The Italian Central Revenue recently examined the case of a company (Alpha) owned by a plurality of individuals, whereby only a few members were interested in taking care of the business dynamics (Ruling No. 170 issued on June 9 2020).
As this high ownership fragmentation appeared to affect the corporate effective management, Alpha controlling shareholders took the decision to incorporate a new holding company (Holding) to which their shares (cumulatively representing 57.28% of Alpha share capital, therefore the majority stake) would be contributed. In return, Alpha shareholders would receive a corresponding stake in the new company. As a result of this transaction, the Holding will possess a 57.28% share in Alpha, still representing the absolute majority of the voting rights exercisable in the Alpha shareholders’ meeting.
Prior to enactment of this restructuring, Alpha shareholders decided to file an official request of clarification (ruling) to the Central Revenue, aimed at obtaining an opinion on whether this transaction could violate the Italian abuse of law provisions. Moreover, they asked clarifications on which should be the correct tax treatment, both for direct and indirect perspectives, of the whole operation.
The Central Revenue officially replied recognising that the envisaged restructuring would basically be aimed at improving the governance within the group without breaking any abuse of law provision. As a matter of fact, the entire transaction would not result in any unlawful tax advantage under both direct and indirect tax standpoints.
With particular reference to direct taxation, Article 177, paragraph 2 of the Italian Tax Code would be applicable to the case, resulting in a ‘neutrality regime’ whereby no taxable capital gain would arise upon those Alpha shareholders making the contribution to the Holding.
In regard to indirect taxes, only €200 ($225) fixed registration tax would be due. Furthermore, this transaction would not be subject to the financial transactions tax (FTT) set forth by Article 1, paragraphs 491 to 500, Law No. 228 dated December 24 2012 and Ministerial Decree dated February 21 2013. In particular, the contribution of a controlling stake into another company is not subject to FTT provided that the following conditions set forth by Article 4, paragraph 1 letter (b) of Directive No. 2008/7/EC are met:
The company receiving the contribution must obtain a stake attributing the majority of the voting rights exercisable in the shareholders meeting of the company the shares of which are transferred; and
The contributing party (i.e. the controlling shareholders of Alpha) must receive in return, at least in part, a corresponding share of the company benefiting of the contribution.
Finally, the Central Revenue clarified that it is out of scope of the ruling any judgment concerning the valuation techniques adopted to determine the tax value of the contributed shares: in fact, the shares value (relevant for tax purposes) can only be assessed in the course of dedicated inspection activities by the competent local tax office.
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