Spin-off operations with de-merger: definition and considerations from an accounting and tax point of view

From this provision it can be deduced that the elements characterizing this type of corporate restructuring are: a) firstly, the partial assignment of the assets of the demerged company to one (or more) newly incorporated beneficiary companies, b) secondly, the assignment of the shares or quotas of the beneficiary company directly to the demerged company (and not to the shareholders of that company as is typically the case in traditional de-merger operations) and finally c) the continuation of the corporate activities of the demerged company following the operation.

​Paragraph 2 of the new Art. 2506.1 of the Civil Code delimits this form of corporate restructuring by stating that “companies in liquidation, that have commenced the distribution of their assets, may not carry out this kind of de-merger operations”.

Among the various procedural aspects, it should be noted that a spin-off via de-merger requires the administrative body of the companies participating in the de-merger to draw up a simplified de-merger plan, while an expert’s report on the fairness of the exchange ratio is not required.

As to the differences with contribution-in-kind operations, it should be emphasized, inter alia, that the latter are transactions of a purely managerial nature, which do not require the approval of the shareholders. But, unlike de-merger via spin-off operations, such transactions require an independent expert’s report on the transferred assets or receivables pursuant to Articles 2343 or 2465 of the Civil Code.

The spin-off via de-merger is carried out with book value continuity as is the case for traditional de-merger transactions. In particular, Article 2504-bis, paragraph 4, and the aforementioned Article 2506-quater, paragraph 1, of the Italian Civil Code are applicable, pursuant to which, in the first balance sheet following the de-merger, the assets and liabilities assigned to the spun-off company are recognized on the basis of the values resulting from the accounting records of the demerged company on the effective date of the transaction.

As consequence, with reference to the financial statements of the de-merged company, the spin-off operation via demerger implies the mere substitution of the assets and liabilities assigned to the spun-off company with the shareholding received in exchange for them, which will be valued in line with the net book value of the transferred assets.

Accordingly, the net book value of the spun-off company will not change because of the transaction, and no capital gains will arise. 

Although no legislation specifically regulating the tax aspects of corporate transactions carried out by means of a demerger with spin-off is yet available, for direct tax purposes, the applicability of Article 173 paragraph 1 of the T.U.I.R., and therefore the principle of tax neutrality typical of de-merger transactions, is unquestionable.

It follows, therefore, that both the first-degree assets, represented by the assets transferred, and the second-degree assets, i.e., the shareholdings representing the share capital of the newly incorporated company, do not undergo any change in value following the spin-off.

Moreover, referring again to paragraph 2 of the same article, it appears that the assets received by the spun-off company shall be valued in line with the last tax value as recognized by the spun-off company.

The shareholding generated in substitution of the demerged assets, again in compliance with the principle of tax neutrality, will have to be valued on the basis of the same tax value of the assets demerged in the spun-off company. This value is thus inherited entirely through the assets to which the shareholding refers to, and the inheritance of such values should similarly apply to any other associated tax attribute.

In the event that a business branch is spun off instead, it  Article 176 paragraph 4 of the T.U.I.R., provides for the carry-over of the holding period for the purposes of the participation exemption regime. Therefore, the shareholding received under the tax neutrality regime are considered to be recognized as financial fixed assets in the financial statements in which the assets of the demerged company have been recognized.

It is of particular importance to note that the extraordinary transaction in question could give rise to abuse of rights in the event that the taxpayer transfers individual assets that do not constitute a business unit. For instance, one might consider the case in which the asset being demerged by way of spin-off were a real estate asset, for which registration tax would need to be applied at a fixed rate and not proportionally as in the case of a standard transfer operation. Therefore, it will be necessary to assess on a case-by-case basis the legitimacy and the applicable areas in which transfers effected by de-merger by way of spin-off of stand-alone assets (i.e., not constituting business units) may not be considered as cases of abuse of law. In fact, if on the one hand the spin-off via demerger of a single asset constitutes a tax-neutral transaction, on the other hand, this is not the case for the transfer of a single asset, which instead generates taxable capital gains pursuant to Article 9(2) of the TUIR.

The above assessments concerning any issue of abuse of law should also be extended to the evaluations of compatibility with the Italian Revenue Agency indications as per the non-transferability of the pre-existing goodwill in the context of a business transfer (see Revenue Agency Circular No. 8/e of 2010), as well as with respect to the tax consequences that may arise from the transfer, by a foreign parent company, of its permanent establishment in favor of an Italian resident company (see Revenue Agency Resolution No. 63/e of 2018).

With regards to transnational aspects, the rules set forth in Articles 166 and 166-bis of the TUIR on exit and entry tax should be applicable to spin-off transactions.

Lastly, regarding indirect taxes, de-merger operations by way of spin-off should not be considered taxable for VAT purposes; therefore, pursuant to Article 2(3)(f) of Presidential Decree No. 633/1972, the transaction should be subject to fixed registration tax pursuant to Article 4(b) of the Tariff, Part I, attached to Presidential Decree No. 131/1986. As to cadastral taxes, if the transaction concerns immovable property, it should be subject to fixed-rate tax, pursuant to Article 10(2) of Presidential Decree No. 347/1990 and Article 4 of the Tariff annexed thereto.

As per the regulatory aspects concerning the tax implementation of the criteria set forth in the tax delegation law No. 111/2023, the delegated legislator will be tasked with finely regulating the tax neutrality aspects of de-merger operations by way of spin-off as well as clarifying the various cases and issues that remain still unresolved.​