Torino, Italy


By Roberto M. Cagnazzo, Studio Tributario Cagnazzo

Non-residents who want to invest in Italy have the following two options to carry out the transaction:

  1. asset deal: the investor identifies the company but does not buy the legal entity, he just buys the business he wants;
  2. share deal: the investor identifies the company and buys the legal entity.

They can do so: a) directly from abroad, b) through a company incorporated in a third jurisdiction, c) through an Italian permanent establishment, or d) through an Italian special purpose vehicle (SPV).

This article deals exclusively with the situation where the investor purchases a business or company through an Italian SPV.

In case of an asset deal, the Italian SPV buys a business (assets and liabilities, including the goodwill, if any) from the seller, and the issues to consider are the following:

1. Allocation of the purchase price

There is no specific tax rule for the allocation of the purchase price to each single asset or liability forming the business. Therefore, the purchase price must be allocated based on the fair market value of the assets and liabilities transferred.

Usually, the buyer and the seller allocate the total price to each single asset or liability in the deed of purchase in order to identify exactly the price paid and to avoid discussions with the Tax Authorities (even if not mandatory, an appraisal of the business is very useful to prove this allocation).

2. Depreciation of the assets

The SPV must records the assets received at the purchase price and may depreciate them based on this new value recognised for tax purposes.

3. Depreciation of the goodwill

If a portion of the purchase price is paid for the goodwill, this value is recognised for tax purposes and can be depreciated over a period of 18 years.

4. Tax liabilities

The SPV is jointly liable with the seller for any tax liabilities connected with the business and originating from a breach of the tax law:

  • made in the year of the acquisition or in the two previous years, or
  • emerging from a tax audit that has taken place before the transaction.

The maximum tax liability of the buyer is equal to the value of the business purchased. To limit the liability of the buyer it is suitable to ask for a certificate, issued by the Tax Authorities, attesting the tax debts existing on the date of the transaction (in this case, the exposure can be limited to the amount shown on the certificate).

5. Tax losses

These are not transferred to the SPV. VAT credits, on certain conditions, may be transferred to the buyer along with the business.

6. Indirect taxation

The transfer of a business is not subject to VAT, but it is subject to Registration Tax with the following rates:

  • land and buildings: 9%,
  • movable and intangible assets (goodwill): 3%.

If the assets are subject to different rates, the liabilities of the business reduce the value of the assets in proportion to their respective values.


In case of a share deal, the Italian SPV buys the company from the seller and the issues to consider are the following:

1. Classification of the purchased shares

The classification of the purchased shares in the balance sheet of the SPV is a key issue because it can affect the taxation of their subsequent sale.

• If recorded as inventory, their future disposal will result in a profit subject to Corporate Income Tax at 24%;

• If recorded as financial fixed assets, their future disposal will result in a capital gain subject, if certain conditions are met, to Corporate Income Tax at 1.2%.

2. Tax losses

A company cannot carry forward its tax losses if there has been together a:

• change of control;

• change of business activity in the two years before or two years after the transaction.

This rule does not apply if the following conditions are met:

• the company has employed a minimum of 10 people during the two years before the change of ownership; and

• the P&L account of the company in the year before the change of ownership shows revenues and labour costs which are at least 40% of the average in the two previous years.

If the said conditions are not met, the SPV can apply for a ruling with the Tax Authorities to avoid the application of this anti-abuse rule.

3. Indirect taxation

Transactions involving shares, bonds, and other securities are exempt from VAT and Stamp Duty.

4. Step-up of the assets

No step-up of the assets of the company is allowed for tax purposes that maintain the same book value and tax basis they had before the share acquisition.

Goodwill, trademarks, and other intangible assets may be stepped up for tax purposes by paying a 16% substitute tax.

5. Merger

A way to step-up the tax basis of the underlying assets of the company is to merge the SPV with the company. In this case, the step-up of the tax basis of the underlying assets is possible by paying the following substitute taxes:

  • 12% (first EUR 5 million);
  • 14% (part up to EUR 10 million);
  • 16% (part exceeding EUR 10 million).

In a share deal, to reduce the overall cost of financing the acquisition, foreign investors who utilise an Italian SPV need to consider whether to use debt or equity to buy the target company. To maximise this reduction, they are used to structure the acquisition of the target company as a leveraged buyout (LBO) or a merger leveraged buyout (MLBO). The difference is that the SPV is part of a tax consolidation arrangement with the target company in the LBO while the SPV merges with the target company in the MLBO.

From a tax point of view, the companies involved in an LBO or a MLBO can offset the interest expenses of the SPV against the income of the target company, with the following limits:

  • Interest expenses are fully deductible to an amount equal to the interest income accrued in the same year.
  • Any surplus is deductible up to 30% of the EBITDA.
  • Any interest expenses exceeding 30% of the EBITDA may be carried forward for deduction in the following tax periods to the extent that the interest expenses accrued in future tax periods are less than 30% of the EBITDA of each period.
  • The portion of the EBITDA not offset against interest expenses may be added to the EBITDA of the subsequent tax periods.
  • Where a company is part of a tax consolidation arrangement, the interest expenses exceeding 30% of the EBITDA may be used to offset the taxable income of another company within the tax group (if the EBITDA of that company has not been fully offset against its own interest expenses).

Until 2016, the Italian Tax Authorities aggressively challenged LBO and MLBO transactions, but from 2016 they have clarified that:

  • generally, LBO and MLBO are not tax-abusive transactions and the related interest expenses are deductible under the ordinary tax rules;
  • abusive transactions will continue to be challenged by the Tax Authorities based on the general anti avoidance rule.


So, to summarise the pros and cons of an asset and a share deal:

Advantages (asset deal)

  • step-up in the tax basis of the assets allows higher depreciation (including goodwill);
  • previous tax liabilities of the seller are partially transferred to the buyer;
  • possible to buy only part of a company.

Disadvantages (asset deal)

  • less attractive to the seller (a share deal is partially tax exempt);
  • higher Registration Tax;
  • higher CIT on capital gains;
  • TLCF incurred by the target company remains with the seller.

Advantages (share deal)

  • more attractive to the seller (the disposal is partially tax exempt);
  • buyer may benefit from the TLCF of the target company;
  • lower Registration Tax;
  • possible to reduce the cost of financing the acquisition using an LBO/MLBO structure.

Disadvantages (share deal)

  • buyer is liable for any claims or liabilities of the target company;
  • no free step-up in the tax basis of the purchased assets.

Roberto M. Cagnazzo

Roberto M. Cagnazzo

GGI member firm
Studio Tributario Cagnazzo
Tax, Auditing & Accounting, M&A, Corporate Finance
Turin, Italy
T: +39 011 580 8352
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Studio Tributario Cagnazzo is a “boutique” firm mainly focused on providing integrated tax advice and assistance all over Italy to corporations, banks, multinational groups, and high-net-worth individuals on a wide range of domestic and international tax and corporate issues. The firm provides its domestic and international clients with specialist knowledge for strategic advice to resolve any tax and legal issue on a local or global scale ranging from corporate tax issues to extraordinary financial transactions, such as domestic and cross-border reorganisations, IPOs, takeover bids, and M&A.

Roberto M. Cagnazzo, Founder and Partner, is a Chartered Accountant and Statutory Auditor with considerable expertise in domestic and international taxation acquired as head of tax in some of the leading listed Italian multinational groups and as Professor of Tax Law and International Tax Law at the University of Turin.

Published: June 2020 l Photo: photomaticstudio -

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