Article 110 of Legislative Decree 104/2020 offers a very interesting opportunity for Italian companies. In fact, it provides the possibility to revalue the business assets that will have to be recorded in the current financial statements as of December 31, 2020 for:
- corporations and resident commercial entities that do not adopt IAS/IFRS accounting standards;
- public and private resident entities that carry out commercial activity;
- Snc and Sas;
- non-residents with permanent establishment in Italy;
- sole proprietorships;
- subjects in simplified accounting.
If you opt for tax recognition, there is a particularly advantageous substitute tax (3% compared to 12%-14% in the past).
REVALUATION OF BUSINESS ASSETS: AREAS OF APPLICATION
The August Decree provides for the possibility to revalue the following assets and shareholdings:
- land and buildings;
- plant, equipment machinery;
- trademarks, patents and know-how;
- software, concessions and licenses;
- equity investments in subsidiaries and associates recorded under financial fixed assets (particularly interesting for real estate companies;
- assets in progress.
Included is the possibility to revalue each business asset without the obligation to revalue all assets belonging to the same homogeneous category, unlike previous versions of the same facility.
LEGISLATIVE DECREE 104/2020 AND RECOGNITION OF MAJOR VALUES
The subjects receiving the benefit can choose to carry out the revaluation only for civil/accounting purposes or opt for the tax recognition of the higher values. In both cases, the higher values of the assets recorded in the financial statements will be matched by the recording of a specific revaluation reserve in equity.
Only civilistic recognition
If the revaluation of business assets is carried out only for statutory purposes, the higher values recorded in the financial statements will not be recognised for tax purposes and the company will not pay any substitute tax. the revaluation reserve recorded under shareholders’ equity in relation to the higher values conferred to the assets will not result in a tax suspension and it will not be necessary to frank it to use it to cover losses or to distribute it to shareholders.
In this case, the possibility of deducting the higher depreciation for tax purposes is not recognised.
Also fiscal recognition
In the event that the revaluation of business assets is also carried out for tax purposes, the company will have to pay a substitute tax at the rate of 3% of the value of the revaluation carried out with the possibility of installment payment and the higher values will be recognized for tax purposes starting from the tax period in progress as at 31 December 2021 with effect:
- on the determination of the plafond of maintenance expenses,
- on the deductibility of the amortization allowances,
- on the discipline of shell companies,
- on reaching the ISA score.
REVALUATION RESERVE AND ENFRANCHISEMENT
In the event of recognition also for tax purposes of the higher values, the reserve recorded net of the substitute tax will be in suspension of tax, except in the case of a tax relief through the payment of a substitute tax of 10% of the revalued amount.
REVALUATION OF BUSINESS ASSETS FOR HOTELS AND THERMAL FACILITIES
For companies and institutions operating in the hotel and thermal facilities sectors, activities most affected by the COVID-19 pandemic, other specific re-evaluation opportunities are foreseen.
Article 6 bis of the Law converting the Liquidity Decree in force since 7 June 2020 establishes for these realities the free revaluation of assets and shareholdings.
The reserve created as a result of revaluation may be fully or partially released by applying a substitute tax on income tax and IRAP and any additional 10%.
Any capital gain generated in the first of the fourth year following the revaluation is calculated starting from an initial cost equal to the value before revaluation.
DEFERRAL OF REALIZED CAPITAL GAINS
In case of tax recognition, the legislation provides for a period of deferment of the effectiveness of the higher values in case of realization.
If the revalued assets are realized before 1 January 2024 (for entities with tax periods coinciding with the calendar year) the tax value of the related capital gains and losses will be calculated on the values of the assets before revaluation.
CRITERIA FOR THE VALORIZATION OF ASSETS AND ESTIMATIVE APPRAISAL
In order to enhance the value of the goods, the market value of the goods themselves or their value in use may be used.
The rule does not expressly provide for the obligation of an appraisal. It is however appropriate to have an appraisal report prepared in cases of tax recognition and for assets of greater value, unique or for which the calculation would be technically complicated.
HOW TO ACCOUNT FOR THE HIGHER VALUES FOR THE REVALUATION OF BUSINESS ASSETS
The regulations provide for three accounting methods through which to highlight the revaluation of company assets:
- revaluation of the historical cost of the asset only;
- total or partial reduction of the depreciation fund;
- simultaneous revaluation of the historical cost of the asset and the respective depreciation fund.
In general the revaluation of the historical cost of the asset is therefore the most used. The revaluation must be shown in the inventory and in the notes to the financial statements as at 31 December 2020. Often it is necessary to keep a special Board of Directors in relation to the most valuable assets in order to evaluate the operation and/or assign the task to the expert.
LEGISLATIVE DECREE 104/2020 AND ADVANTAGES OF THE REVALUATION OF BUSINESS ASSETS
Once identified the revalutable assets, it is necessary to carry out some verifications on the requirements in order to proceed to the simulation of the convenience according to the various modalities and the various accounting criteria. There are numerous advantages that make the opportunity very interesting:
- deductibility of greater amortizations starting from the 2021 Balance Sheet after fiscal recognition;
- carry-over of the assets recorded in the Financial Statements at market values;
- strengthening of the company’s assets through the recording of a special reserve that allows immediate coverage of any losses or an increase in capital;
- improvement of the relationship between debt and equity, also for the purposes of bank lending and commercial ratings;
- possibility of distributing the revaluation reserves if the company’s liquidity allows it;
- revaluation of intangibles (trademarks and patents, where registered) which allows the emergence of unexpressed values with positive effects on any reorganization, sale and aggregation operations;
- possibility never before granted by the legislator, to revalue individual assets (and not the entire homogeneous category).