The fiscal regime of the so called "non operative" companies ("sham companies"), previously in force by virtue of article 30 of law 23rd December 1994,n.724, has recently received substantial modifications by Law 662 of 23rd December 1996 (Finance Act for 1997 year).

As known, Italian "non operative" companies tax rules can be considered such as anti - tax avoidance provisions, since they are mainly aimed to produce the following effects:

1) to submit "non operative" entities to taxation on the basis of a deemed profit;
2) to boost their liquidation with a favourable taxation both on the company's business income arose during the proceedings and on the grant of assets to the partners.

In this perspective, the rules of Law 662 of 23rd December 1996 (article 3, sub - paragraph from 37 to 45) seems to introduce a much more severe treatment if compared to the previous one because:

1) a broader range of companies seems to satisfy the conditions that lead to the "non operative" qualification;
2) also partnerships are now liable to be included in "non operative" company rules;
3) the favourable tax treatment in case of liquidation is now limited to those companies fully owned by individual.

The new regime can be briefly described as follows.


2a) Bodies Submitted To The Presumption Of "Non Operative" company.

Bodies which can fall into the category of "non operative" company are the following entities:

  • joint stock companies;
  • limited liability share companies;
  • limited partnerships and unlimited partnerships;
  • all non resident legal bodies that have a permanent establishment in Italy (1).

These entities are presumed to be "non operative" companies if the average of their ordinary business income (2), gained during the period considered and the two previous years, is lower than the gross income deemed on the basis of rates of presumptive income applied to the mean value of some assets related to the same periods and respectively stated in the percentage of: : ( a) 1% for participations and credits, b) 4% for real assets, c) 15% for other immobilizations.

Notwithstanding these conditions are fulfilled, the previously quoted subjects are however excepted from the qualification of "non operative" companies if one of the following circumstances occurs :

  • the form of share capital company is required by law for the particular activity carried on (3);
  • the subject is not considered to be in a normal period of activity (4);
  • the subject is in the first tax year;
  • the subject is in temporary receivership or extraordinary administration;
  • the subject is a body whose shares and securities are negotiated in official markets;
  • the subject is a company that carries on public transportation services.

2 b) Proof Contrary To Presumption

The so presumed identity of "dummy company" can be passed by a hard proof of the contrary, grounded on evidences that the lower level of income is due to extraordinary circumstances.
This evidence shall be brought to the tax Administration that must send the written request of information which is required by law for the legitimacy of the subsequent deemed profit assessment.


The qualification of non operative company implies that the net income of the current fiscal year to be declared in the tax return cannot be lower than the deemed net profit resulting from the application of the coefficient of presumptive net income of 0.75%, 3% and 12% respectively to the values that the above quoted assets (participations plus credits, real assets, other immobilizations) have in the period in progress.
Losses of former years are not deductible to the extent of the deemed profit.


4a) Income Tax Consequences

As said before, non operative entities must declare the minimum income above mentioned.
If a lower profit is declared, italian tax Administration can issue an assessment on the basis of the deemed profit, conditioned to the previously quoted request of information but saved any power to assess an higher business income that will be discovered also on the ground of presumptions.

4b) V.A.T. Purposes Consequences.

The formerly mentioned "non operative" bodies cannot be entitled to reimbursement of the V.A.T. credit resulting from the V.A.T. tax return of the fiscal year related to the period in which characters of non operative entity display.


In order to promote the liquidation of non operative bodies, some benefits will be provided if it is deliberated within 31st may 1997.
Benefits are granted both to the entity that is going to wind-up and to the partners when recipient their own share of assets.
It must be noted that the favourable tax treatment is limited to companies fully owned by individual , while all other "non operative" companies whose liquidation is however deliberated within 31st may 1997 shall be not beneficiary of it.
On the other and, while beneficiary companies shall nonetheless be taxed on the basis of deemed profit for the income arose until the start of liquidation, non beneficiary companies seem to be exempted from the minimum income tax if they deliberate the liquidation within that date.

5.a) Benefits For The Entity
As far as taxation of company profit is concerned, it is provided that the business income arose in the period between start and closing of liquidation shall be taxed with a 25% substitutive Tax in lieu of the 53,2% tax burden of IRPEG plus ILOR.
Funds and reserve which had been suspended from imposition once allocated in the balance sheet shall be levied with the substitutive 25% Tax too.
More detailed provisions are stated for particular funds (5).

5.b) Benefits For The Members
Relating to the members it is provided that the value of sums and goods received in consequence of liquidation, which are tax relevant income, are reduced of the amount corresponding to the net sums submitted to the substitutive 25% Tax, after taxation in respect of taxpayer company.

However, in the perspective of eventual appreciation of received goods arising from subsequent transfer the recognised tax value is determined on the basis of "arm's length" principle.

The above described tax benefits shall apply only in case they are expressly requested in the tax return related to the tax period after the liquidation.

5.c) Indirect Taxes
As far as indirect taxes are concerned, assignments of assets to the body's members are taxed at 1% rate of registration duty and are not relevant for VAT purposes.

5.d) Special Provision For Assignments Of Real Assets.

In case assignment has as object real estate, the "arm's length" value is determined on the basis of the application of coefficients provided by each law to the cadastral income of the asset.
In case this method is not applicable (because cadastral income has not yet attributed it shall be applied the principle of the value of similar property provided by article 50, 51, 52 of Registration Duty Consolidation Act.
In case of assignment of real assets to the partners, taxes are applied as follows:

  • Register: 1% tax rate;
  • VAT: non VAT is due;
  • mortgage and cadastral taxes: fixed sum of 150.000 ITL in lieu of 3% of the value of the asset;
  • INVIM (this tax has been abolished starting from 1st January 2003) : is reduced of 50%.

1) In this case the "non operative" body will obviously be the permanent establishment

2) The ordinary business income consists of profit resulting from balance sheet reduced of the "adjustment of financial assets value" and of "Extraordinary income" , respectively points D) and E) of Balance Sheet scheme as provided by article 2424 of the Civil Code.
3) For instance, enterprises in banking and financing fields.
4) For instance, companies involved in merger operations.
5) For example, active revaluation balances allocated by virtue of Laws 29th December 1990, n. 408 and 30th December 1991, n.413 are submitted to the lower tax rate of 10% but recipients are not entitled to the tax credit.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

For further information contact Luca Granelli of Gianni, Origoni & Partners, Milan on tel:+392 7600 9756, e-mail: dibella@galactica.it or enter a text search 'Gianni, Origoni & Partners' and 'Business Monitor'.