Italy: Demerger followed by transfer of shares, not abusive transaction

Italy: Demerger followed by transfer of shares

The Italian tax authority (Agenzia delle Entrate) issued a tax ruling that addresses the application of the “abuse of law” rule to a demerger that is followed by a sale of shares in the demerging company by its shareholders.

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The ruling clarifies that a demerger followed by a transfer of shares in the demerging entity is not an abusive transaction, provided that:

  • There is a continuation of the business activity of each participating company, and
  • The companies involved pursue actual business activities and do not only contain cash, intangibles or real estate.

Historically, the tax authority’s position was that demergers—especially when followed by a transfer of shares—were deemed to be “abusive.” This treatment changed in 2015 when an anti-avoidance rule was repealed and replaced by the new “abuse of law” rule. Transactions under the new abuse of law provision cannot be identified as abusive if they are justified by sound business reasons. It is up to the Italian tax authority to prove that a transaction is abusive, while the taxpayer must demonstrate that there is a sound business purpose for the transaction.

The tax authority clarified in the ruling—Risoluzione n. 97/2017—that a demerger followed by a transfer of shares may not be abusive if the two requirements (above) are satisfied.

 

Read an August 2017 report [PDF 190 KB] prepared by the KPMG member firm in Italy

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