The Finance Act 2014 clarifies the conditions that must be met to deduct losses on receivables. Under the Italian Income Tax Act, companies may deduct these losses only if they are evidenced by certain and precise facts (elementi certi e precisi). The Italian Tax Authorities and the Italian Supreme Court have very often taken a conservative approach and have rarely recognized the existence of such certain and precise facts. In particular, they have denied deduction of the loss deriving from the sale of a receivable for a price lower than its book value if the taxpayer could not give conclusive evidence that it could not collect the receivable from the debtor. Companies adopting IAS/IFRS to draft their financial statements were deemed to have fulfilled the condition for deductibility if they had properly written off (derecognized) the receivable according to IAS/IFRS. Finance Act 2014 amended the Italian Tax Act so as to extend this latter rule to companies that adopt Italian GAAP to draft their financial statements. Therefore, the Italian Income Tax Act now clarifies that certain and precise elements are deemed to exist if a company has duly derecognized the receivable from its balance sheet in compliance with Italian GAAP.
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