Italy: Italian recent fiscal opportunity: Optional revaluation of fixed assets

This regime applies to corporations and other public, private entities and partnerships that carry out commercial activities and adopt the national accounting standards. It also applies to sole proprietorships, non-commercial and non-resident subjects with a permanent establishment in Italy. (art.73, par. 1, lett. a), b) TUIR) 

In order to support the capitalization of enterprises heavily affected by the Covid-19 pandemic, the stepup can be limited to the accounting value without tax consequences. Where enterprises are also interested in stepping-up the tax basis of the assets, a substitute tax of 3% is due. The payment of the substitute tax can be executed in up to three installments, the first of which is due upon payment of the balance tax related to the fiscal year in which the revaluation is carried out. The remaining installments are due upon payment of the balance tax related to the subsequent fiscal years. 

The revaluation balance must be imputed to a special equity reserve, which can be distributed upon payment of a 10% substitute tax. If the revaluation is for accounting purposes only, there is no tax liability on the revaluation balance. 

When enterprises opt in for the 3% substitute tax, the tax consequences of the step-up in terms of deductible depreciations and amortization start running from the fiscal year following the one in which the revaluation is carried out. This means that enterprises can step-up the value and tax basis of the fixed assets resulting from their 2019 balance sheet in the 2020 financial statements and fiscally deduct higher depreciations and amortizations starting from fiscal year 2021.

In addition, the step-up can concern single assets and it is no longer necessary that a whole homogeneous category of assets is revaluated. Non-fixed assets are excluded from the step-up option. 

Finally, IAS-adopter corporations can opt for a realignment of the tax basis of fixed assets with their accounting value, if higher, by paying the same 3% substitute tax. In such case, being just a step-up of the tax value, there is no effect in terms of recapitalization nor revaluation balance to be imputed to an equity reserve. However, a special regime of tax suspension is imposed on existing equity reserves for an amount corresponding to the step-up, which implies that the distribution of such reserve triggers the payment of a 10% substitute tax. 

Otherwise, the higher values recorded in the financial statements will not be recognized for tax purposes, and no substitutive taxes shall be paid. The revaluation reserve will not be “in tax suspension” and its use will not be subject to any restriction or tax adverse consequence. This last aspect is very beneficial in case of realization of operating losses or in case of distribution to the shareholders. Indeed, the revaluation reserve can be used to cover operating losses without the need of its reconstitution and, in principle, can also be distributed without generating any taxable income in the hands of the distributing entity.

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