Tremonti Romagnoli Piccardi e Associati, assisting a multinational group operating in the household appliance sector, obtained a favorable response from the Italian Tax Authority regarding the tax regime applicable to price adjustment clauses, i.e. clauses which have the purpose of amending, further to events that may arise after the closing, the economic value (hence, the purchase price) of a shareholding.The ruling confirmed that the indemnities received by the purchaser further to liabilities arisen at the target level are not subject to corporate tax as windfall profits (pursuant to Art. 88, par. 3, lett. a, TUIR) in the hands of the purchaser but, instead, they reduce the tax value of the shareholding, thus affecting the calculation of future capital gains/losses potentially realized over the same shareholding (Article 110, c. 1, TUIR). This approach applies irrespective of the fact that the aforementioned indemnities may be recorded, in certain cases, as profits in the P&L statement, according to IFRS 3, since Article 3, paragraph 3, letter a), first IAS Decree, expressly authorizes a double track regime (accounting vs tax) in relation to corporate shareholdings.

The clarification is particularly important due to the wide application of this type of clauses in the M&A market and also because a recent decision of the Italian Supreme Court (No. 17011/2020), although concerning a very peculiar case, may have given grounds for a different interpretation.

Instead, the Tax Authority held the view that such indemnities should be subject to the Regional Tax on Productive Activities (IRAP) since, for such purposes, the applicable taxation is strictly based on the formal records of P&L statements. The Tax Authority did not accept the taxpayer’s argument according to which such indemnities, even where recorded as profits, should not be subject to IRAP since they are related to capital gain/losses, which are not relevant for IRAP purposes.

Tremonti Romagnoli Piccardi e Associati acted with a team composed by Cristiano Caumont Caimi, Fabrizio Cancelliere, Caterina Piva and Federica Sgarzani.