Italy: Tax authorities clarify laws on customer list transfers from a company to a permanent establishment

On November 4 2019, the Italian tax authorities issued Ruling Answer No. 466, providing clarifications on the transfer of a customer list from an Italian company to a permanent establishment in Italy in the context of a joint venture project.

The case concerns an Italian company engaged in the business of moveable goods rental services. The company belongs to a group (Group A) that had implemented a joint venture project, consisting in a partnership with another group (Group B), which was aimed at realising strategic initiatives on the rental market.

The joint venture, by the incorporation of a permanent establishment (PE) in Italy, carries out the following two main activities:

• Brokerage of ICT assets rental contracts (activity sold by the company to the PE);

• Remarketing of goods after the rental period (activity sold by Group B to the PE).

The query of the company to the Italian tax authorities concerns the juridical and fiscal qualification of a customer list transfer to the PE, since it is not clear if such a transfer should be qualified as a going concern sale or a single asset sale:

• In the case of a going concern sale, any capital gain realised by the transferor would be subject to the Italian corporate income tax rate (IRES) but if the transferor has owned the going concern for more than three years then capital gain taxation can be spread over five years. No regional tax (IRAP) would be due and if capital loss arises, it would be deductible. In regard to indirect tax, going concern transfer is subject to 3% registration tax on intangible assets (including goodwill). Conversely, and as regards the Italian VAT, the transfer of a going concern is not subject to VAT (Article 2, paragraph 3, letter b, Presidential Decree No. 633/1972);

• In the case of an asset sale, in regard to corporate income tax (IRES) and regional tax (IRAP), the transfer would result in a taxable capital gain (or in a deductible capital loss) upon the seller should the sale price exceed (or be lower than) transferred assets fiscal value. In regard to the Italian VAT treatment related to the intangible assets transfer, as intangible assets transfer is considered as a service provision for VAT purposes (Article 3, paragraph 2, of Presidential Decree No. 633, dated October 26 1972) it would be subject to the 22% VAT rate should the purchaser be established in Italy for VAT purposes. The asset transfer is not subject to registration tax.

The company believed that the sale to the Italian joint venture of the customer list was to be qualified as a going concern sale: in fact, according to the company, the customer list was "functionally autonomous and suitable to perform brokerage services".

On the contrary, the Italian tax authorities, considering that the definition of going concern is provided by Article 2555 of the Italian Civil Code as "an aggregate of assets organised by the entrepreneur to conduct the enterprise", stated that the transfer of the customer list cannot, on its own, constitute a corporate organisational structure and, therefore, as it is a single asset, is not suitable to carry out a productive activity. In fact, customers (i.e. all the customers selected and acquired over time) represent a component of the goodwill value defined precisely as "customer list" which can be transferred even separately from the company, as it is subject to an independent economic assessment.

Such interpretation appears to be in line with the prevalent Italian jurisprudence, according to which a customer list transfer could be considered as a going concern sale only when such list is an "organic complex of organised elements having an autonomous potential productivity" (e.g. Italian Supreme Court No. 897, 2002 and Italian Supreme Court No. 206, 2003).

The answer issued by the Italian tax authorities on the customer list transfer seems to confirm the lack of a specific Italian guideline or law provision clearly stating when and based on which criteria single assets sales can be qualified into a going concern sale. The Italian tax authorities have not adopted a unique interpretation of the going concern concept during the year; quite contrarily, they have shown a rather fluctuating tendency on this matter. In addition, the orientation adopted by Italian courts, including the Supreme Court, has varied over the years.

In this context, single tangible or intangible assets sales between companies sometimes keep being re-qualified by the Italian tax authorities as a going concern sale, confirming a situation of uncertainty regarding this issue.

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