With regard to the contributions of the business unit of a p.e., made between two EU companies, one of which is resident in Italy for tax purposes, Article 179, paragraph 2, of the Italian Tax Consolidated Act (hereinafter TUIR) expressly provides that the so-called tax neutrality regime set out by Article 176 of the TUIR (regulating contributions of business with domestic relevance), is limited to the assets of the permanent establishment actually transferred to the transferee company.
In order to “benefit” from the “tax neutrality” regime, Article 176, paragraph 4, provides that the transferor:
(i) books the shares received in its “balance sheet”; and
(ii) assumes, as their value for tax purposes, the value of the transferred business unit.
The tax neutrality is, therefore, conditioned by the fact that, as a result of this transaction, the participation in the transferee company is booked in the same accounts of the “contributing” permanent establishment from which the transferred assets “come from” (in accordance with the OECD principle of the so-called “functionally separate entity approach” applicable to the p.e.).
On the contrary, as clarified by the Italian Revenue Agency, whether such participations are directly assigned in the parent company’s account (or first assigned to the contributing p.e. and then transferred to its parent company), the shares are considered as “sold” and then Italy is entitled to tax any potential capital gain pursuant to Article 166 of the TUIR concerning the so-called “exit tax”.
However, on this regard, the capital gain realised will be considered (partially) exempt or, alternatively, the capital loss will be considered non-deductible if the participation in question qualifies for the “participation exemption” tax regime under Article 87 of TUIR.
