The Law Decree no. 18 of 17 March 2020 (hereinafter, the “Decree”) is, at this point, a well-known legislative tool also to the audience of non-experts, considering that it aims at adopting measures which affect almost all national economic sectors to respond to the epidemiological emergency of Covid-19.
The measures contained therein lead to an increase in net debt of around 20 billion euro in 2020 (equal to 1.1 per cent of GDP) and the resources allocated to support enterprises amount to around 7 billion (6.2 for higher expenses and 0.9 in terms of lower revenues), with the main purpose of providing liquidity to enterprises and avoiding credit restrictions.
In addition to purely fiscal measures, the main actions concern the suspension of loans and other facilities expiring in upcoming months and the strengthening and expansion of public guarantee schemes for enterprises’ loans, and also the introduction of an incentive to sell NPLs to third parties, based on the possibility of transforming a portion of deferred tax assets (DTA) into tax credits, for an amount proportional to the value of the NPLs sold.
The main support measures for enterprises established by the Decree will be examined below, also in the light of the memorandum issued by the Bank of Italy, which provides comments on the Decree in view of its conversion into law. Bank of Italy considers, the relevant measures, as well as the extent of the financial commitments, as “appropriate to the current stage of development of the epidemic”. Such opinion has been issued also on the basis of the commitment by the Government to adopt further measures and on the circumstance that the European institutions may consider as fulfilled the conditions to activate the general escape clause of the Stability and Growth Pact (SGP), subject to which deviations from the return path towards the medium-term budgetary objective are allowed.
- Guarantee Fund for SMEs
Article 49 of the Decree establishes a Central SME Guarantee Fund, in order to provide a free-of-charge, partial insurance to the credits granted by credit institutions, for a duration of 9 months.
In order to face the foreseeable increase in the Fund’s operations, € 1.5 billion are set aside for 2020.
The maximum guaranteed amount for each enterprise is raised to € 5 million; for direct guarantee interventions, the coverage percentage is equal to 80 percent, and for reinsurance intervention is equal to 90 percent, of the amount of each financing transaction, for a maximum guaranteed amount of € 1.5 million for each transaction.
Loans granted in refinancing transactions are eligible for the guarantee of the Fund, provided that the lender grants to the same beneficiary of additional credit for at least 10% of the amount of the outstanding loan.
For transactions for which banks or financial intermediaries have agreed to suspend payment of instalments in connection with the effects of COVID-19, the duration of the guarantee of the Fund is extended accordingly.
For real estate investment transactions in the tourism - hotel and real estate sectors, with a minimum duration of 10 years and for an amount exceeding € 500,000, the guarantee of the Fund can be combined with other forms of guarantee acquired on loans.
For guarantees on specific loan portfolios dedicated to companies damaged by the Covid-19 emergency (or belonging, for at least 60 percent, to specific sectors/chains affected by the epidemic), the share of the junior tranche covered by the Fund may be increased by 50 per cent, which can be further increased by 20 per cent in the event of intervention by additional guarantors (Regions, Cassa Depositi e Prestiti, Confidi).
In any case, enterprises that have exposures classified as non performing or UTP are excluded.
Finally, the gratuitous guarantee by the Fund is eligible for a coverage of 80 per cent (90 per cent for reinsurance) for new loans of short-term granted within the limit of € 3,000 to individuals acting in businesses whose activity was damaged by the Covid-19 epidemics (on the basis of a self-declaration).
The Bank of Italy has rightly pointed out that it would be fair to increase the maximum coverage quota of 80 percent set by the Decree for all types of financing, given that the quota is currently comprised between 40 and 60 percent for short-term loans, and the request for new credit is likely to concentrate on such kind of loans in the near future.
- Guarantee fund by the Ministry of Economy and Finance
Article 57 of the Decree amends the permanent fund by the Ministry of Economy and Finance aimed at promoting the granting of bank loans, with the support of the Cassa Depositi e Prestiti (CDP).
More specifically, liabilities undertook by CDP (also by way of guarantees) in favour of banks which financed enterprises that suffered a reduction in turnover due to the Covid-19 emergency and that cannot access the Central Fund for SMEs, due to their dimension or to their specific business, may be eligible to the State guarantee for a limit of 80% of the liability undertaken.
This fund, whose functioning will be defined in detail on the basis of an implementing decree, is assigned an initial allocation of 500 million euro for 2020.
The Bank of Italy maintained that this measure is addressed to enterprises that have suffered the negative effects of the epidemiological crisis, but have, on average, better financial conditions and access to new loans than the rest of the production system.
In addition, unlike the SME Fund, this instrument could also guarantee existing loan portfolios, allowing banks to reduce capital requirements accordingly.
Also, the qualification of enterprises as SMEs implies certain requirements, although the Recommendation of the European Commission 2003/361/CE of 6 May 2003 specifies that in certain cases such requirements must not only refer to the single enterprise, but also to parent companies. Therefore, it is necessary to check compliance with the above requirements in order to avoid criminal and civil liabilities connected to a false declaration.
The Bank of Italy states that banks are not obliged to verify the truthfulness of the self-declarations received for the requests of moratorium.
- Tax credit for assignment of defaulted claims
Lastly, article 55 introduces the possibility for enterprises assigning defaulted claims (past due for more than 90 days) to transform a portion of deferred tax assets (DTA) into tax credits for an amount proportional to the value of defaulted claims that are transferred to third parties.
In this way, it is possible to anticipate the use of the lower taxes corresponding to these DTAs, which otherwise the companies would have used in subsequent years, by determining an immediate reduction in the liquidity requirement associated with the payment of taxes.
For more details, also on other tax reliefs, please see our newsletter below Coronavirus Tax Relief Measures