Proposed Italian tax reform on extraordinary transactions
Roberto M. Cagnazzo
by Roberto M. Cagnazzo
The Italian government has introduced a series of proposed reforms aimed at updating tax regulations governing certain extraordinary transactions. These amendments, part of a broader tax overhaul, target key areas such as cross-border mergers, contributions of participations, and a newly introduced demerger structure.
Cross-border mergers
The reforms propose changes to the tax treatment of cross-border mergers involving:
a company resident in the EU or European Economic Area (EEA), where Italy has an agreement for tax information exchange; and
an Italian tax-resident company,
with the merged entity classified as an Italian tax resident. Under these new rules, the surviving company may utilise the pre-merger losses of the EU/EEA entity to offset future taxable income in Italy. However, this is subject to two conditions:
The losses must be recalculated according to Italian tax law.
The losses must not be available for use in any other jurisdiction.
Additionally, during the fiscal year(s) when the foreign entity incurred the final losses, and in the year of the merger itself:
One of the merging entities must control the other; or
Both companies must be under the control of the same third-party entity.
Contributions of participations
Current Italian tax law provides tax exemptions for contributions of participations under certain circumstances, such as:
When the contributing company acquires or increases a controlling stake in the recipient company; or
When non-portfolio participations are involved.
This favourable tax treatment applies only when both the contributing company and the company whose shares are being contributed are Italian tax residents.
The reform seeks to broaden this regime to include share exchanges where the contributed company is not an Italian tax resident. However, the amendments do not extend the exemption to cases where the contributing company is resident outside Italy, or to contributions involving partnerships.
New form of demerger
The proposed reform introduces a new form of demerger, aligning with EU Directive 2019/2121. In this structure, the participations resulting from the demerger are retained by the company itself rather than being allocated to shareholders.
The tax treatment for this demerger type includes the following guidelines:
The participations obtained by the transferring company assume the same value as the net assets contributed.
The recipient company applies the same asset values as those held by the demerged entity.
The net equity of the demerged company remains unaffected.
In cases where a foreign company transfers the assets of its Italian permanent establishment to an Italian company as part of the demerger, no capital gain is realised by the non-resident company when it receives shares in the Italian company.
These proposed reforms aim to clarify and streamline the tax framework for cross-border and domestic extraordinary transactions, offering expanded opportunities while maintaining robust compliance with Italian and EU tax standards.
GGI member firmThree & PartnersTurin, ItalyT: +39 011 591 867
Accounting, Tax, Law Firm Services, Corporate Finance
Three & Partners is a boutique firm based in Turin and deep-rooted in the north-west of Italy, with a clear European identity and a strong international vocation. The firm provides integrated tax, corporate, legal, and business advice, and assistance all over Italy on a wide range of domestic, European, and international matters.
Roberto M. Cagnazzo, Founder and Partner, is a chartered accountant and statutory auditor with considerable experience in domestic and international taxation acquired as Head of Tax in some of Italy’s leading multinational groups, and as Professor of Comparative Tax Systems and of Tax Law at the University of Turin.Contact Roberto.
