Investment in Italy

Investment in ItalyThe disposal of a business unit is not subject to VAT but is subject to registration tax atdifferent rates depending on the assets transferred (3 percent on goodwill, 0.5 percent onreceivables, and 7 percent on real estate). Although registration tax should be split betweenthe parties it is often paid by the buyer, under specific clauses in the sale and purchaseagreement.The fair market value of the transferred business unit is subject to assessment by theregistration tax office. Therefore, it is advisable to obtain an appraisal from an independentexpert beforehand, to be used as documentary evidence in the event of tax assessment.A common way of structuring an asset deal is to hive off the target business segment into aNewco in exchange for Newco shares, and then sell the shares in the Newco to the buyer.In this transaction:• the contribution of the business segment to the Newco is neutral for tax purposes.In other words, any capital gain made on the contribution in the statutory accounts isignored for tax purposes and the Newco will not obtain any step-up in the tax basis ofthe assets received• the tax basis and the aging period of the business segment contributed to the Newcowill be rolled over to the shares in the Newco• the subsequent sale of shares can be covered by the participation exemption, so thatany capital gain is taxed at an effective rate of 1.375 percent (27.5%*5%).From a buyer’s perspective, the Newco has the option to realign its tax basis to the statutorybasis by paying a substitute tax on the step-up, at the following rates:• 12 percent on the first EUR 5 million of the step-up• 14 percent on any amount between EUR 5 and EUR 10 million• 16 percent on any further amount.The stepped-up assets are subject to ordinary amortization/depreciation tax rules. Thesubstitute tax is paid in three instalments over three years.An alternative substitute tax regime grants the possibility of applying a 16 percent substitutetax on:• goodwill• brands or trademarks• other intangibles (with an indefinite useful life).The alternative substitute tax regime provides for accelerated amortization. In this way, thecost of goodwill and brands can be amortized for tax purposes over nine years instead of 18years, regardless of the amortization charged to the statutory profit and loss account.The contribution of a business segment is not subject to VAT. Registration tax of EUR 168.00is due.Asset deals and contributions of business segments fall within the scope of the antiavoidanceprovisions discussed in 5.1.5 above.© 2012 KPMG S.p.A., KPMG Advisory S.p.A., KPMG Fides Servizi di Amministrazione S.p.A., KPMG Audit S.p.A., Italian limited liability share capital companies, and Studio Associato Consulenza legale e tributaria, anItalian professional partnership, are member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.89