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Transfer of revalued shareholdings to other shareholders: tax benefits and abuse of law

published on 19 May 2025 | reading time approx. 6 minutes

The Guidelines of 26 February 2025, signed by the Deputy Minister of the Economy Maurizio Leo and the Finance Director Giovanni Spalletta, state that the transfer of revalued shareholdings to third and independent parties, as well as to other shareholders, does not constitute abuse of law, provided that such transfers are not merely circular transactions.

The rules governing the revaluation of shareholdings

The 2025 Budget Law has crystallized the rules set out in Article 5 of Law no. 448/2001, which allow taxpayers to revalue the tax cost of shareholdings by paying a substitute tax of 18 percent by 30 November of the same year.

The legislator has also renewed the possibility of making the payment in three equal annual instalments.

This option is reserved for natural persons, simple companies, non-commercial entities and non-resident entities, without a permanent establishment in Italy and in possession, as of 1 January of each year, of (listed or non-listed) shareholdings.

From an operational perspective, the value on which to apply the substitute tax is:

determined by means of a formal appraised of unlisted shareholdings (also referred to as the "appraised value");
calculated on the basis of the arithmetic average of the prices recorded in December of the previous year, with reference to listed shareholdings (also referred to as the "normal value").

In order to establish whether or not the substitute tax is beneficial for them, the taxpayers concerned make a comparison between the 18 percent tax rate, applied on the appraised or normal value, and the 26 percent tax rate, calculated on the capital gain made if the shareholding is sold.

Abuse of law is not subject to criminal sanctions; the rules pertaining to abuse of law are all-encompassing

Almost a decade ago, Legislative Decree 128/2015 (Decree) reformed the rules pertaining to abuse of law, now dictated by Article 10-bis (Article) of Law 212/2000 (the so-called Statute of Taxpayers' Rights).

With implementation of the Decree, the concepts of abuse of law and tax avoidance have been consolidated into one single definition.

The previous legislation, represented by Article 37-bis of Presidential Decree 600/73, approached these two categories of behaviour in different ways:

transactions which were deemed to be "avoidant" by the Fiscal Authorities could constitute tax offences when the punishability thresholds were exceeded;
transactions which were deemed to be “abusive” could not be considered tax offences since the concept of 'abuse', considered by the Courts to be “intrinsic” to the legal system, was not explicitly included in the previous legislation.

Paragraph 13 of the Article states that, even should the punishability thresholds be exceeded, such violations are not subject to criminal sanctions but only to administrative fiscal sanctions.

With implementation of the Decree the scope of application of the abuse of law principle now applies to all taxes within the legal system, not only to those explicitly listed in Article 37-bis of Presidential Decree 600/73.

The essence of the Article is set out in its opening paragraph which states that carrying out one or more transactions devoid of financial substance which, albeit formally compliant with tax rules, essentially aim to obtain undue tax advantages, constitutes abuse of law. Consequently, such transactions cannot be enforced against the Fiscal Authorities, which reserve the right to recalculate taxes based on the provisions and principles circumvented.

In summary, abuse of law occurs when a transaction:

results in an undue tax advantage i.e. a benefit obtained contrary to the spirit of tax rules and the principles of the tax system;
is devoid of financial substance i.e. the legal instruments used are not consistent with conventional market logic and do not engender significant effects other than tax advantages;
essentially obtains a tax advantage, which supersedes any other financial considerations.

A transaction is classified as abusive should all three of the above components be present.

Recent clarifications by the Ministry of the Economy and Finance (MEF) extend the scope of application of the abuse of law principle to transactions involving the sale of revalued shareholdings.

The Guidelines of the Ministry of the Economy and Finance of 26 February 2025 (the Act) significantly clarify the subject of abuse of law, taking a further step towards defining the criteria to be adopted for correct identification of potentially abusive transactions.

The Act reiterates the difference between tax evasion and abuse: the former involves direct violation of tax rules whereas the latter involves a transaction which, albeit compliant with the law, betrays its purpose.

The Act also emphasizes the principle of a taxpayer's freedom of negotiation, stating that as long as a taxpayer’s choice as to tax regime does not fulfil the requirements of abuse, it is lawful even should it achieve a legitimate tax saving.

Therefore, should a taxpayer obtain future tax benefits in advance but have adhered to the letter and rationale of the rules, this does not constitute an abuse of law. One such case of this is the revaluation of shareholdings for the purpose of reducing the tax on capital gains made from subsequent sale thereof to third parties.

The legislator has established specific regulations governing the revaluation of shareholdings. These permit an increase in their fiscally recognised cost through payment of a substitute tax in order to reduce or eliminate the tax on capital gains made from their subsequent sale.

To this end, clear methodological indications are given to the Fiscal Authorities in order to facilitate correct, uniform application of the Article.

In particular the Fiscal Authorities must follow a precise, logical sequence in their analysis:

ascertain the existence of an undue tax advantage;
establish the absence of financial substance;
demonstrate that the tax advantage is the pivotal component of the transaction.

If the tax advantage is not found to be undue, the analysis must always and in any case be brought to a halt and the transaction cannot be qualified as abusive.
Conversely, if the Fiscal Authorities deem the transaction to be abusive, a taxpayer may counter this finding by substantiating its argument with sound, pertinent, non-fiscal justification for the transaction.

In view of the above point, endorsement of the transfer of revalued shareholdings, which the Act consents to also in the case of transfer to other shareholders (atypical withdrawal), is of particular importance.

Scholars distinguish between what are termed 'typical withdrawal' and 'atypical withdrawal'.

In the case of typical withdrawal, a company reimburses the value of the shareholding by following the ordinary rules on the liquidation of a shareholder. In accordance with established practice, tax revaluation of the values cannot be benefited from and the substitute tax of 26 percent is therefore applied.

In the case of atypical withdrawal, predicated on the transfer of participation for consideration to other shareholders, the revaluation of assets as outlined in Article 5 of Law 448/2001 can be benefitted from.

The tax regulation of revaluation does not lay down any formal limits or subject the sale of revalued shareholdings to any particular obligations. Consequently, the value voluntarily redeemed can be used to reduce the tax on capital gains made, not only when quantifying the taxable capital gains made from sale to third and independent parties with respect to the seller but also when selling a shareholding to other shareholders.

The Act states, however, that the transaction must not be merely circular in nature i.e. it must not return the parties involved to their original asset situation but must change said situation by engendering substantial financial effects.

Conclusions

The Act provides taxpayers and the Fiscal Authorities with clear criteria for identifying potential cases of abuse, thereby enhancing legal certainty in this area. The fundamental principle remains a taxpayer's freedom to opt for the most fiscally advantageous solution, provided the transactions have real financial substance and comply with the purposes and principles of tax rules. In the specific context of the transfer of revalued shareholdings, the Act has clarified that transfer of same to third parties, including shareholders, does not constitute abuse of law.