The Italian tax law provides for a special tax regime (“realizzo controllato”) in case of contributions where the transferee (e.g. an individual) acquires the control of the contributed company (e.g. company A contributes the totality of the shares in Company C to Company B and Company B thereby acquires a controlling interest in Company C).
According to such Italian special tax regime (“realizzo controllato”), in order to determine Company A’s gain, for tax purposes, reference must be made to the increase in Company B’s equity as a result of the contribution. In other words, Company A’s taxable capital gain is the difference between:
- the equity increase of Company B, and
- the tax basis of the shares in Company A’s accounts.
In other words, if there is no equity increase in B, no taxable capital gain arises in the hands of the contributor A.
Please note that such regime applies also if the contributor is not Italian resident (the transferee and the contributed company must be Italian resident companies, according to the most widespread opinion).
Recently, such special tax regime was extended to cases in which the receiving company does not acquire a controlling interest in the transferred company, provided that the contributed shares represents a “Qualifying participation” (i.e. more than 2 percent of the voting rights or 5 percent of the capital, in the case of participations in listed companies; more than 20 percent of the voting rights or 25 percent of the capital, in the case of other participations).
However, such extension suffers several limitations.
Firstly, the special tax scheme does not apply, if there are several transferees and neither in the event of a joint contribution. There must be a single contributor in a single company.
Secondly, the extended regime applies only if the contributed company carries out an effective business activity. For example, such regime does not apply if the contributed company is real estate company.
Thirdly, if the contributed company is a holding company the extended regime applies only if the holding company holds a Qualifying participation in each of the companies owned.
Finally, in order to benefit from the Italian participation exemption regime on future sales, the minority shareholdings contributed, inter alia, must be held by the transferee company uninterruptedly from the first day of the 60th month (60 months) preceding the month of the sale (instead of the ordinary holding period of 12 months).
In summary, the Italian “realizzo controllato” regime can be a very useful tool, especially for individuals who want to re-organize the companies they own, by contributing them into a holding company, in a very efficient way. However, it is a very complicated regime and great attention must be put to details, in order to avoid tax risks.