Home

Internal

Global

Contact

de|en|it

Rödl & Partner opens new office in Waterloo, Canada |

Worldwide

We use cookies to personalise the website and offer you the greatest added value. They are, among other purposes, used to analyse visitor usage in order to improve the website for you. By using this website, you agree to their use. Further information can be found in our data privacy statement.

Tax regime of demerger with spin-off

published on 19 May 2025 | reading time approx. 5 minutes

Legislative Decree no. 192/2024, by introducing paragraph 15-ter of Article 173 of the Consolidated Income Tax Act, established the framework for the taxation of the new institution of demerger with spin-off, in accordance with Article 2506.1 of the Italian Civil Code. This transaction is carried out by means of a partial demerger whereby part of the assets of the demerged company are assigned to one or more newly incorporated companies and the shares in the capital of the latter are assigned to the demerged company itself (excluding its shareholders).

Tax Neutrality with Specific Particularities

The principle of tax neutrality is applicable to a demerger with spin-off. Consequently, the transaction gives rise to neither realization nor distribution of capital gains and losses of the assets of the demerged company, including those relating to inventories and the value of goodwill.

Furthermore, the transfer of assets between the demerged company and the beneficiary companies in this transaction is out of the scope of VAT.

However, from a tax perspective, the transaction has some peculiar aspects compared to a traditional demerger. Indeed, all the provisions of Article 173 of the Consolidated Income Tax Act are applicable to demergers with spin-off, except for those set forth in paragraphs 3, 7, 9, and 10. The following paragraphs therefore do not apply to this new case of demerger:

Paragraph 3, insofar as in a spin-off, the shareholdings of the beneficiary company are assigned to the demerged company and not to its shareholders, and therefore the tax basis of the shareholdings in the demerged company must not be apportioned between different shareholdings (those in the demerged company and those in the beneficiary), but rather the tax basis of the shareholdings issued by the beneficiary company to the demerged company must be quantified ex novo;
Paragraph 7, as the backdating of the demerger is not permitted in the case of a partial demerger;
Paragraph 9, as the regime for reserves provided for therein is expressly regulated for demergers by spin-off in the provisions now introduced;
Paragraph 10, since the limitation on the carrying forward of losses and other tax attributes in traditional demergers presupposes that the beneficiary company already exists, which, according to the civil law, is not possible in the case of a demerger with spin-off pursuant to Article 2506.1 of the Italian Civil Code.

Tax Neutrality with Respect to the Spin-off and the Beneficiary

The demerged company considers that the value of the shareholdings received is equal to the difference between the value for tax purposes of the assets and liabilities being spun off (Art. 173(15-ter) (a)).

From the standpoint of the beneficiary:

the assets and liabilities subject to the spin-off, including goodwill if the demerger relates to a business, have the value recognised for tax purposes that they had in the hands of the demerged company on the effective date of the demerger pursuant to Article 2506-quater of the Italian Civil Code (Art. 173(15-ter)(b));
the assets and liabilities subject to the demerger are deemed to be owned by the beneficiary companies also for the period in which they were owned by the demerged company (Art. 173(15-ter)(c)).

Spin-off of a business

It is also provided that, in analogy with the rules governing business transfers (see Article 176, paragraph 4, of the TUIR), if the spin-off involves a business, the shareholdings received by the demerged company are deemed to be financial fixed assets (in the financial statements in which the assets and liabilities of the demerged company were recognized) and they are deemed to have the same seniority as the business transferred (Art. 173(15-ter)(d)(1)).

Spin-off of a shareholding

If the spin-off concerns shareholding that have already met the requirements for the application of the participation exemption regime, with the exclusion of the holding period, the shareholdings received by the demerged company are considered to be financial fixed assets. They may also benefit from the participation exemption regime, given that for the purposes of verifying the holding period, they have the same seniority as the shareholdings being demerged (Art. 173(15-ter)(d)(2)).

Spin-off of other property, assets and liabilities not constituting a business

In the event of a spin-off involving:

assets and liabilities not constituting business assets;
individual assets;
shareholdings other than those referred to above (para. 15-ter(d)(2)).

The shareholdings received by the demerged company are eligible for the participation exemption regime only if and to the extent that all the requirements under Article 87 of the Consolidated Income Tax Act are met (para. 15-ter(d)(3)).

Transfer of Subjective Positions

Pursuant to Article 173(4) of the Consolidated Income Tax Act, in the case of a partial demerger, the subjective positions of the demerged company (other than those connected to demerged assets that follow such assets) and the related fulfillments are attributed to the demerged company and the beneficiary companies in proportion to their respective remaining or transferred book equity.

For the purposes of applying this provision, the net book value of the assets and liabilities subject to the demerger must be compared to the book equity of the demerged company as of the effective date of the demerger pursuant to Article 2506-quater of the Italian Civil Code (Art. 173(15-ter)(e)).

Tax Stratification of Shareholders' Equity

With regard to the effects resulting from the demerger with spin-off, relating to the tax stratification of the shareholders' equity of the demerged company and the beneficiary company (Article 173, paragraph 15-ter, lett. f), it is provided that:

the beneficiary company has to maintain the tax composition of its net assets as shown in the financial statement for the fiscal year which ended before the date on which the demerger comes into legal effect;
from the standpoint of the beneficiary company, the increase in book equity resulting from the demerger qualifies for tax purposes as a capital reserve since, in this case, the asset allocation resulting from the demerger can be equated with a capital contribution.

Abuse of rights

In conclusion, paragraph 15-quater on the abuse of law was added to Article 173 of the Consolidated Income Tax Act. This provision stipulates that a spin-off transaction involving a business unit, subsequent to the transfer of the shareholding to the beneficiary company, does not constitute an abuse of law as defined by Article 10-bis of the Taxpayers' Rights Statute. This transaction is essentially the same as the transfer of a business, followed by the sale of the shareholding to the beneficiary company. The latter is governed by Article 176(3) of the Consolidated Income Tax Act.