revaluation at stake is particularly attractive both for companies which are interested in revaluating corporate assets only for civil law and accounting purposes (so as to reflect the current values of the assets in the financial statements, thus facing the possible losses due to the ongoing pandemic), and for companies which are interested in revaluating corporate assets also for tax purposes, in consideration of (i) the particularly low rate of the substitutive tax, (ii) the fiscal recognition starting from FY 2021 of the revalued values for the calculation of the deductible depreciations, and (iii) the possibility of revaluating single corporate assets, without the need to revaluate all those of the same kind.

 

 

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