Holding finanziarie

Advantages and peculiarities of taxation in the regulation of groups

By Carlo Locatelli

The model of the Group of companies is certainly among the most suitable for making organizational structures more efficient and keeping pace with continuous market changes, thanks to the flexibility of the organisations.

By Group we mean a system composed of several companies that are legally independent but, taken together, considered as a single economic entity. In general, business groups are made up of a holding company (also called parent company, parent company or parent) and one or more subsidiaries, otherwise called subsidiaries.

The types of holding companies

Among the possible variations of Parent Company it is possible to distinguish between financial holdings and mixed holdings:

• Financial holdings, also called pure holdings, only carry out a coordination activity of their shareholdings, especially in the financial sector, and do not carry out any production function. An example of a financial holding company is Johnson&Johnson, which owns numerous famous brands in the personal care sector, but does not produce and market goods independently;
• Mixed holding companies, which can also be defined as operational or industrial, carry out both financial management and a production activity. An example of an operational holding company is Mediobanca, which owns numerous shareholdings in other banks and insurance companies, but also provides financial services on its own.

The advantages of a parent company

The Group structure, by its nature, brings numerous advantages. By way of example and not exhaustively, the following can be listed:

• Business advantages: a Parent Company can develop different business areas through the creation of ad hoc businesses and sector start-ups which, if the deal is not convenient, can be removed from the Group's scope of belonging (this flexibility is fundamental and particularly advantageous if one does not want to involve the entire company in a manifestly risky operation);
• Financing advantages: the The Parent Company has the right to centralize the treasury of the entire Group on itself - applying the cash pooling model - in order to obtain better conditions in intragroup financing and towards credit institutions, since the financing would be given to the Group as a whole;
• Tax advantages: think for example of the PEX (Participation Exception, governed by art. 98 paragraph 2 of the TUIR), which has a considerable tax exemption regime for dividends and capital gains, with a non-taxation area of 95%.

With particular consideration for financial holdings, these enjoy some peculiarities in terms of taxation. Pure holding companies are very often joint-stock companies, therefore they are subject to IRES tax at a rate of 24% on the taxable base for the year. In addition to the aforementioned PEX, the taxation of interest expenses is interesting: according to the provisions of art. 96 paragraph 5 and 5-bis of the TUIR, financial holdings can deduct their financial charges and interest expenses up to 96% of their total amount. Also considering the drafting of the national consolidated report, regulated by articles. from 117 to 129 of the TUIR, the interest expense deriving from dto intragroup transactions - also called intercompany transactions because they occur between two or more companies belonging to the same Group - even become totally deductible up to the amount of the total interest expense accrued on participating entities for transactions with third parties to the Group.

As regards the application of IRAP, however, there is a negative difference compared to the taxation of a common joint-stock company. Financial holding companies, i.e. those which carry out the management of their shareholdings as an activity, are subject to an IRAP rate increased by approximately one percentage point compared to other companies: if in fact the general rate stands at around 3.9% (considering that, given the nature of the tax, each Region can partially modify the applicable percentage up to an increase of 0.92% plus a further 0.15% for some Regions), financial holding companies suffer a rate of 4.65%, which can be increased up to 5.72% given the considerations previously made.

In light of all this, it is clear that the establishment of a financial holding entails numerous advantages, in relation to the general structure of the Group but also to the deductibility of financial charges and dividends. On the other hand, however, the increased IRAP taxation can discourage the creation of holding shareholdings, tying them to large groups with numerous subsidiaries, often of a multinational and global nature.

It is therefore important, in this sense, to carry out strategic planning capable of predicting and balancing the advantages and disadvantages of certain organizational choices of the structure.

If you are interested, you can find out more about Malerba&Partners services regarding strategic planning and tax consultancy.