The 2021 Budget Law has introduced the possibility of aligning the tax value of goodwill and other intangible assets, even if devoid of legal protection, to the higher accounting value disclosed in the financial statements as at 31 December 2019, by paying a 3% substitute tax (Article 1, paragraph 83 of Law No. 178 of 30 December 2020).
The option to step up the assets value, for companies adopting the Italian accounting standards, as well as, also for companies preparing their financial statements in accordance with IAS-IFRS, to align tax values to the higher statutory values, was introduced by Article 110 of Decree Law No. 104 of 14 August 2020, with reference to company assets resulting from the financial statements in progress as at 31 December 2019. In particular, companies may elect to step up the assets value, also for tax purposes 1, or to realign the values recognized for tax purposes to the higher values recorded in the financial statements, by paying a 3% substitute tax. The revaluation, or realignment, must be made in the financial statements of the fiscal year following the one in progress as at 31 December 2019 (i.e., 2020 financial statements for calendar-year companies).
Since the revaluation, or realignment, must refer to “assets”, goodwill and in general intangible assets without legal protection were considered excluded from the scope of application of the revaluation. With the specific provision introduced by the 2021 Budget Law – which added a paragraph to Article 110 of the abovementioned Decree Law 104/2020 – it is now possible to realign 2 the tax value of goodwill resulting from the financial statements as at 31 December 2019, by paying a 3% substitute tax, which is significantly lower than the rates introduced in the past.
In particular, it is possible to obtain tax recognition of any misalignments whatsoever existing between the accounting value and the tax value of goodwill (and other intangible assets, if any), generally arising from merger transactions, with allocation of the deficit to goodwill, or from tax-neutral contributions of business.
On the basis of the wording of the law, goodwill arising from extraordinary transactions carried out during 2020 would be excluded from the realignment regime.
The 3% substitute tax to be paid in order to obtain tax recognition of the value of realigned goodwill is applied to the difference between the statutory value and the tax value of the same, in the amount existing in the 2020 financial statements. The realignment is recognized for tax purposes from the fiscal year following the one in which it is carried out (i.e. from 2021) and therefore, starting from that fiscal year, the amortization of the realigned value is deductible for tax purposes (the higher amount is instead recognized from 2024 for capital gain tax purposes).
As a consequence of the realignment, a specific equity reserve must be subject to the tax suspension regime, for an amount corresponding to the higher values realigned, net of the substitute tax (in case equity reserves are insufficient, a corresponding portion of the share capital must be tied up). The tax-suspended reserve may be released, in whole or in part, by paying an additional 10% substitute tax. Otherwise, the reserve, if distributed, will be included in the taxable income of the distributing company 3.
1 This is without prejudice to the possibility of carrying out the revaluation solely for statutory purposes. In this case, the higher values are not recognized for tax purposes and therefore the substitute tax does not have to be paid.
2 On the contrary, goodwill cannot be revalued.
3 In such a case, the ordinary tax regime on dividends would be applied to shareholders.
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.