Article 110 of Decree Law No. 104 of 2020 contains a measure of great interest for companies, introducing the possibility to step-up the costs of tangible and intangible assets in the financial statements following that of the financial year as at 31 December 2019 (i.e. for companies with financial year matching the calendar year, the year ending as at 31 December 2020).
The step-up can be carried out by non IFRS/IAS adopters, namely:
b) commercial entities;
d) individual entrepreneurs;
e) non-commercial entities;
e) foreign entities with permanent establishment in Italy.
The step-up can be carried out to tangible assets, intangible assets and shareholdings in controlled and associated companies resulting from the financial statements for the year as at 31 December 2019 and still existing at the end of the following year.
Real estate and other immovable properties which are built or for sale are excluded.The step-up is to be carried out in the financial statements for the year 2020 and may also relate to a single asset and can be carried out solely for statutory purposes or even with a tax effect.
To obtain tax recognition of the higher values resulting from the step-up, the payment of a substitute IRES tax of IRAP at a rate of 3% is required.
The tax can be paid in three equal yearly instalments – without interest – starting from 2021 and is due within the deadline for payment of the balance of income taxes (i.e. June 2021 for companies with financial year matching the calendar year).
The stepped-up values must be recorded in a specific equity reserve.
If the step-up is carried out also for tax purposes, the reserve is subject to taxation in case of distribution to shareholders.
It is possible to remove, in whole or in part, the aforementioned restriction and make the reserve freely distributable by paying a substitute tax of 10% which can be paid in three instalments in the same terms as for the substitute tax on the step-up.
In the case of disposal of a stepped-up asset (through sale, assignment to shareholder and so forth) before the beginning of the fourth financial year following that of the step-up (i.e. before 1 January 2024), capital gains/losses are determined on the basis of the values existing before the step-up and the substitute tax paid in the meantime on the assets sold is credited as a tax credit.
IFRS/IAS adopters can opt for the realignment of the tax values up to the higher book values in the financial statements. Realignment is also allowed in relation to goodwill and other intangible assets resulting from the financial statements as at 31 December 2019.
To obtain the realignment, it is necessary to pay a substitute tax at a rate of 3% with the same deadlines seen for the step-up procedure.
In case of realignment (i.e. increasing the tax value of assets without a corresponding increase in their accounting values), there is no accounting impact on the equity of the taxpayer; thus a constraint must be placed on the company’s equity reserves equal to the tax values realigned.
This reserve is under a tax suspension regime and can be freed by paying a substitute tax of 10% with the same rules provided for the step-up procedure.
Lastly, according to some scholars, even in case of realignment a recapture measure like the one seen in case of the step-up procedure applies.
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