Business crisis: is the residual asset taxable in the composition with creditors?

by Alessandro Malerba

The Revenue Agency (AdE) has ruled on debt reductions following the approval of the composition with creditors: last 20 April 2022, in fact, AdE with ruling 201/2022 stated that, even if they emerged "with the transfer of assets", the contingent assets resulting from these debt reductions are entirely taxable, not since they can be classified as contingencies from the discharge of debt under the composition agreement and the tax relief provided for by the art cannot therefore be applied. 88, paragraph 4-ter, of the TUIR (Consolidated Income Tax Act).

The case envisaged by art. 88, paragraph 4-ter of the TUIR, in fact, according to the AdE, produces effects only with reference to the reduction produced by the approval provision and not for all active contingencies relating to further transactions since, despite being «achieved during the execution phase of the agreement, they fall outside the original approved agreement». And it is precisely on this interpretation that problematic profiles capable of producing negative effects could emerge: let's see what they are.

In the opinion of the writer, the limitation opposed by AdE does not comply with the ratio

Shareable, again in the opinion of the writer, is the AdE interpretation regarding the full taxability of any residual assets (in money or in kind) that emerges after the satisfaction of the creditors' reasons and this always by virtue of the ratio underlying the two rules mentioned above: we agree with what was said by the Agency because it constitutes a manifestation of the ability to pay, similarly to what art. 183 of the TUIR, regardless of the fact that it is also made up of resources generated by capital gains and contingencies which are in themselves not taxable pursuant to articles. 86 and 88 of the TUIR.

With regard to the first aspect, the Agency illustrates in the ruling how on a civil level "the composition with creditors" is regulated in Title III (articles 160 - 186 bis) of the Bankruptcy Law - this is the Royal Decree of 16 March 1942, n. 267, as amended by Legislative Decree 14 March 2005, n. 35 and subsequent amendments.

On this point it is important to clarify that, for tax purposes, the composition with creditors does not benefit from specific regulations for the purposes of income taxes but in the TUIR there are two provisions, applicable to the generality of compositions regardless of the purpose of liquidation or continuation of the business, which regulate two particular aspects: the assignment and transfer of the assets and rights included in the company's assets; the effects resulting from the reduction of liabilities as a result of the approval and execution of the composition proposal.

Returning specifically to the AdE ruling from which we started (201/2022) relating to the reduction of liabilities, art. 88, TUIR, in paragraph 4-ter, second sentence, as amended by article 13, paragraph 1, letter a), of Legislative Decree no. 14 September 2015. 147, provides that «Reductions in the company's debts in the context of a bankruptcy agreement or liquidation estimate are also not considered to be contingent assets (...). In the event of a reorganization agreement or an approved debt restructuring agreement (...) the reduction of the company's debts does not constitute an active contingency for the part that exceeds the losses, previous and of the period, referred to in article 84, (...)

In short, paragraph 4-ter provides a tax benefit for the person in difficulty represented:

• in the first period, from the complete exclusion from imposition of reductions in the company's debts deriving from bankruptcy and "non-reorganization" (and therefore liquidation) composition with creditors procedures;
• in the second period, from the partial exclusion of debt reductions deriving from "reorganization agreements" or from debt restructuring agreements and certified plans.

What does all this mean? In essence, the aforementioned provision modulates the tax relief for debt reductions deriving from the approval of the application for composition, depending on the form of execution and the purpose that the procedure intends to pursue, to avoid, in the event that the procedure is not aimed at the cessation of the company, the future use of the losses deriving from the tax relief of contingent assets.

In the comment the Agency specifies that «in relation to the debt reductions deriving from the procedures implemented by the shareholder of the Company in the execution phase of the agreementit is believed that the related contingent assets contribute entirely to the formation of the IRES taxable base pursuant to article 88 of the TUIR.This is because these are income components which, although achieved during the execution phase of the agreement, fall outside the original approved agreement