The 1st of January 2001 is the deadline for the conversion of Italian companies' share capital into the Euro denomination, pursuant to Art. 17 of Legislative Decree 24/06/98 no. 213, which enables the provisions of Law 17/12/97 no. 433.
The legislation is, for once, sufficiently precise. In particular, the Italian legislator has opted for the "bottom-up" translation system, so that in practice the shares will be converted by rounding to the nearest cent and the total share capital is determined by the multiplication of the individual share value by the number of shares issued.
The difference in value of the share capital after the conversion is then managed, in the event of a surplus, by augmenting it through available funds or reserves. In the event of a shortfall, the legal reserve is credited with the difference.
In order to assist companies in complying with the conversion requirements, a simplified procedure has been introduced, the fundamental elements of which are a recorded resolution of the Board of Directors (which has competence in this matter by way of an express derogation of Arts. 2365, 2376, and 2443 of the Italian Civil Code), filing and registration with the Register of Companies, and a report to the general meeting of the shareholders.
We remind our readers that the simplified procedure is not applicable to companies with shares having a par value of LIT200 or less, or to preferred shares.
From a fiscal point of view, in the event of a rounding-up that produces a surplus, the gratuitous increase in share capital and in the par value of the shares by means of utilising either reserves or special funds, does not constitute profit for the shareholders, pursuant to Art. 44 co. of the Single Act on Income Tax.
On the other hand, if the increase occurs by means of moving capital from reserves or funds other than those created from share issue premiums, from balance interest deposits by underwriters of new shares, gratuitous financing by shareholders to capital reserves or reserve funds, or from tax-exempt revaluation sales, any successive reduction of surplus capital in the amount corresponding to the movement of reserves is considered a distribution of profits, in as much as it involves the utilisation of reserves.
The rounding-down which produces a residue which is credited to the legal reserve is also a neutral operation for the shareholders.
Where the company proceeds to reduce the legal reserve by means of a distribution, however, then naturally the provisions on dividend taxation are applicable pursuant to Art. 41 et seq. of the Italian Income Tax Law, with proportional attribution to the amount rounded down - not taxable - and to the pre-existing legal reserves.
Another important step for corporations is the adoption of the Euro in all levels of business operations, which will become obligatory at the end of the transition period. In fact, it will become necessary to draft and publish all accounting documents that have some external relevance (e.g., Company Financial Statements, Prospecti, special communications to the public).
The comparative information contained in the accounting documents that are expressed in Italian Lire will have to be converted, while the balance of differences can be imputed to the reserve account.
During the transition period, banks, financing companies, insurance companies, listed companies and their controlled companies will also be allowed to begin drafting and publishing mandatory accounting documents having external relevance even before they have completely converted their businesses to the Euro.
As far as listed companies are concerned, we note that Legislative Decree no. 213/98 has introduced the so-called "total de-materialisation" of shares. In fact, according to Art. 28 I co. of the Decree, the securities traded or to be traded on the regulated markets cannot be represented in paper form. The recent regulation 15/09/98 of CONSOB (the Italian Securities Exchange Commission) defines the categories of operators admitted to centralised management (Art. 5), the approved securities (Arts. 3, 4), the forms for and procedures of issuing certifications provided under Art. 85 of Legislative Decree n. 58/98 (Arts. 14, 15), the formalities and the proper contents of the transaction recordings and book-keeping relative to centralised management, and other measures aimed at guaranteeing transparency.
For further information contact Studio Legale Sutti. www.sutti.com.
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.