A RECENT DECISION OF THE ITALIAN SUPREME COURT ON M&A TRANSACTIONS TAX DUTIES
1. Share deal or asset deal: the first decision to make in M&A transactions
When approaching a M&A transaction, the decision about the structure shall be the first item on the agenda. Choosing between a share deal or an asset deal depends, in the first instance, on the willingness of the buyer. A share deal is aimed at the purchase of all, or part of, the stock of the target company while an asset deal can be limited to a cherry-picking of certain assets, or a branch, of the target.
The advisors shall duly assist the parties in evaluating the most suitable structure under every perspective: a good choice cannot be limited to the target only but, keeping in mind that several further consequences can be triggered, it shall be a 360° enquiry on all elements potentially involved.
2. Focus: the application of registration tax in M&A deals
The Italian registration tax (imposta di registro) is an indirect tax (imposta indiretta) due as a result of the registration of a deed or an agreement into a public register. The amount of the registration tax can be fixed or proportional to the value of the asset(s) transferred (or leased, etc.). In particular, with reference to M&A transactions, the following rules shall apply:
- Share Deal: according to Section 11, Part 1, of Presidential Decree no. 131/1986 (TUR), the registration tax is equal to a lump-sum amount of EUR200;
- Asset Deal: according to Section 9, Part 1, and Section 54, Paragraph 4, of TUR the registration tax is equal to 3% of the value of the transferred business (or business unit) as a going concern (real estate properties follow a different tax regulation as they are taxed at a higher rate).
It is therefore easy to understand the reason why the tax authorities have a strong interest in a correct qualification of the transaction as a share deal or an asset deal. Especially to avoid possible abuses and unlawful practices, in particular regarding the relevant anti-avoidance issues that could arise.
3. Requalifying share deals into asset deals: a concrete post-closing tax risk
The day-by-day survey activities carried out by tax offices regarding the correct transactions qualification have massively increased during recent years.
In some cases, share deals have been challenged by the tax offices claiming the integration of the registration taxes applicable to a correspondent asset deal.
Although the tax offices have the task of supervising the correct application of law, the parties have the right to contest the erroneous evaluations of the tax authorities by filing a case with the competent Courts. Which, unfortunately, are more often in line with the tax offices, although some recent legislative interventions, such as the introduction of Section 10-bis of Law 212/2000 (effective as of 1 October, 2015).
4. One step further: a recent decision of the Italian Supreme Court
The above has been recently confirmed by the Tax Division (Sezione Tributaria) of the Italian Supreme Court (Corte di Cassazione) decision no. 11877 dated 12 May, 2017, which has confirmed the requalification of a share deal into an asset deal; below a short summary of the events.
On 11 November, 2008, the quotaholders of MAXERRE VIAGGI S.r.l. transferred to FINVALV S.r.l. all their quotas in the company for a purchase price equal to the nominal value; being a share deal, the purchaser paid a registration tax of (as of that date) EUR168 on a lump-sum basis.
- On 9 February, 2010, the tax office issued a notice of correction and settlement (avviso di rettifica e accertamento) of the registration tax, claiming that – as the transaction was an asset deal and not a share deal – the correct amount of the registration tax was EUR30,848.02 (plus EUR9,530.00 as mortgage tax and EUR4,765.00 as cadastral tax), plus fines and interests.
- The Provincial Tax Commission of Pavia confirmed the tax office’s payment order, while the Lombardy Regional Tax Commission, XXII Division of Milan, overruled the decision of the tribunal of first instance, confirming the correct qualification of the transaction as a share deal and, therefore, the correctness of the registration tax originally paid.
- Finally, the Tax Division of the Italian Supreme Court overruled the decision of the above Tax Court of Appeal, confirming that, even though the parties intended to consume a transfer of shares and not a transfer of single assets (or branch), and structured the transaction as a share deal (by executing a SPA and not an APA), the set of acts and agreements between the parties and the so-called effective reason (causa concreta) of the transaction would have been the transfer of certain assets; therefore, the asset deal registration tax shall apply.
This decision is in line with the majority of past judgments; however, in this very case the Italian Supreme Court seems to be pushing the limits a bit further, by expressly acknowledging that: (i) the economic reason of the deal do not play any role in qualifying the M&A transaction, and (ii) no burden of proof can be referred to the same tax authorities.
5. What’s next? A possible solution
As anticipated above, on 21 April, 2015 (effective as of 1 October, 2015), Section 10-bis of Law 212/2000 came into force, trying to provide both to the players and to the Courts some guidelines for clarifying the overall scenario better. According to Section 10-bis, an “avoiding conduct” (condotta elusiva) occurs when:
(i) the parties get objectively undue tax advantages notwithstanding they act in formal compliance with the tax laws and regulations;
(ii) there are no “substantial economic reasons” (sostanza economica), provided that those transactions consumed indicating “non-marginal extra fiscal reasons”.
These new provisions were not applicable to the above case decided by the Italian Supreme Court; therefore, the hope is that the Italian Courts can finally find a common orientation in deciding when and how a share deal can be considered, under every perspective, a real transfer of shares (or quotas) and, therefore, Section 11, Part 1, of TUR shall apply.
However, the common feeling is that there is still a long way to go, and considering that the interpretation of the new guidelines can be disputable as the relevant wording is not completely clear, the tax authorities will still be playing an important role in the post-closing phases of the Italian share deals.
The abovementioned decision of the Italian Supreme Court is available here.
 For a complete review (in Italian), see A. Busani, L’introduzione della norma antielusiva nello Statuto del Contribuente: continua la riqualificazione dello share deal in asset deal, in Le Società, 7/2017, pages 810-819, which includes a list of the most important decisions of the Italian Supreme Court (Corte di Cassazione) re: requalification of share deals into asset deals.