LED Taxand summarizes hereinafter the main tax news regarding Italian real estate for the second quarter of the year 2020.
Law – Law Decree no. 23/2020 (“Decreto Liquidità”) – Article 6-bis. Free revaluation for entities operating in the hotel and SPA sector.
Article 6-bis of the Law Decree no. 23/2020, so-called “Decreto Liquidità”, converted with amendments by the Law no. 40/2020, provides for the possibility for companies (including public and private entities) operating in the hotel and SPA sectors (which do not adopt International Accounting Standards, IAS/IFRS) to revaluate the company assets (excluding real estate assets whose production or exchange the company’s activity is directed) resulting from the financial statements as at 31 December 2019.
The revaluation must be made in one or both financial statements of the two subsequent financial years to the one as at 31 December 2019 (i.e. 2020 and/or 2021) and must concern all the assets belonging to the same category. No tax is due on the higher values booked. The higher value is considered recognized for tax purposes starting from the financial year in which the revaluation is performed. The surplus resulting from the revaluation must be allocated to share capital or in a specific reserve. This surplus can be recognized, even partially, for tax purposes with the application of a substitute tax of 10%.
In case an asset revaluated is sold before the start of the fourth financial year following the one in which the revaluation was made, the capital gain and loss are determined on the cost of the asset before the revaluation.
For IAS/IFRS entities, it is also possible to realign the tax values of assets to the financially reported values. However, this possibility should be limited to the same cases envisaged by the revaluation described above.
Law – Law Decree no. 23/2020 (“Decreto Liquidità”) – Article 12-ter. Deferral of the deadline related to the step-up of real estate assets.
Article 12-ter of the Law Decree no. 23/2020, so-called “Decreto Liquidità”, converted with amendments by the Law no. 40/2020, extends the deadline for the step-up of business assets, including immovable properties and shareholdings, which result from the balance sheet related to 2018, set forth in article 1, para. 696-704, of the Budget Law 2020.
The step-up must be made pursuant to the conditions set forth by the Budget Law 2020 in the balance sheet related to 2020, 2021 and 2022 for calendar year companies.
Therefore, the higher value is subject to a substitute tax equal to 12% for depreciable assets and 10% for non-depreciable assets (e.g. land). For calendar year companies such higher value is recognized starting from the third financial year following the one in which the step-up is carried out while – for the determination of the capital gains or losses – it shall be carried out starting from the fourth financial year following the one in which the disposal has been made.
In addition, if the realignment of the lower tax values of business assets with their higher accounting values has been made, the higher values of real estate assets must be recognized for tax purposes from 1st December 2022, 1st December 2023 or 1st December 2024.
Finally, a 10% substitute tax is also due in order to freely distribute the equity reserve booked for step-up purposes.
Case Law – Italian Supreme Court decision 5 June 2020 no. 10701. The Joint Session of the Supreme Court to decide on the statute of limitation related to multi annual charges.
The Italian Supreme Court asked the Joint Session to decide on the statute of limitation related to multi annual charges, such as the depreciation of the cost of a real estate asset or the instalments related to the tax incentive for real estate renovation. According to article 43 DPR 600/1973, tax assessments must be served by December 31 of the fifth year following the one in which the tax return has been filed. The Joint Session of the Supreme Court will decide if the 5-year term starts (i) from the tax return related to the fiscal year where the multi annual charge accrued and was booked for the first time in the financial statement or (ii) from the tax return where it is indicated the single part in which the multi annual charge is divided. In the second scenario, the Italian tax authorities could challenge, within the mentioned 5-year term, also the deductibility of the depreciation indicated in the tax return related to the thirty-third year from the purchase (considering that the cost of the real estate assets is generally depreciated in 33 years).
Revenue Agency’s guidelines – Reply to Tax ruling no. 141/2020. The AIFM, as manager of a real estate fund, does not qualify as construction or refurbishment enterprise for the purposes of the tax incentive for real estate renovation.
The Italian tax authorities clarified the definition of construction or refurbishment enterprise for the purposes of the tax incentive for real estate renovation under article 16-bis, paragraph 3, Income Tax Code. Specifically, the Revenue Agency clarified that the definition of construction or refurbishment enterprise for the purposes of the mentioned tax incentive: (i) includes not only the enterprises that directly carry out construction or refurbishment works but also the enterprises that, although capable of carrying out such works, outsource them to third parties; (ii) does not include the AIFM as manager of a real estate fund, because it is not entitled to directly carry out construction or refurbishment works; (iii) it is different from the definition of construction enterprise for VAT purposes. The tax ruling under comment is not in line with the answer n. 904-5/2019 of the Lombardy Regional Office, which qualified the AIFM managing a real estate fund as construction or refurbishment enterprise for the purposes of the mentioned tax incentive.
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