Opportunities of the Appraisal for Tax Loss Carrying Forward in Italy: New Rules of Legislative Decree 192/2024

published on 14 March 2025 | reading time approx. 6 minutes

Italian Legislative Decree 192/2024, implementing the enabling law for tax reform in the context of Corporate and Personal Income Tax, introduced significant changes regarding the regime for tax loss carrying forward in the event of transfer of shares (art. 84 para. 3 Income Tax Code – ITC) and in the case of mergers and demergers (art. 172 para. 7 and 7-bis and art. 173 para. 10, ITC). The decree has introduced some innovations, including a quantitative limit on carrying forward losses which is the economic value of the equity as indicated in a sworn appraisal report.

Carrying Forward Losses in the Event of Transfer of Shares and Change of Activity

Art. 84 para. 3 generally excludes the carry-forward of losses if:

the overall shareholdings representing a majority of the voting rights in the ordinary shareholders' meeting of the entity carrying forward the losses are transferred or otherwise acquired by third parties, even on a temporary basis; and
in addition, the core business exercised in the tax periods in which the losses were realised is changed.

This exclusion does not apply (pursuant to Article 84, para. 3-bis) if the so-called ‘vitality test’ is exceeded, i.e. if the amount of revenues and income from core business activities and the amount of expenses for employee services and related contributions exceed 40 percent of those resulting from the average of the last two previous tax years’ financial statements.

The quantitative limitation on tax loss carrying forward, introduced by Legislative Decree no. 192/2024 introduced in para. 3-ter, is the economic value of the shareholders' equity of the company reporting the losses as resulting from a sworn report. This report must be prepared by an expert appointed by the company.

The economic value of the equity thus calculated must be reduced by an amount equal to the product of:

the sum of the contributions and payments made in the preceding twenty-four months; and
the ratio between the equity economic value resulting from the sworn appraisal and the equity book value.

Contributions made by the State or other public entities under the law are not included in the above payments.

In the absence of a sworn appraisal, losses can be carried forward within the limits of the equity book value as shown in the balance sheet as of the reference date of the losses, without considering the contributions and payments made in the preceding twenty-four months (excluding contributions made by the State or other public entities under the law).

These provisions also apply to carrying forward of non-deducted interest expense surpluses and so-called “ACE” surpluses.

Carrying Forward Losses in the Case of Mergers and Demergers

As above, the tax losses of the companies participating in the merger (and the demerger, given the reference of art. 173 to 172) can be deducted from the income of the company resulting from the merger according to the limits provided by art. 172 para. 7 of the ITC.

In this case, too, it will have to be checked that the “vitality test” has been passed.

If the "vitality test" has been passed, the losses of the companies participating in the merger can be deducted from the income of the company resulting from the merger within the limit of the equity economic value of the company to which these losses pertain. This value, determined at the effective date of the merger, must be shown in a sworn appraisal drawn up by an expert appointed by the company.

Similarly to what is provided by art. 84 para. 3, the equity economic value must be reduced by an amount equal to the product of:

The sum of contributions and payments made in the twenty-four months prior to the effective date of the merger/demerger; and
The ratio between the equity economic value resulting from the sworn appraisal and the equity accounting value.

In this case, too:

Contributions made by the State or other public entities under the law are not included in the above payments.
In the absence of a sworn appraisal, losses can be carried-forward within the limits of the equity book value as shown in the last balance sheet or, if lower, in the financial situation (required by article 2501-quater of the Civil Code), without considering the contributions and payments made in the last twenty-four months prior to the date to which the situation itself refers (excluding contributions made by the State or other public entities under the law).

The Decree also confirmed that the aforementioned limits:

Apply also to losses accrued in the period between the effective accounting and tax date of the operation and the legal effective date, i.e., the so-called "interim period," in the case of the accounting and tax effects of the merger being backdated;
Apply also to non-deductible interest expense surpluses and residual ACE surpluses;

However, non-application of the specific anti-avoidance rule can be requested in an advance ruling.

Intragroup Losses

With the introduction of the new art. 177-ter of the ITC, the limits and conditions for tax loss carrying forward in the case of the transfer of shares and change of activity or in the case of merger and demerger do not apply if these transactions occur within the same group for "intragroup losses" and "homologated" losses (as defined by the Explanatory Report to the Legislative Decree).

Conclusions on the Opportunity of the Appraisal

The quantitative limit for tax loss carrying forward, as represented by the accounting equity of the company with tax losses, has been revised, as it is an approximate indicator of the capacity to generate future taxable income.

This prospective capacity is clearly poorly represented by the accounting value of the equity (or rather, it may have no logical connection with it). In light of this, the legislator has decided to introduce, as a new quantitative limit, the equity economic value, which is a more significant indicator of the tax position recoverability and also an indicator already considered by the Revenue Agency in some answers to advance rulings.

It was recognised that, under standard circumstances, the equity accounting value derived from financial statements or mergers/demergers, prepared in accordance with sound accounting principles, is lower than the equity economic value. This is because the latter incorporates capital gains on assets/liabilities and goodwill.

Consequently, the accurate determination of the equity economic value through a sworn appraisal based on solid valuation principles and conducted by a professional can present a significant opportunity to benefit from tax loss carrying forward in the operations described above.

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