The sale of holdings is a customary exit or cash repatriation strategy.
If a tax treaty does not exist or if a treaty (e.g., the Italy - France tax treaty) does not fully shelter against the Italian capital gain tax, the sale of holdings may give raise to a capital gain tax exposure.
The Italian tax exposure is equal to, as far has qualified equity holdings is concerned, 13.673% of the realized capital gain (calculated on an arm’s length basis), being 49.72% (capital gain subject to tax) times 27.5% (corporate income tax rate).
2. The step-up regime
The Government has now re-opened the deadline for the re-valuation of the purchase cost of participating interest and similar holdings which are not listed on regulated markets.
Namely, limited to participations owned as at July 1st, 2011, it is now possible to reduce the capital gain tax exposure by stepping-up the cost basis paying, as far has qualified equity holdings are concerned, a 4% substitute tax on the sale price.
The 4% substitute tax must be paid in 3 equal instalments (plus 3% interest) by, respectively:
- June 30, 2012;
- June 30, 2013; and
- June 30, 2013.
If the taxpayer already stepped-up the value of the participations in the past, a tax credit is recognized up to the amount of the 4% substitute tax paid in the past.
The step-up regime is possible only in case an appraisal certifying the value or the holdings is drafted and sworn by an independent expert by June 30, 2012.
By Alessandra Bellerio, Associate, and, Fabio Aramini, Partner