Tax Obstacles Concerning the Transfer of Non-Incorporated
Businesses from One Generation to Another
Italy
Author:
Paolo Vignando
Anna Chiara Battagli
Associazione Nazionale Tributaristi Italiani
[email protected]
[email protected]
1
INTRODUCTION
3
2
TRANSFER INTER VIVOS
5
2.1 SALE
5
2.1.1 INCOME TAXES
5
2.1.1.1 The ordinary tax regime (art. 54, of Presidential Decree No. 917, dated
December 22, 1986, hereinafter “DTC")
6
2.1.1.2 The deferred taxation of capital gains (Art. 54, para. 4, DTC)
8
2.1.1.3 The lump-sum taxation of capital gains (Legislative Decree dated October
8, 1997, No. 358, hereinafter “L.D. 358/97”)
9
2.1.1.4 The separated taxation regime (Art. 16, DTC)
9
2.1.1.4 Payment modalities
10
2.1.2 INDIRECT TAXES
12
2.1.2.1 Registration Tax
12
2.1.2.2 Cadastral and mortgage tax
14
2.2 TRANSFER FREE OF CHARGE: GIFT
14
2.2.1 INCOME TAXES
14
2.2.1.1 The ordinary regime
15
2.2.1.2 The regime of the "tax neutrality"
16
2.2.1.3 The mechanism of "fiscal continuation"
16
2.3 INDIRECT TAXES
17
2.3.1 CIVIL LAW : PRINCIPLES
17
2.3.1.1 Registration Tax
18
2.3.1.2 VAT
21
2.3.1.3 Cadastral and mortgage tax
21
3
MORTIS CAUSA TRANSFER
21
3.1 INCOME TAXES
3.1.1 THE MECHANISM OF “FISCAL CONTINUATION”
3.1.1.1 Quality of the transferee
3.1.1.2 Formal procedure and reasons for the choice
3.1.1.3 Administration
3.2 INDIRECT TAXES
3.2.1 CADASTRAL TAX
3.2.2 MORTGAGE TAX
21
22
23
23
23
23
24
24
4
24
CONCLUSION
1
5
BIBLIOGRAPHY
26
6.
APPLICATIONS
29
2
TAX OBSTACLES CONCERNING THE TRANSFER OF NON-INCORPORATED
BUSINESSES FROM ONE GENERATION TO ANOTHER
ITALIAN REPORT
***
1
INTRODUCTION
This document has the aim to analyse the tax aspects of the transfer of individual
enterprises.
Before entering into the argument, it is convenient to describe the Italian scenarios in
where individual enterprises are situated.
The individual enterprise - as opposed to incorporated enterprise - is of small or
medium size: in Italy, there is no general definition regarding the small or medium-size
enterprise (hereinafter “SME”) but only a number of definitions that each time are
adapted to every single case.
In the Italian civil law(1), the SME - which is allowed to publish its yearly statement of
account in a concise form - is meant to designate those enterprises that do not exceed
the following limits:
- number of employees (average per the year): 50;
- yearly turnover: 6.250.000 €;
- total assets of the balance sheet: 3.125.000 €.
In Italy, the 94,8% of the SME are qualified as “very small enterprises” with less than
ten employees; “small enterprises” represent the 4,64% (between 10 and 50
employees) and “medium enterprises” (between 50 and 250 employees) represent the
0,47% of SME.
As far as the fiscal law, in occasion of a Financial Law(2), the Tax Authorities stated
that as far as the definition of SME is concerned it is necessary to consider what the
Ministry of Industry and Commerce declared referring to the European Community.
(1) Art. 2435 bis Italian Civil Code: “Companies may draw up the annual accounts in an abbreviated form
when, in the first fiscal year or thereafter, for two subsequent fiscal years, they have not exceeded two of
the following limits:
a) total assets in the annual accounts: 3.125.000 euro;
b) revenues from sales and services: 6.250.000 euro;
average employees occupied during the fiscal year: 50 unit”.
3
According to the Ministry of Industry and Commerce3, the SME are those enterprises
where:
- the number of employees is smaller than 250;
- the yearly turnover is not higher than 40 million of Euro, or where the yearly total of
balance is not higher than 5 million of Euro;
- is considered “independent” enterprise, provided that the capital and the right of
votes are not owned by an enterprise for more than 25%, or together by more
enterprises non SME.
As far as the Small Enterprises (SE), according to the Ministry of Industry and
Commerce, those are where:
- the number of employees is smaller than 50;
- the yearly turnover is not higher than 7 million of ECU, or where the yearly total of
balance is not higher than 5 million of ECU;
- is considered “independent” enterprise, provided that the capital and the right of
votes are not owned by an enterprise for more than 25%, or together by more
enterprises non SME.
***
Firstly, we shall consider the transfer inter vivos concerning an individual either
transferred without charge (donation) and either transferred with valuable
consideration.
Secondly, we shall consider those rules to be applied to the transfer as a consequence
to death.
We would like to take in evidence that until October 23, 2001, donations were
subject to a gift tax following progressive tax rate varying as a function in conformity
with the importance of the donation and with the degree of the relationship between
the donor and the donee. The gift tax was applied to all assets transferred, whatever
their nature (tangibles, intangibles, stocks…).
On October 24, 2001, Act No. 383, known as “100 Days Act” was published in the
Italian Official Gazette. The “100 Days” Act, in force since October 25, 2001:
(2) Law December 27, 1997, n. 449.
3
See Ministerial Decree, dated September 18, 1997.
4
2
§
repealed inheritance tax, save for the filling of the inheritance tax return with
specific reference to immovable property and other immovable rights(4);
§
replaced gift taxes ordinarily levied on purchase and sale transaction (i.e.:
registration tax).
TRANSFER INTER VIVOS
The transfer inter vivos of an individual enterprise raises essentially the problem of the
taxation of capital gains.
Another relevant problem is the one concerning the transfer of liabilities. In particular,
with reference to tax liabilities(5), it is expected a joint and unlimited responsibility of
the transferor on the transferee.
In the Civil Law, the transfer of liabilities, whatever its modality, requires the creditor's
agreement(6).
2.1
SALE
2.1.1
Income taxes
In this section, we will underline the peculiarities of the valuable consideration transfer:
on one hand, taxation may be affected by the duration of the possession of the
enterprise; on the other hand, by the fact that the transferor held only the transferred
going concern (consequently, he loses the quality of entrepreneur; with relevant tax
effects) or, two or more business activities.
The following table shows the different applicable tax regimes.
Time of possession
N. of business activities
hold by the entrepreneur
N. of business activities
hold by the entrepreneur
(4) The inheritance tax return has to be filled in only if the inheritance includes properties and/or rights
concerning properties located in Italy.
(5) Art. 14, Legislative Decree December 18, 1997 states that the transferee is joint and several responsible
with the transferor in order to the tax liabilities.
(6) Art. 2560 of the Italian Civil Code: “Debt of a transferred business: The transferor is not released from
debts incurred in the operation of a transferred business prior to the transfer, unless it is shown than the
creditors consented to such release.
In the transfer of a commercial business, the transferee is also liable for such debts, if they are shown in
the mandatory accounting books”.
5
Sole Business activity
More than 5 years
•
•
•
From 3 to 5 years
•
•
Less than 3 years
•
Ordinary tax regime (Art. •
54, DTC)
Lump-sum tax regime •
(Legislative Decree, n.
358/1997)
•
Separated taxation regime
(Art. 16, DTC)
•
Ordinary tax regime (Art. •
54, DTC)
Lump-sum tax regime •
(Legislative Decree, n.
358/1997)
•
Ordinary tax regime (Art. •
54, DTC)
Two or more business
activities
Ordinary tax regime (Art.
54, DTC)
Deferred Tax regime (Art.
54 p. 4, DTC)
Lump-sum tax regime
(Legislative Decree, n.
358/1997)
Separated taxation regime
(Art. 16 DTC)
Ordinary tax regime (Art.
54, DTC)
Deferred Tax regime (Art.
54 p. 4, DTC)
Lump-sum tax regime
(Legislative Decree, n.
358/1997)
Ordinary tax regime (Art.
54, DTC)
In the following pages, we will clarify the peculiarities of each of the above mentioned
tax regimes.
2.1.1.1
The ordinary tax regime (art. 54, of Presidential Decree No. 917, dated
December 22, 1986, hereinafter “DTC")
2.1.1.1.1
As to the transferor
The ordinary regime is always applicable, especially to all those cases where
preference tax regimes can not be applied.
This ordinary tax regime is characterized by:
§
the existence of a capital gain that has to be verified on the basis of the net
book value including the total amount of all those assets and liabilities that
compose the transferred going concern, and not considering each single asset
transferred;
§
a taxable capital gain, resulting from the difference between the selling price
and the acquisition or investment value reduced by depreciations and decrease
in value previously admitted.
6
According to the provisions of the ordinary tax regime, those capital gains deriving
from the transfer of the going concern are wholly taxable in the tax period when the
transfer occurred(7). For fiscal purposes, the capital gain realized in occasion of a
transfer of a business activity increases the global business taxable income, that is
taxed on the basis of the ordinary tax rate(8).
This tax regime is convenient if the taxpayer can offset the capital gain in case of
previous fiscal losses.
The Revenue Office can assess the income declared by the seller within December 31
of the fourth year subsequent to the fiscal year in which the relative tax return has been
filed.
These capital gains are taxable either as capital gains obtained during the period of the
business activity or as capital gains obtained in occasion of the ceasing of the business
activity.
§
The regime of capital gains obtained during the activity
Under the ordinary tax regime, the taxation of capital gains is based on the
following rules:
§
capital gains are taxed fully rate, without application of the deferred tax
regime, when the amount is the result of the transfer of business
activities that, at the time of transfer, are held by less than three years9;
§
the taxable person may choose an immediate taxation at the ordinary
rate(10) or a regime of deferred taxation( 11) for those capital gains
deriving from the transfer of the going concern acquired since more
than three years;
§
capital gains are taxed immediately at full rate, if the taxable person
does not choose the deferred taxation of capital gains realized trough
on business activities;
§
the goodwill produced by the enterprise and transmitted jointly with
other elements composing the enterprise must be evaluated at the time
of the transfer. Indeed, such goodwill represents, as a whole, a capital
gain globally taxable with other incomes subject to progressive
taxation.
(7) Artt. 11 and 91, DTC.
(8) Art. 54, p. 5, DTC..
(9) Art. 54, p. 4, DTC.
(10) Artt. 11 and 91, DTC.
(11) Art. 54, p. 4, DTC.
7
§
The regime of capital gains obtained in occasion of the suspension of the
activity
In case of sell out of the sole business activity, the transferor loses his entrepreneur’s
quality. This situation has relevant fiscal effects, where the most important is that the
transferor cannot differ the taxation of the capital gains realized.
Other effects will be focused in the following paragraph 4, about the payment
modalities.
2.1.1.1.2
As to the transferee
Considering that those capital gains, realized by the transfer of going concern, are
taxable for the transferor, there are no fiscal burdens for the transferee, except for the
above mentioned joint and several responsibility concerning the tax liabilities (see note
No. 4).
2.1.1.2
The deferred taxation of capital gains (Art. 54, para. 4, DTC)
2.1.1.2.1
As to the transferor
The transferor, who must have the quality of entrepreneur(12), takes advantage of the
deferred taxation of capital gains when he or she has been holding the going concern
since more than 3 years(13).
This condition existing, the transferor can decide to opt for the deferred taxation of the
capital gain realized for a five years period. The taxable amount is equal for each year.
Starting from the year when the transfer occurred, the fifth part of the total capital gain
increases every next year the taxable income.
The transferor should opt for the deferred taxation regime directly in the tax return
relating to the year in which the transfer of going concern occurred(14).
During the deferred period, if the transferor ends his business activity, the untaxed
capital gain must be wholly levied on tax in this period (the period in which the
business activity has ceased).
This tax regime is convenient fi the tax payer can offset the capital gain in case of
previous fiscal losses.
2.1.1.2.2
As to the transferee
The capital gains realized by the transfer of going concern are taxable for the
transferor; there are no fiscal burdens for the transferee, with the exception of the
(12) Decision of Court of Cassation, Fiscal Section, dated November 29, 2000, No. 12977;
(13) The period must be computed under the provision of art. 2963 Civil Code.
(14) Art. 8 of DPR n. 42/1988.
8
above mentioned joint and several responsibility concerning the tax liabilities (see note
No. 4).
2.1.1.3
The lump-sum taxation of capital gains (Legislative Decree dated October 8,
1997, No. 358, hereinafter “L.D. 358/97”)
2.1.1.3.1
As to the transferor
Alternatively to the ordinary regime – and to the deferred taxation regime – the
transferor can apply a 19% lump-sum tax to the capital gains deriving from the transfer
of a going concern.
According to L.D. 358/79(15) the tax base in which the lump – sum tax is levied, is
equal to the difference between:
-
the selling price;
-
the amount of the book value of the going concern, equal to the value of
acquisition reduced by depreciations previously admitted.
In case of losses, the lump-sum tax cannot be offset (also in case of accumulated
losses of persistence relating to previous years, unused to offset taxable gains)(16).
The lump-sum tax regime should be elected in the tax return about the fiscal year when
the transfer occurred and the tax payment should be made at the same scheduled time
of income taxes payment deadline.
The lump-sum tax is not deductible in order to determine the taxable income.
2.1.1.3.2
As to the transferee
Considering that those capital gains, realized by the transfer of going concern, are
taxable for the transferor, there are no fiscal burdens for the transferee, with the
exception of the above mentioned joint and several responsibility for the tax liabilities
(see note No. 4).
2.1.1.4
The separated taxation regime (Art. 16, DTC)
2.1.1.4.1
As to the transferor
In case of the sole going concern is owned since more than five years(17), the
transferor can choose the separated taxation regime, under which the capital gain does
(15) Artt. 1 and 2 of L.D. 358/79
(16) On the contrary: The ordinary regime and the deferred tax regime.
9
not increase the taxable income (like to the ordinary regime) but is taxed in a separate
way.
The tax amount due is calculated directly by the Italian Tax Authorities as follows:
§
the taxable income corresponds to the capital gains realized by the transfer of
the business activity;
§
the tax rate is as an average rate calculated on the basis of the effective tax rate
of the two previous fiscal years;
§
the capital gains must be charged for the period when the transfer occurred.
Anyway, a 20% withholding tax is levied in the year in when the transfer occurred.
2.1.1.3.2
As to the transferee
Considering that those capital gains realized by the transfer of going concern are
taxable for the transferor, there are no fiscal burdens for the transferee, except for the
above mentioned joint and several responsibility concerning the tax liabilities (see note
No. 4).
2.1.1.4
Payment modalities
The agreement may grant to the transferee the possibility to pay the price with different
modalities(18): spread out payment, price based on participation in future profits,
annual life payment.
2.1.1.4.1
Transfer with spread out payment
In case of transfer with spread out payment, the final price is fixed at the time of the
transfer, but it is paid later according to some periodicity.
a) principles
Being the global price determined at the time of the transfer, the capital gains will be
taxed totally during tax period when the transfer occurred.
Thus, taxes are paid together and at once during the tax period when the transfer takes
place, while the global price will be received only later in a spread out manner. In
(17) Art. 16, p. 1, letter g), DTC states that the capital gains realized by the sell of going concern hold since
more of 5 years could be taxed applying the separate regime. See Resolution n. III – 6 – 046, November 15,
1993.
(18) First Instance Tax Court of Milan, section XXXV, No. 221, May 13, 1999.
10
order to compensate the disadvantage of having to pay taxes concerning an amount
not yet received, it is possible to agree a first payment at least equal to the tax due.
With such payment modality, the transferor is not even sure that the price will be fully
paid and this uncertainty has effect on the taxes.
b) payment of interests by the transferee
Should the payment of price be deferred, the parties could stipulate the payment of
interests; said interests are considered as taxable incomes for the transferor(19).
c) payment of interests on a loan entered in order to pay income tax
The taxpayer, facing the problem of financing an income tax to be paid in advance (on
a capital not yet received) could be required to borrow money.
Note that the Tax Authority accepts the deduction, as business expenses, of interests
on loans entered in order to pay income tax related to business incomes(20).
On the contrary, the Tax Authority does not accept the deduction of interests on loans
as business expenses in case of the business activity has ceased.
2.1.1.4.2
Transfer on condition of participation in future profits
The Italian practice admits the possibility to pay the price for the transfer of the going
concern in a percentage applicable on future profits, provided that the price is
determined at the time of the transfer.
On the contrary, if the price is not determined at the time of the transfer, this kind of
payment is not generally used in Italy.
2.1.1.4.3
Transfer on condition of life annuity
a) principles
Another possibility consists in making the transfer paying a life annuity. This modality of
payment raises a number of questions where the answer, in some cases, can be
ambiguous.
According to the Italian Tax Authorities(21):
(19) Art. 1, p. 3, Law Decree No. 669 dated December 31, 1996.
(20) Artt. 63 and 75, DTC.
(21) Revenue Office of Lazio, Resolution No. 13212 dated July 6, 1996; Revenue Office of Campania,
Resolution N. 5792 dated July 20, 1997.
11
-
the taxation of capital gains takes place during the year in which the transfer
occurs, although the price is paid using the modality of life annuity;
-
the life annuity received by the transferor must be taxed each year, treated as
the earning income deriving from subordinate employment(22).
As a consequence of the above, a double taxation (avoided by the national
regimes(23)) is imposed on the purchase price being tax once as capital gain and a
second time as a life annuity.
It is easy to determine the amount of capital gain when a global price is stipulated in
advance, successively converted into life annuity.
On the contrary, when a global price is not determined in advance, to know the
transfer price it is necessary to use the actuarial method when a periodic rent and a
renting period are stipulated.
2.1.1.4.4
Depreciation
As far as the transferee is concerned, the basis to depreciate the depreciable assets
corresponds to their purchase price.
2.1.2
Indirect taxes
2.1.2.1
Registration Tax
According to the Presidential Decree of April 26, 1986, No. 131 (hereinafter: “RTC”)
the transfer of a going concern is subject to a registration tax that must be paid within
20 or 60 days from the execution of the contract, depending on whether the latter has
been entered into in Italy or abroad.
The tax is, generally, paid by the purchaser. The parties, however, may agree
otherwise. Vis-à-vis to the tax administration, both parties are jointly and severally
liable for payment of the registration tax.
Article 51, paragraph 2, RTC provides that the taxable value of a going concern shall
be the market value (not the purchase price), including goodwill, net of liabilities as
reported in the mandatory accounting books of the company or resulting from
notarised or registered documents, excluding the liabilities that the seller has
undertaken to pay himself. In order to determine the above value, the Registration Tax
Office takes into account assessments made in consideration of other taxes (e.g.
(22) On the contrary, Central Tax Court, section V, June 11, 1997, n. 3101.
(23) Art. 127 bis DTC.
12
corporate income taxes or local income taxes) and can make inspections and
verifications.
The fair market value of a going concern is taxed at 3% registration tax rate.
Instead of the 3% tax rate, if the transferred assets are subject to different registration
tax rates, Article 23 RTC provides that the liabilities are to be attributed to the various
assets, proportionally to their corresponding values and their registration tax rates.
Please note, however, that if the purchase price is not specifically allocated to each
transferred asset, the registration tax will be levied at the highest rate applicable to the
said assets.
For this reason, it is more convenient to allocate the purchase price to each single
asset, in order to trigger a separate taxation based on the different tax rates.
Determination of goodwill value(24)
One of the most disputed issues concerning the sale of going concerns is the evaluation
of goodwill. There are several elements to be taken into account, including market
share, customers, ability of employees, etc. The law does not set forth criteria for
evaluating goodwill for registration tax purposes.
In the past, registration tax offices calculated goodwill on the basis of average income
or volume of sales considering the preceding 4 or 5 fiscal years. In some cases the tax
authorities were used to consider the value of goodwill equal to 80% of the sales of the
previous fiscal year, disregarding whether the going concern produced any income. In
other cases, the value of goodwill has been determined by multiplying the profits of the
previous fiscal year by not less than four times but no more than seven. This choice is
left to the discretion of the tax offices and it should be noted that tax officials tend to
follow the method of evaluation which, in each particular case, allows them to collect
the highest tax.
The determination of goodwill, has been often made on the basis of:
a)
market segment studies or, lacking these studies:
b)
the profitability percentage applied to:
i)
average revenues of the three previous years, as it results from
assessments by the tax offices multiplied by 3; or, lacking any
assessment,
ii)
average revenues declared in the tax-return, multiplied by 3.
(24) First Instance Tax Court of Salerno, Section VIII, n. 192, November 15, 2000 and Central Tax Court,
Section XX, n. 4353, July 21, 2000.
13
The profitability percentage cannot be less than the average business income
assessed by the tax offices (or declared as above) divided by the average assessed (or
declared) revenues in the same period above mentioned.
2.1.2.2
Cadastral and mortgage tax
2.1.2.2.1
Principles
If the transferred non-incorporated business includes buildings the cadastral and the
mortgage taxes are due.
2.1.2.2.2
Cadastral tax
This tax is due for the formality of transcription in the public registers on occasion of
transfer of properties, both for transfers free of charge or onerous.
The tax base is equal to that the one that is determined for registration tax purposes
(see the above paragraph 2.1.2.1).
The tax rate is equal to 1%.
2.1.2.2.3
Mortgage tax
This tax is due for the formality of transcription in the public registers on occasion of
transfer of properties, both for transfers free of charge or onerous.
The tax base is equal to that determined for registration tax purposes (see the above
paragraph 2.1.2.1).
The tax rate is equal to 2%.
2.2
TRANSFER FREE OF CHARGE: GIFT
In several cases, the tax treatment of transfer free of charge of enterprise is similar to
the treatment of transfer for valuable consideration, the principles of which have been
exposed in paragraph 2.1.
In the following pages, we will focus our analysis first on income taxes, and on indirect
taxes.
2.2.1
Income taxes
14
As far as the transfer of the business is concerned, the main fiscal issue is essentially
about the taxation of eventual capital gains further to the transfer by the donor25 and to
the depreciation of the assets received by the donee.
According to the Italian tax provisions, two different tax regimes can be applied:
§
the ordinary taxation regime (point 1);
§
and a special regime, so-called "tax neutrality", ruled by article 54, paragraph 5, of the
Direct Tax Code (DTC) (point 2).
2.2.1.1
The ordinary regime
2.2.1.1.1
As to the donor
The donation is a transfer where the assets are free of charge and the donor owns the
“animus donandi”. On such occasion, a capital gain might be realized.
In this case, the capital gain is taxable(26) on the basis of the ordinary regime only if the
donee is not a family person as defined under the fiscal law(27).
The existence of a capital gain must be verified by referring to the net book value of
the assets and the liabilities that compose the transferred going concern, and not on the
basis of each asset transferred.
The capital gain realized is the positive result of the difference between the value of
realization and the investment value further reduced by the value decrease and
depreciations previously admitted(28).
According to the provisions of the ordinary tax regime, the capital gains deriving from
the transfer of a going concern are wholly taxable in the tax period when the transfer
occurred applying the ordinary income tax rate(29). For fiscal purposes, the capital gain
realized in occasion of a transfer of a business activity increases the taxable global
business income.
2.2.1.1.1.1
Collection and payment of taxes
Capital gains are taxable in the period during when the donation takes place: this is
indeed the moment when they are realized.
(25) Decision of Cassation, Fiscal section, n. 6837, May 18, 2001.
(26) Art. 54, paragraph 1, letter d) of DTC that considers the assignment of assets out of the scope of the
business as taxable.
(27) For direct tax purposes, Article 5, paragraph 5, of DTC states that a family is a relative within the third
degree of relationship or a relative in law within the second degree.
(28) Art. 54, p. 2 and 5, DTC.
(29) Artt. 11 and 91, DTC.
15
Thus, if the donation took place on October 13, 2002, the capital gains refer to the tax
period 2002 and must be mentioned in the income tax return to be filled in year 2003,
which bears upon year 2002 incomes.
The tax administration has a four year delay from the end of the year of presentation of
the tax return - in our example until December 31, 2007 - to validly assess the tax(30).
2.2.1.1.2
As to the donee
It is not relevant for the donee if the gift is a result deriving from the ceasing of business
activity of the donor: acquired tangible and intangible assets may be depreciated on the
basis of their acquisition value.
The taxable person can choose between straight-line or digressive depreciation. The
straight-line method shall be used for intangible assets.
2.2.1.2
The regime of the "tax neutrality"
The modalities of the so-called regime of "fiscal continuation", or "tax neutrality", are
described in art. 54, p. 5, DTC; this regime of taxation is applied to non-valuable
consideration transactions and is characterized as follows:
§
the donee is a family person(31) as defined under fiscal law(32);
§
the duty for the donee to calculate depreciations, investment deductions,
capital losses and gains on transferred assets at the same value that these
assets had for the donor(33), without evaluating them on the basis of the
conventional transfer value.
In case of this neutrality regime, note that the taxation of capital gains shall take place
in occasion of the future sale of the going concern received by the donee.
2.2.1.3
The mechanism of "fiscal continuation"
2.2.1.3.1
As to the donor
The so-“fiscal continuation” regime allows the realised capital gains to be free on
condition that the enterprise is transferred to a family person.
As said, the donor can be exempted in two cases:
(30) Art. 43, Presidential Decree No. 600/1973.
(31) Ministerial Letter, n. 137/E, May 15, 1997
(32) For direct tax purposes, Article 5, paragraph 5, of DTC states that a family is a relative within the third
degree of relationship or a relative in law within the second degree.
(33) Art. 54, p. 5, DTC.
16
2.2.1.3.2
§
on one hand, after having transferred the taxation to the donee;
§
and, on the other hand, when he transfers some fiscal latencies.
As to the donee
All elements that are taken into account for the donee, such as depreciations,
deductions for investment, capital losses or gains, have to be considered as if the
assets left by the transferor still belonged to the same person( 34).
Furthermore, some fiscal latencies can be transferred to the recipient.
Thus, decrease in value for probable loss and provisions which have been accounted
for by the transferor as relief from taxes remain such for the transferee on condition
that the legal conditions for relief are still met.
Similarly, being underestimation of assets and overestimation of liabilities transferred to
the transferee, the administration is authorized to verify their existence and to tax them
charging the new taxpayer(35).
For example, excessive depreciation made by the donor might be discovered and
taxed on the donee.
2.2.1.3.3
Quality of the donee
The donee must be either the spouse or a relative up to the third degree of relationship
or a relative-in-law up to the second degree. The heir or successor is the person
legally entitled to the succession, in this specific case, of the donor.
2.3
INDIRECT TAXES
As mentioned above (see Introduction), the “100 Days” Act has abolished the gift tax
and provides that donations are subject to other indirect taxes (i.e.: registration tax,
mortgage and cadastral taxes).
2.3.1
Civil Law: principles
(34) Art. 16, Law No. 383 dated October 18, 2001 states that in case of transfer free of charge inter vivos or
mortis causa during the activity, the value of the each asset transferred is that determined in the head of
the transferor. In this way, the Italian Parliament introduces an anti-avoidance rule in order to oppose to
the possibility of the splitting the capital gains on assets transferred, maintaining the identical global
amount.
(35) Art. 14, Legislative Decree No. 472, dated December 18, 1997.
17
According to the Civil Law, donation implies the co-existence of two conditions: 1) an
animus donandi (i.e. the clear intention to make a gift) and 2) the enrichment of the
beneficiary to which corresponds the impoverishment of the donor.
The donation is valid, first of all, when it is made trough a notary deed and when an
explicit acceptance by the beneficiary in the same deed or in another is asserted.
The notary deed is necessary for the donation of immovable properties.
However, it is possible to avoid a notary deed when a hand-to-hand gift of tangible
assets is made.
Hand-to-hand donations might be, in some circumstances, more advantageous from a
fiscal point of view than donations made by notary deed.
Indeed, the donation by notary deed must necessarily be recorded; it involves the
payment of the registration tax while hand-to-hand donations do not need to be
recorded and therefore allow a saving on the registration tax; under some
circumstances, however, the registration duties administration must be informed of it.
2.3.1.1
Registration Tax
According to RTC, the transfer of a going concern is subject to a registration tax that
must be paid within 20 or 60 days from the execution of the contract, depending on
whether the latter has been entered in Italy or abroad.
Customarily, the tax is paid by the donee, other than family persons. The parties,
however, may agree otherwise. Vis-à-vis to the tax administration, both parties are
jointly and severally liable for payment of the registration tax.
2.3.1.1.1
Differences between the previous gift tax and the registration tax, applicable at
the present
The registration tax is based on different principles with respect to the previous gift and
inheritance tax. In particular, in order to the territoriality, it is important to note that
there are some differences:
§
the Gift Tax (applicable until October 25, 2001) was levied on the transferred
assets and the rights, even if they were located abroad.
In case of a donor resident in Italy, taxes are being estimated on all properties
transferred by gift at the time of the donation. For non resident donors, taxes only
apply on the assets located in Italy.
Some assets are always deemed to be located in Italy:
18
- properties listed in the public registers of the State (i.e. immovable property located
in Italy);
- shares and other participations in companies and partnerships resident in Italy;
- bonds and other securities issued by the State or by companies and other entities
resident in Italy;
- since October 25, 2001, the registration tax is levied on those deeds that have to be
registered, such as all the deeds signed in Italy and all the deeds signed abroad but
concerning assets situated in Italy and/or rights on properties located in Italy.
For example: a transfer deed concerning a real estate located abroad, donated by a
donor resident in Italy for fiscal purposes, would have been levied according to the
Gift tax.
According to the 100 Days Act, a transfer deed – being subject to the registration tax
– doesn’t have to be charged by the Gift Tax. But, if the deed of transfer is formalized
in Italy, then it must be charged on the basis of the registration tax for an amount equal
to € 129,11.
2.3.1.1.2
Tax base and tax rate
In order to determine the tax base it is necessary to take into account that:
§
the value of immovable properties is evaluated on the basis of their market vale;
§
the value of going concerns is evaluated according to the combined value of
assets and rights;
§
the value of listed shares derives from the net worth of the company.
A tax exemption equal to € 180.759,91 is granted to each donee. The exemption
becomes equal to € 516.456,90 if the donee is not a 18 years old or if he/she is a
disabled person.
Article 51, paragraph 2, RTC provides that the taxable value of a going concern shall
be determined by its market value (and not by the purchase price), including goodwill,
net of liabilities as reported in the mandatory accounting books of the company or
resulting from notarised or registered documents, excluding those liabilities that the
seller has undertaken to pay himself. In order to determine such value, the Registration
Tax Office takes into account assessments set down considering other taxes (e.g.
corporate income taxes or local income taxes) and can make inspections and
verifications.
The fair market value of a going concern is taxed at 3% registration tax rate.
19
Instead of the 3% tax rate, if the transferred assets are subject to different registration
tax rates, Article 23 of RTC provides that the liabilities are to be attributed to the
various assets, proportionally to their respective values.
Please note, however, that if the purchase price is not specifically defined for each
asset transferred, the registration tax will be levied at the highest rate applicable to the
above mentioned assets.
For this reason, it is more convenient to allocate the purchase price to each asset in
order to allow a separate taxation based on different tax rates.
2.3.1.1.3
Determination of goodwill value(36)
One of the most disputed issue concerning the sale of going concerns is the evaluation
of goodwill. There are several elements to be taken into account, including market
share, customers, ability of employees, etc. The law does not set forth criteria for
evaluating goodwill for registration tax purposes.
In the past, registration tax offices calculated goodwill on the basis of average income
or volume of sales over the preceding 4 or 5 fiscal years. In some cases the tax
authorities were inclined to consider the value of goodwill equal to 80 % of the sales of
the previous fiscal year, disregarding whether the going concern produced any income.
In other cases, the value of goodwill has been determined by multiplying the profits of
the last fiscal year by not less than four but no more than seven times. This choice is
left to the discretion of the tax offices and it should be noted that tax officials tend to
follow the method of evaluation which, in each particular case, allows them to collect
the highest tax.
The determination of goodwill, has been often made on the basis of:
a)
market segment studies; or lacking these studies:
b)
the profitability percentage applied to:
i)
average revenues of the three previous years, as it results from
assessments by the tax offices multiplied by 3; or, lacking any
assessment,
ii)
average revenues declared in the tax-return, multiplied by 3.
The profitability percentage cannot be less than the average business income
assessed by the tax offices (or declared as above) divided by the average assessed (or
declared) revenues in the same period mentioned above.
(36) First Instance Tax Court of Salerno, Section VIII, n. 192, November 15, 2000 and Central Tax Court,
Section XX, n. 4353, July 21, 2000.
20
2.3.1.2
VAT
The transfer of non – incorporated business is not subject to VAT, according to article
2, para. 2, lett. b) of DPR October 26, 1972 (hereinafter: “VAT Code”).
If the object of the transfer is the sole business activity of the transferor, he/she must fill
in [within 30 days(37)] a declaration about the ceasing of the business activity.
The transferee is charged with to all VAT fulfilments(38), since the date of the transfer.
2.3.1.3
Cadastral and mortgage tax
2.3.1.3.1
Principles
If the transferred non-incorporated business also includes buildings, cadastral and
mortgage taxes are due.
2.3.1.3.2
Cadastral tax
This tax is due in order to draw up the transcription in the public registers as a
consequences of the properties transfer, both if free of charge or onerous.
The tax base is equal to the amount determined for registration tax purposes.
The tax rate is equal to 1%.
2.3.1.3.3
Mortgage tax
The tax is due for the formality of transcription in the public registers on occasion of
transfer of properties, both for transfers free of charge and onerous.
The tax base is equal to that determined for registration tax purposes.
The tax rate is equal to 2%.
3
MORTIS CAUSA TRANSFER
3.1
INCOME TAXES
When death occurs to the transferor, those incomes derived from a previous business
activity of the deceased as well as the capital gains on the assets allocated on the
business activity are taxable to the charge of the transferee.
(37) Art. 35, VAT Code
(38) Revenue Agency, Resolution No. 384850 date December 15, 1980.
21
These amounts are obviously taxable as incomes obtained in occasion of inheritance
when the transferee is not a heir belonging to the family(39).
In such case the only one regime to be used is the ordinary tax regime one.
There is no the possibility to choose the deferral tax regime.
On the contrary, if the transferee has the quality of family person as defined by the
fiscal law, the tax neutrality regime - as described in Chapter 1,para. I, 2 - is applied.
3.1.1
The mechanism of “Fiscal continuation”
The modalities of the so-called regime of "fiscal continuation", or "tax neutrality", are
described in art. 54, para. 5, DTC; this regime of taxation can be applied only to nonvaluable consideration transactions and is characterized as follows:
§
the transferee is a family person as defined under fiscal law(40);
§
the obligation for the transferee to calculate depreciations, deductions for
investment, capital losses and gains on transferred assets as a function of the
value these assets had for the deceased(41), and not on the basis of the
conventional transfer value.
Thus, the tax administration will collect to the charge of the transferee "an equivalent of
the tax amount on capital gains as the depreciations and realizations of transferred
assets will be made”.
The regime of fiscal continuation allows the definitive exemption of capital gains
realized on the occasion of the mortis causa transfer of the enterprise to the family
persons, as above described.
This fiscal regime is associated:
§
on one hand, with deferment of taxation on the head of the transferee;
§
and, on the other hand, with the transfer of some fiscal latencies.
Those elements that have to be taken into account for the transferee, such as
depreciations, deductions for investment, capital losses or gains, are determined at the
(39) Art. 28 ITC.
(40) For direct tax purposes, Article 5, paragraph 5, of DTC states that a family is a relative within the third
degree of relationship or a relative in law within the second degree.
(41) Art. 54, p. 5, DTC.
22
same value that they have had for the transferor, as if the owner of the transferred
assets had not changed(42).
Furthermore, some fiscal latencies can be transferred to the recipient.
Thus, the depreciation due to probable losses and those provision taken into account
by the transferor as taxes relief remain the same for the person who receives the fiscal
latencies.
Similarly, being underestimation of assets and overestimation of liabilities transferred
from the transferor to the transferee, the administration is authorized to verify their
existence and to tax them charging the new taxpayer(43).
3.1.1.1
Quality of the transferee
The transferee must be either the spouse or a relative up to the third degree of
relationship or a relative-in-law up to the second degree.
3.1.1.2
Formal procedure and reasons for the choice
The regime of fiscal continuation is the ordinary tax regime for all those cases where
the transferee has one of the above mentioned relationship’s quality. For all the other
cases, as said, it must be applied the ordinary regime.
The tax administration has a period of four years, since the year when the tax return
has been filed, - in our example until December 31, 2007 - to validly assess the
tax(44).
3.1.1.3
Administration
The responsibility to fill in the income tax return belong to the heirs, general legatee or
donee(45). The document must be forwarded to the tax administration within the sixth
month after the time when death occurred (46).
3.2
INDIRECT TAXES
(42) Art. 16, Law No. 383 dated October 18, 2001 states that in case of transfer free of charge inter vivos or
mortis causa during the activity, the value of the each asset transferred is that determined in the head of
the transferor. In this way, the Italian Parliament introduces an anti-avoidance rule in order to oppose to
the possibility of the splitting the capital gains on assets transferred, maintaining the identical global
amount.
(43) Art. 14, Legislative Decree No. 472, dated December 18, 1997.
(44) Art. 43, Presidential Decree No. 600/1973.
(45) Art. 28, p. 2, ITC.
(46) Art. 31 ITC.
23
The enterprise is normally part of the patrimony of the dead person and, until last year,
it was subjected to inheritance tax at the time of death. Indeed, each heir or successor
was taxed on the basis of a progressive rate of the inheritance tax, as a function of his
or her degree of relationship with the deceased.
As mentioned above (see Introduction), with the introduction of the “100 Days” Act,
the inheritance tax (and the gift tax too) has been abolished and, differently from the
provision about the gift tax, no other indirect taxes for the successions are due.
If the succession determines the transfer of properties, the cadastral tax and the
mortgage tax are due.
3.2.1
Cadastral tax
This tax is due in order to draw up the transcription in the public registers as a
consequences of the properties transfer, both if free of charge or onerous.
The tax base is equal to the amount determined for the previous inheritance tax: the
gross value of the properties transferred, without taking into consideration the liabilities
relating to each property( 47).
The tax rate is equal to 1%.
3.2.2
Mortgage tax
This tax is due in order to draw up the transcription in the public registers as a
consequences of the properties transfer, both if free of charge or onerous.
The tax base is equal to the amount determined for the previous inheritance tax: the
gross value of the properties transferred, without taking into consideration the liabilities
relating to each property.
The tax rate is equal to 2%.
4
CONCLUSION
The Italian Government, through its “Legge Delega” (finally approved by the Italian
Parliament on March 26, 2003) , means to repeal the Legislative Decree October 8,
1997, n. 358 regarding the lump-sum tax regime applicable in case of the sale of a
going concern, so that the capital gains arising from the sale of the going concern can
be taxed according to the ordinary regime.
(47) Ministry of Finance, Circular letter No. 320724 dated March 20, 1975; Circular letter No. 271021 dated
March 5, 1981; Circular letter No. 350865 dated September 23, 1991. Ministry of Finance, Circular letter No.
17/350134 dated March 15, 1991. Resolution No. 350560 dated July 11, 1991.
24
In the next years, the capital gains will not be taxed as a consequences of the
application of the more favourable lump-sum taxation at 19% tax rate instead of the
ordinary personal income tax rate.
Today, this tax rate is between a range of 23% (for taxable income inferior to €
15.000) to 45 % (for taxable income higher than € 70.000).
Furthermore, in the Government’s intentions, the tax rate about the personal income
will be equal to 23% for taxable income inferior than € 100.000 and to 33% for higher
taxable income.
In any case, the lump-sum tax regime is, in this moment, more favourable than the
ordinary regime.
Such event is subordinated to the approval of the project law that it is expected for
next autumn.
We expect that the new tax shall be in force starting from January 1, 2004.
25
5
BIBLIOGRAPHY
1.
Maurizio Leo - Felice Monacchi - Mario Schiavo, Le imposte sui redditi nel
Testo Unico, Casa Editrice GIUFFRE’, 1999;
2.
Memento pratico fiscale - 2002 Ipsoa – Francis Lefebvre;
3.
Guido Vasapolli - Andrea Vasapolli, Dal bilancio d’esercizio al reddito
d’impresa, nona edizione, Casa editrice IPSOA;
4.
Le donazioni dopo la Legge n. 383 del 2001, di Federico Solfaroni
Camillocci;
5.
Imposta sulle successioni e donazioni, Il trasferimento d’azienda “mortis
causa” o per atto gratuito tra vecchie e nuove disposizioni;
6.
Risoluzione Ministeriale, n. 361708 del 24 ottobre 1978;
7.
Circolare n. 90/2001/T del Consiglio Nazionale del Notariato, Il nuovo regime
impositivo delle successioni e delle donazioni e liberalità tra vivi;
8.
Mario Mandò - Giancarlo Mandò, Manuale dell’Imposta sul Valore Aggiunto,
Diciannovesima Edizione, IPSOA;
9.
Gaspare Arnao, Manuale dell’imposta di registro, Quarta Edizione, IPSOA;
10.
Circolare Assonime n. 42 del 10 marzo 1994, Modifiche alla disciplina del
reddito d’impresa;
11.
Mario Montanari, Rateizzazione delle plusvalenze realizzate, in Corriere
Tributario 1993, n. 45;
12.
Tommaso Di Tanno, Destinazione a finalità estranee all’esercizio d’impresa, in
Bollettino Tributario d’informazioni 1990, n. 17;
13.
L.Tartuferi, L’affitto di beni strumentali da parte di imprese individuali, in
Corriere Tributario 1986;
14.
Gaspare Falsitta, La certa e definitiva produzione delle plusvalenze quale
presupposto della loro imponibilità, in Le Imposte Dirette erariali e l’IVA,
1974, n. 6;
15.
Francesco Rossi Ragazzi, Criterio di cassa o di competenza per le plusvalenze
realizzate da cessione di azienda, in Corriere Tributario 1989, n. 42;
26
16.
L. Lo vecchio, Scioglimento del rapporto sociale in ipotesi di società di
persone con due soci e continuazione dell’attività da parte del socio superstite,
in Bollettino Tributario d’informazioni 1990, n. 7;
17.
Gruppo di studio per l’attuazione della riforma tributaria dell’Università
Bocconi – A. L. Arrigoni, il reddito d’impresa nel TUIR – interpretazioni e
commenti, in Rassegna Tributaria 1991, n. 1;
18.
Giulio Tremonti, Conferimenti ed ammortamenti di beni aziendali, in Bollettino
Tributario 1991, n. 4;
19.
M. Versiglioni, Aspetti fiscali del trasferimento dell’azienda gestita da impresa
familiare, in Rivista di diritto tributario 1991, n. 5, p. I;
20.
S. Moroni, Plusvalenze da cessione dell’unica azienda, in Corriere Tributario
1991, n. 31;
21.
Nicola D’Amati, La cessione d’azienda, Circolare 1991, n. 12 allegata al
Corriere Tributario 1991;
22.
Raffaello Lupi, In margine alla neutralità dei trasferimenti gratuiti d’azienda, in
Corriere Tributario 1997, n. 16;
23.
Tommaso La medica, La Finanziaria ed i trasferimenti di azienda che
appartengono al passato, in Corriere Tributario 1997, n. 10;
24.
G. Gavelli, Il nuovo volto dei trasferimenti d’azienda, in il Fisco 1997, n. 7;
25.
G. D’Alfonso, La cessione gratuita d’azienda tra familiari, in il Fisco 1997, n.
2;
26.
M. Beghin, I trasferimenti gratuiti di aziende ai familiari nella disciplina
agevolativi introdotta con legge n. 662/1996, in Rivista di diritto tributario,
19998, n. 1, p.I;
27.
F. Buzzavo, Il cambiamento generazionale – Strategie mobiliari e non mobiliari
per la successione d’impresa, in Il Fisco, 1999, n. 29;
28.
Vermiglioni, Aspetti fiscali del trasferimento d’azienda gestita da impresa
familiare, in Rivista di diritto tributario 1991, n. 5, p. I;
29.
A. Carinci, Il trasferimento di azienda ai fini IVA e registro: il problema della
nozione di azienda ai fini fiscali, in Rivista di Diritto Tributario, 1996, n. 12,
Parte II;
27
30.
G. Di Paolo, Cessione d’azienda – Valutazione dell’Avviamento ai fini
dell’imposta di registro, in il Fisco 1996, n. 38;
31.
A. Montesano, Calcolo dell’Avviamento nella cessione d’azienda tra parenti in
linea retta, in GT Rivista di Giurisprudenza tributaria, 1996, n. 7;
32.
C. Caumont Caimi, La valutazione dell’avviamento ai fini dell’imposta di
registro, in Diritto e Pratica tributaria 1998, n. 3, pag. II;
33.
M. Mastrogiacomo, L’avviamento va determinato con riferimento alla
situazione concreta dell’azienda e del settore in cui opera, in il Fisco 1997, n.
30;
34.
S. Lattanti, Solidarietà tributaria e dichiarazioni discordanti dei coeredi, in
Corriere Tributario 1982, n. 37;
35.
A. Butani, Testo Unico successioni e donazioni: le novità significative, in
Corriere Tributario 1990, n. 48.
28
6
APPLICATIONS
FACTS FOR THE STUDY OF THE TAX COST OF THE BUSINESS
TRANSFER
EXAMPLE 1
The taxpayer has two adult children.
His/her spouse died several years before him.
His/her estate consisted of two main assets: a business organized as a sole
proprietorship, and a house.
The fair market value (FMV) of those two main assets is EURO 1 million each.
The assets and liabilities of the business are the following:
FMV
EURO
book value for income
tax purpose
EURO
Assets
- machinery
- business building
- inventory
- cash
- original goodwill
Total
200.000
400.000
500.000
100.000
800.000
2.000.000
100.000
100.000
400.000
100.000
700.000
liabilities
- bank liabilities
- provision for local taxes
Total
Net assets
700.000
300.000
1000.000
1.000.000
700.000
300.000
1.000.000
300.000
During the last years, the annual earnings before tax (EBIT) from the business has been
EURO 100.000. The annual turnover amounts EURO 500.000. The business employs
5 persons. All personal and business taxes have been paid except for local taxes, for
which provisions were made.
The taxpayer's will is to transfer the business to Child A, and the house to Child B.
29
Please calculate the direct and indirect taxes for each different way of transferring the
estate. If of interest, do not hesitate to envisage other hypothesis (for example, transfer
to a third party).
ITALIAN ANSWER
I. SELL
1.
DIRECT TAXES
A. Ordinary Tax Regime
The Capital gain is equal to the selling price minus the net book value:
€ 1.000.000 - € 300.000 = € 700.000
Transferor
Range of taxable income
Tax
rate
Calculation
From € 0 to € 15.000
From € 15.000 to € 29.000
From € 29.000 to € 32.600
From € 32.600 to € 70.000
More than € 70.000
23%
29%
31%
39%
45%
15.000
14.000
3.600
37.400
630.000
____________
700.000
Tax due
3.450
4.060
1.116
14.586
283.500
________
306.712
Tax due by the transferor: € 306.712
Transferee
€ 700.000 gain due to the increasing basis of depreciation
B.
Deferral Tax regime
The Capital gain is equal to the selling price minus the net book value:
€ 1.000.000 - € 300.000 = € 700.000
Transferor
§ Splitting of the capital gain during a period of 5 years: = € 700.000 : 5 = €140.000
30
§ Annual Taxable income = € 100.000 (EBIT) + € 140.000 = € 240.000 (of each
year of the deferring period)
Range of taxable income
From € 0 to € 15.000
From € 15.000 to € 29.000
From € 29.000 to € 32.600
From € 32.600 to € 70.000
More than € 70.000
Tax
rate
23%
29%
31%
39%
45%
Calculation
Tax due
15.000
3.450
14.000
4.060
3.600
1.116
37.400
14.586
170.000
76.500
____________ _____________
240.000
99.712
(of whom €
62.300 referring
to the capital
gain realized)
Transferee
€ 700.000 gain due to the increasing of the basis of depreciation
C.
Lump-Sum Taxation Regime
The Capital gain is equal to the selling price minus the net book value:
€ 1.000.000 - € 300.000 = € 700.000
Transferor
Tax due to the transferor: € 700.000 x 19% = € 133.000
Transferee
€ 700.000 gain due to the increasing of the basis of depreciation
D.
Separated Taxation Regime
The Capital gain is equal to the selling price minus the net book value:
€ 1.000.000 - € 300.000 = € 700.000
Transferor
31
•
Determination of the Tax Rate
In the last two years, the personal taxable income of the transferor is equal to EBIT
deriving from the business activity: € 100.000 each year.
The effective tax rate applied is equal to:
Range of taxable income
From € 0 to € 15.000
From € 15.000 to € 29.000
From € 29.000 to € 32.600
From € 32.600 to € 70.000
More than € 70.000
•
Tax
rate
23%
29%
31%
39%
45%
Calculation
15.000
14.000
3.600
37.400
30.000
____________
100.000
Tax due
3.450
4.060
1.116
14.586
13.500
___________
36.712
Average effective Tax Rate of the previous two years: € 36.712 / 100.000 =
36,71 %
Income tax due to the transferor: € 700.000 x 36,71% = € 256.970.
Transferee
€ 700.000 gain due to the increasing of the basis of depreciation
2.
INDIRECT TAXES
A.
Registration Tax
•
determination of the gross FMV of the assets for the registration tax purpose:
Machinery
200.000
Business building
400.000
Inventory
500.000
Cash
100.000
1.200.000
•
Determination of the derivative goodwill for registration tax purpose:
32
- the annual EBIT file previous three years is equal to the average business income of
the previous: € 100.000 each year, multiplied 3 = € 100.000 x 3 = € 300.000;
- Annual turnover of the previous 3 years: Euro 500.000 to each year
- Profitability percentage: average business income equal to 100.000 = 20%
average turnover
500.000
Goodwill: € 300.000 x 20% = € 60.000
•
Determination of the registration tax:
FMV Assets (equal to 20% of the total FMV of the assets)
1. 200.000
-
FMV Liabilities relating to the assets considered (equal to 20% of the total
FMV of the liabilities)
(600.000)
+
Goodwill
60.000
660.000
Registration Tax due: 660.000 x 3% = € 19.800
B.
Cadastral Tax
FMV Business Building
-
FMV liabilities relating to the business considered
400.000
(200.000)
200.000
Cadastral Tax due: 200.000 x 1% = Euro 2.000
C.
Mortgage Tax
FMV Business Building
-
FMV liabilities relating to the business considered
400.000
(200.000)
200.000
Mortgage Tax due: 200.000 x 2% = Euro 4.000
II. GIFT
1.
DIRECT TAXES
33
A. Ordinary Tax Regime
The Capital gain is equal to the selling price minus the net book value:
€ 1.000.000 - € 300.000 = € 700.000
Transferor
Range of taxable income
From € 0 to € 15.000
From € 15.000 to € 29.000
From € 29.000 to € 32.600
From € 32.600 to € 70.000
More than € 70.000
Tax
rate
23%
29%
31%
39%
45%
Calculation
15.000
14.000
3.600
37.400
630.000
____________
700.000
Tax due
3.450
4.060
1.116
14.586
283.500
________
306.712
Tax due by the transferor: € 306.712.
Transferee
€ 700.000 gain due to the increasing basis of depreciation
B.
Neutrality Regime (The donee is a family person)
Transferor
Tax burden: none
Transferee
Tax burden: none
2. INDIRECT TAXES
A.
•
Registration Tax
Determination of the gross FMV of the assets for the registration tax purpose
Machinery
200.000
34
Business building
400.000
Inventory
500.000
Cash
100.000
1.200.000
•
Determination of the derivative goodwill for registration tax purpose:
- the annual EBIT file previous three years is equal to the average business income of
the previous: € 100.000 each year, multiplied 3 = € 100.000 x 3 = € 300.000;
- Annual turnover of the previous 3 years:
Euro 500.000 to each year
- Profitability percentage: average business income equal to 100.000 = 20%
average turnover:
500.000
Goodwill: € 300.000 x 20% = € 60.000
• Determination of the registration tax:
FMV Assets
+
(equal to 20% of the total FMV of the assets) 1.200.000
FMV Liabilities relating to the assets considered (equal to 20% of the total FMV of
the liabilities)
(600.000)
Goodwill
60.000
660.000
Registration Tax due: 660.000 x 3% = € 19.800
B.
Cadastral Tax
FMV Business Building
-
FMV liabilities relating to the business considered
400.000
(200.000)
200.000
Cadastral Tax due: 200.000 x 1% = Euro 2.000
C.
Mortgage Tax
FMV Business Building
400.000
35
-
FMV liabilities relating to the business considered
(200.000)
200.000
Mortgage Tax due: 200.000 x 2% = Euro 4.000
III. TRANSFER MORTIS CAUSA
1. DIRECT TAXES
A.
Neutrality Regime (The donee is a family person)
Transferor
Tax burden: none
Transferee
Tax burden: none
2. INDIRECT TAXES
A.
•
Registration Tax
Determination of the gross FMV of the assets for the registration tax purpose
Machinery
200.000
Business building
400.000
Inventory
500.000
Cash
100.000
1.200.000
Determination of the derivative goodwill for registration tax purpose:
- the annual EBIT file previous three years is equal to the average business income of
the previous: € 100.000 each year, multiplied 3 = € 100.000 x 3 = € 300.000;
- Annual turnover of the previous 3 years: Euro 500.000 to each year
- Profitability percentage: average business income equal to 100.000 = 20%
average turnover
500.000
36
Goodwill: € 300.000 x 20% = € 60.000
•
Determination of the registration tax:
FMV Assets (equal to 20% of the total FMV of the assets)
1.200.000
-
FMV Liabilities relating to the assets considered (equal to 20% of the total FMV of
the liabilities)
(600.000)
+
Goodwill
60.000
660.000
Registration Tax due: 660.000 x 3% = € 19.800
B.
Cadastral Tax
FMV Business Building
-
FMV liabilities relating to the business considered
400.000
(200.000)
200.000
Cadastral Tax due: 200.000 x 1% = Euro 2.000
C.
Mortgage Tax
FMV Business Building
-
FMV liabilities relating to the business considered
400.000
(200.000)
200.000
Mortgage Tax due: 200.000 x 2% = Euro 4.000
37
EXAMPLE 2
The taxpayer has two adult children.
His/her spouse died several years before him.
His/her estate consisted of two main assets: a business organized as a sole proprietorship, and
a house.
The fair market value (FMV) of those two main assets is EURO 5 million each.
The assets and liabilities of the business are the following:
FMV
EURO
book value for
income tax
purpose
EURO
assets
- machinery
- business building
- inventory
- cash
- original goodwill
Total
2.100.000
3.000.000
1.000.000
100.000
800.000
7.000.000
1.000.000
1.000.000
800.000
100.000
2.900.000
liabilities
- bank liabilities
- provision for local taxes
Total
Net assets
1.500.000
500.000
2.000.000
5.000.000
1.500.000
500.0002
2.000.000
900.000
During the last years, the annual earnings before tax (EBIT) from the business has been EURO
500.000. The annual turnover amounts EURO 2.500.000. The business employs 10 persons.
All personal and business taxes have been paid except for local taxes, for which provisions
were made.
The taxpayer's will is to transfer the business to Child A, and the house to Child B.
Please calculate the direct and indirect taxes for each different way of transferring the estate. If
of interest, do not hesitate to envisage other hypothesis (for example, transfer to a third party).
38
ITALIAN ANSWER
I. SELL
1. DIRECT TAXES
A. Ordinary Tax Regime
The Capital gain is equal to the selling price minus the net book value:
€ 5.000.000 - € 900.000 = € 4.100.000
Transferor
Range of taxable income
From € 0 to € 15.000
From € 15.000 to € 29.000
From € 29.000 to € 32.600
From € 32.600 to € 70.000
More than € 70.000
Tax
rate
23%
29%
31%
39%
45%
Calculation
Tax due
15.000
3.450
14.000
4.060
3.600
1.116
37.400
14.586
4.030.000
1.813.500
____________ ______________
4.1000.000
1.836.712
Tax due by the transferor: € 1.836.712.
Transferee
€ 4.100.000 gain due to the increasing basis of depreciation
B. Deferral Tax regime
The Capital gain is equal to the selling price minus the net book value:
€ 5.000.000 - € 900.000 = € 4.100.000
Transferor
•
Splitting of the capital gain during a period of 5 years: = € 4.100.000 : 5 = € 820.000
•
Annual Taxable income = € 500.000 (EBIT) + € 820.000 = € 1.320.000 (of each year
of the deferring period).
39
Range of taxable income
From € 0 to € 15.000
From € 15.000 to € 29.000
From € 29.000 to € 32.600
From € 32.600 to € 70.000
More than € 70.000
Tax
rate
23%
29%
31%
39%
45%
Calculation
15.000
14.000
3.600
37.400
1.250.000
____________
1.320.000
Tax due
3.450
4.060
1.116
14.586
562.500
___________
585.712
(of whom €
364.900
referring to the
capital
gain
realized)
Transferee
€ 4.100.000 gain due to the increasing of the basis of depreciation
C.
Lump-Sum Taxation Regime
The Capital gain is equal to the selling price minus the net book value:
€ 5.000.000 - € 900.000 = € 4.100.000
Transferor
Tax due to the transferor: € 4.100.000 x 19% = € 779.000
Transferee
€ 4.100.000 gain due to the increasing of the basis of depreciation
D.
Separated Taxation Regime
The Capital gain is equal to the selling price minus the net book value:
€ 5.000.000 - € 900.000 = € 4.100.000
Transferor
•
Determination of the Tax Rate
40
In the last two years, the personal taxable income of the transferor is equal to EBIT deriving
from the business activity: € 500.000 each year.
The effective tax rate applied is equal to:
Range of taxable income
From € 0 to € 15.000
From € 15.000 to € 29.000
From € 29.000 to € 32.600
From € 32.600 to € 70.000
More than € 70.000
•
Tax
rate
23%
29%
31%
39%
45%
Calculation
Tax due
15.000
3.450
14.000
4.060
3.600
1.116
37.400
14.586
430.000
193.500
____________ ____________
500.000
216.712
Average effective Tax Rate of the previous two years: € 216.712 / 500.000 = 43,34 %
Income tax due to the transferor: € 4.100.000 x 43.34% = € 1.776.940.
Transferee
€ 4.100.000 gain due to the increasing of the basis of depreciation
2. INDIRECT TAXES
A.
•
Registration Tax
Determination of the gross FMV of the assets for the registration tax purpose:
Machinery
2.100.000
Business building
3.000.000
Inventory
Cash
1.000.000
100.000
6.200.000
Determination of the derivative goodwill for registration tax purpose:
- the annual EBIT file previous three years is equal to the average business income of
the previous: € 500.000 each year, multiplied 3 = € 500.000 x 3 = € 1.500.000;
41
- Annual turnover of the previous 3 years: Euro 2.500.000 to each year
- Profitability percentage: average business income equal to
500.000 = 20%
average turnover
2.500.000
Goodwill: € 1.500.000 x 20% = € 300.000
•
Determination of the registration tax:
FMV Assets (equal to 88,57% of the total FMV of the assets)
6.200.000
-
FMV Liabilities relating to the assets considered (equal to 88,57% of the total
FMV of the liabilities)
(1.771.400)
+
Goodwill
300.000
4.728.600
Registration Tax due: 4.728.400 x 3% = € 141.858
B.
Cadastral Tax
FMV Business Building (equal to the 42,86% of the total FMV of the assets) 3.000.000
-
FMV liabilities relating to the business considered
(equal to the 42,86% of the total FMV of the assets)
(857.000)
2.142.60
Cadastral Tax due: 2.142.600 x 1% = € 21.426
C.
Mortgage Tax
FMV Business Building (equal to the 42,86% of the total FMV of the assets) 3.000.000
-
FMV liabilities relating to the business considered
(equal to the 42,86% ot the total FMV of the assets)
(857.000)
2.142.600
Mortgage Tax due: 2.142.600 x 2% = € 4.284
II. GIFT
1. DIRECT TAXES
A. Ordinary Tax Regime
42
The Capital gain is equal to the selling price minus the net book value:
€ 5.000.000 - € 900.000 = € 4.100.000
Transferor
Range of taxable income
From € 0 to € 15.000
From € 15.000 to € 29.000
From € 29.000 to € 32.600
From € 32.600 to € 70.000
More than € 70.000
Tax
rate
23%
29%
31%
39%
45%
Calculation
Tax due
15.000
3.450
14.000
4.060
3.600
1.116
37.400
14.586
4.030.000
1.813.500
____________ ______________
4.1000.000
1.836.712
Tax due by the transferor: € 1.836.712.
Transferee
€ 4.100.000 gain due to the increasing basis of depreciation
B.
Neutrality Regime (The donee is a family person)
Transferor
Tax burden: none
Transferee
Tax burden: none
2. INDIRECT TAXES
A.
•
Registration Tax
Determination of the gross FMV of the assets for the registration tax purpose
Machinery
2.100.000
Business building
3.000.000
43
Inventory
Cash
1.000.000
100.000
6.200.000
Determination of the derivative goodwill for registration tax purpose:
- the annual EBIT file previous three years is equal to the average business income of
the previous: € 500.000 each year, multiplied 3 = € 500.000 x 3 = € 1.500.000;
- Annual turnover of the previous 3 years: Euro 2.500.000 to each year
- Profitability percentage: average business income equal to
average turnover
500.000 = 20%
2.500.000
Goodwill: € 1.500.000 x 20% = € 300.000
•
Determination of the registration tax:
FMV Assets (equal to 88,57% of the total FMV of the assets)
6.200.000
-
FMV Liabilities relating to the assets considered (equal to 88,57% of the total FMV
of the liabilities)
(1.771.400)
+
Goodwill
300.000
4.728.600
Registration Tax due: 4.728.400 x 3% = € 141.858
B.
Cadastral Tax
FMV Business Building (equal to the 42,86% of the total FMV of the assets) 3.000.000
-
FMV liabilities relating to the business considered
(857.000)
(equal to the 42,86% of the total FMV of the assets)
2.142.600
Cadastral Tax due: 2.142.600 x 1% = € 21.426
C.
Mortgage Tax
FMV Business Building (equal to the 42,86% of the total FMV of the assets) 3.000.000
44
-
FMV liabilities relating to the business considered
(857.000)
(equal to the 42,86% of the total FMV of the assets)
2.142.600
Mortgage Tax due: 2.142.600 x 2% = € 4.284
III. TRANSFER MORTIS CAUSA
1. DIRECT TAXES
A.
Neutrality Regime (The donee is a family person)
Transferor
Tax burden: none
Transferee
Tax burden: none
2. INDIRECT TAXES
A.
•
Registration Tax
Determination of the gross FMV of the assets for the registration tax purpose
Machinery
2.100.000
Business building
3.000.000
Inventory
1.000.000
Cash
100.000
6.200.000
•
Determination of the derivative goodwill for registration tax purpose:
- the annual EBIT file previous three years is equal to the average business income of
the previous: € 500.000 each year, multiplied 3 = € 500.000 x 3 = € 1.500.000;
- Annual turnover of the previous 3 years: Euro 2.500.000 to each year
- Profitability percentage: average business income equal to
average turnover
500.000 = 20%
2.500.000
45
Goodwill: € 1.500.000 x 20% = € 300.000
•
Determination of the registration tax:
FMV Assets (equal to 88,57% of the total FMV of the assets)
6.200.000
-
FMV Liabilities relating to the assets considered (equal to 88,57% of the total FMV
of the liabilities)
(1.771.400)
+
Goodwill
300.000
4.728.600
Registration Tax due: 4.728.400 x 3% = € 141.858
B.
Cadastral Tax
FMV Business Building
3.000.000
Cadastral Tax due: 3.000.000 x 1% = € 30.000
C.
Mortgage Tax
FMV Business Building
3.000.000
Mortgage Tax due: 3.000.000 x 2% = € 60.000
46