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Revaluation of business assets and equity investments in 2020

January 28, 2021

GIACOMO CARNAGO, Associate Partner
CLAUDIO DEL GUERCIO, Manager Tax & Global Services
Kreston TDL, Italy 

With the conversion of Law Decree 104 dated 14 August 2020, which took place on 13 October 2020, it will be possible to proceed with the revaluation of business assets and equity investments, as well as the realignment of tax values.

  • Subjects that can proceed with the revaluation: Resident corporations and public/private entities carrying on a business activity and adopting national accounting standards, as well as partnerships carrying on a business activity, sole subject companies, resident non-commercial entities and non-resident entities with a permanent establishment in Italy.
  • Assets subject to revaluation: Each tangible and intangible asset, as well as each equity investment in subsidiaries and associates under the provisions of article 2359 of the Italian Civil Code, entered as a fixed asset in the financial statements for the financial year ending 31 December 2019. Therefore, there is no longer an obligation to revalue all assets belonging to the same homogeneous category. Immovable property assets for business activities involved in the production or exchange of such assets are excluded.
  • How to proceed with the revaluation: It is possible to make a revaluation only for civil law/accounting purposes, with subsequent strengthening of capital, or also with fiscal acknowledgement of the higher values against the payment of a 3% substitute tax (payable in three annual instalments). Although not prescribed by the law, it is advisable to back up the revaluation with estimates or appraisals (preferably drawn up by third-party professionals), also to support the reports of directors and auditors who must show the criteria that were used, as well as certify that the value falls within the limits described under article 11 of Law 342/2000.
  • Effective date of revaluation: The revaluation can be made in the financial statements for the year ending 31 December 2020. If acknowledged for tax purposes, the higher values will be acknowledged from the following period (2021). If the revalued assets are sold (e.g. sold for a money consideration, allocated to shareholders, etc.) before 31 December 2024, the tax basis of the relative capital gains/losses will be calculated on the value of the asset before the revaluation.
  • Accounting aspects: The acknowledgement of higher asset values will be matched by the acknowledgement of a revaluation reserve in net equity. If the higher asset values are acknowledged for tax purposes, the reserve will be considered tax deferred. However, it will also be possible to release this reserve by paying a substitute tax of 10% of the revaluation surplus.
  • Realignment of tax values (also for IAS adopters): The possibility of realigning tax values to the higher book values acknowledged in the financial statements following the one in progress as of 31 December 2019 (31 December 2020 for ‘solar’ entities) is provided for. This opportunity is available not only to OIC adopters, but also to IAS adopters. The realignment is completed through the payment of a 3% substitute tax, which must be matched by the restriction of an equity reserve in suspension of taxation for an amount corresponding to the freed-up value. This reserve may be freed up as described above.