Article 110 of Law Decree no. 104/2020 (“August Decree”) provides for the optional revaluation of fixed assets, with some interesting peculiarities as compared to the previous laws providing such option. Fixed assets and participations resulting from the financial statements of the fiscal year in course as at 31 December 2019 can be revaluated in the financial statements of the subsequent fiscal year (2020 for enterprises with the fiscal year corresponding to the calendar year). This note comments upon the main features of the new opportunity.
Firstly, considering the legislator’s intention to support the capitalization of enterprises heavily affected by the Covid-19 pandemic, the step-up can be limited to the accounting value only, i.e. without tax consequences. Where enterprises are also interested in stepping-up the tax basis of the assets, a substitute tax of 3% is due, which is significantly lower than in past revaluation laws. The payment of the substitute tax can be executed in up to three instalments, the first of which is due upon payment of the balance tax related to the fiscal year in which the revaluation is carried out (i.e., June 2021 for enterprises with the fiscal year corresponding to the calendar year). The remaining instalments are due upon payment of the balance tax related to the subsequent fiscal years.
The revaluation balance must be imputed to a special equity reserve, which can be distributed upon payment of a 10% substitute tax to the paid according to the same modalities described above. If the revaluation is for accounting purposes only, there is no tax liability on the revaluation balance.
Another particularly interesting aspect is that, when enterprises opt in for the 3% substitute tax, the tax consequences of the step-up in terms of deductible depreciations and amortization start running from the fiscal year following the one in which the revaluation is carried out. This means that enterprises with the fiscal year corresponding to the calendar year can step-up the value and tax basis of the fixed assets resulting from their 2019 balance sheet in the 2020 financial statements and fiscally deduct higher depreciations and amortizations starting from fiscal year 2021.
In addition, the step-up can concern single assets and it is no longer necessary that a whole homogeneous category of assets is revaluated. Non-fixed assets are excluded from the step-up option.
No changes with respect to previous revaluation laws concern the subjects that can opt in for the step-up. These subjects include corporations (different than the IAS-adopters ones), partnerships, individual enterprises, non-commercial entities and foreign entities with permanent establishment in Italy.
Finally, IAS-adopter corporations can opt for a re-alignment of the tax basis of fixed assets with their accounting value, if higher, by paying the same 3% substitute tax. In such case, being just a step-up of the tax value without a corresponding increase of the accounting value of the assets, there is no effect in terms of recapitalization nor revaluation balance to be imputed to an equity reserve; however, a special regime of tax suspension is imposed on existing equity reserves for an amount corresponding to the step-up, which implies that the distribution of such reserve triggers the payment of a 10% substitute tax.