Contribution by Giampaolo Provaggi – Certified Public Accountant in Milan and Genoa – Founding Partner of Gemma Provaggi De André.

The article was published in IPSOA Quotidiano.

Decree Law No. 118 of 2021 provides a series of tax incentive measures for all entrepreneurs, both commercial and agricultural, who, facing conditions of patrimonial or economic-financial imbalance, resort to the negotiated composition procedure for business crisis. Such measures include: the reduction of interest on tax-related debts, the reduction of the minimum tax penalty rate, the fifty percent reduction for penalties and interest on tax debts, as well as the granting by the Revenue Agency of an installment plan. Finally, the new decree law establishes that the condition for the exclusion from taxable income of contingent assets and for the deductibility, by creditors, of losses on receivables is the publication in the Business Register of agreements with creditors.

Article 14, D.L. No. 118/2021, titled “Incentive Measures,” provides tax measures in favor of all entrepreneurs – both commercial and agricultural (and, pursuant to Article 17, paragraph 7, of D.L. No. 118/2021, also valid for enterprises below the bankruptcy threshold under Article 1, Bankruptcy Law) – who, facing conditions of patrimonial or economic-financial imbalance (Article 2, paragraph 1, D.L. No. 118/2021), resort to the negotiated composition procedure for crisis.

It is preliminarily noted that the first three paragraphs of the provision substantially reproduce what was already provided for by Article 25 of Legislative Decree No. 14/2019 (also “CCII”) but, conversely, access to the same is not subordinated, as instead provided by said provision, to compliance with specific timing requirements or conditions of timeliness of the entrepreneur’s initiative, strictly identified in Article 24 of the CCII.

In this case, rather, the “temporal coherence” is given by the general principles relating to the new institute and therefore by the fact that there must be no state of crisis or state of insolvency.

In detail, Article 14, D.L. No. 118/2021 distributes favorable elements among the various instruments provided for by Article 11 of the decree law. First, the provisions that concern and require access to negotiated composition and induce benefits during the period of its duration are those indicated below.

Reduction of Interest on Tax-Related Debts

Paragraph 1 provides for the reduction, at the legal rate, of interest on tax-related debts for the period “From the acceptance (note: within 2 days of receipt of the appointment pursuant to Article 5, paragraph 4 of the decree) of the assignment by the expert and until the conclusion of the negotiated compositions provided for by Article 11, paragraphs 1 and 2”.

The reference to Article 11, paragraphs 1 and 2, may suggest that the application of the incentive measure occurs only in case of successful conclusion of the procedure. However, in line with the

purposes of the decree, the provision should instead be able to find application, always for the same period, and therefore until the conclusion of the activity of the expert, also in situations where, as clarified by Article 18 of the decree, following the negative outcome of negotiations, indicated in the expert’s final report, access is granted to the other procedures referred to in paragraph 3 of Article 11.

Reduction of the Minimum Tax Penalty Rate

Paragraph 2 concerns the reduction to the minimum rate of “tax penalties for which reduced application is provided in case of payment within a specified period from the notice issued by the Office,” if the payment deadline expires after the submission of the application referred to in Article 2, paragraph 1.

With regard to the scope within which the provision of paragraph 2 of Article 14 could operate, it is believed that the rule may concern, for example, acquiescence procedures to tax assessments, pursuant to Article 15 of Legislative Decree No. 218/1997, or settlement procedures for penalties only, pursuant to Article 17 of Legislative Decree No. 472/1997. In these cases, the indicated reduction to one-third of the penalty at the minimum statutory rate provided for by Article 14 should consequently be applicable, even without payment having occurred.

The provision in question does not apply in the event that the expert has deemed, pursuant to Article 5, paragraph 5, of the decree, that concrete prospects for recovery do not exist, with consequent dismissal of the negotiated composition application. Furthermore, these benefits are lost if bankruptcy is reached or the state of insolvency is ascertained (paragraph 6 of the article in question).

Fifty Percent Reduction for Penalties and Interest on Tax Debts

Paragraph 3 provides for the fifty percent reduction for penalties and interest “on tax debts arising before the filing of the application referred to in Article 2, paragraph 1, and subject to negotiated composition” for the subsequent cases provided for by Article 11, paragraphs 2 and 3.

It is noted in this regard that, since no instrument is provided to regulate negotiations with the Office in the context of negotiated composition, given the above, the negative conclusion of the same with access to the cases referred to in paragraph 3 of Article 11 could prove advantageous. This is also in consideration of the fact that, as stated, the benefits of paragraphs 1 and 2 of Article 14 should be maintained, except in the case referred to in paragraph 6.

Granting of an Installment Plan by the Revenue Agency

The measure provided for in paragraph 4 of the provision concerns the granting by the Revenue Agency of an installment plan, up to a maximum of seventy-two monthly installments, for the payment “of sums due and not paid as income taxes, withholding taxes withheld in the capacity of substitute taxpayer, value added tax and regional tax on productive activities not yet registered in the collection roll”.

• Attention
• The conditions to activate the automatic mechanism are:
• – the conclusion of a contract referred to in letter a) or an agreement referred to in letter b) of Article 11, paragraph 1, and its related publication in the business register;
• – the signature of the installment application also by the expert who, as the rule indicates, “constitutes proof of the existence of the temporary situation of objective difficulty”.

In the same paragraph it is specified that:

• a) the provisions of Article 19 of Presidential Decree No. 602/1973 apply insofar as compatible. In relation to this latter rule, considering the objectives of the instruments to which the installment plan is linked, it does not appear possible to apply paragraph 1-bis thereof, which provides, in case of proven deterioration of the situation, the extension of the installment obtained; and this without forfeiture having occurred. Conversely, what is provided for in paragraph 1-quinquies appears applicable, and therefore the increase of the installment plan up to one hundred twenty monthly installments, in the event that the debtor finds itself, for reasons beyond its responsibility, in a proven and serious situation of difficulty linked to economic conditions;
• b) forfeiture of the benefit is provided for in the event that the entrepreneur files an appeal pursuant to Article 161 of the Bankruptcy Law or in case of bankruptcy of the same or ascertainment of the state of insolvency or, furthermore, in case of non-payment of even a single installment on the fixed due date. This situation could occur in case of negative outcome of negotiations.

The mechanism introduced by the above rule allows the insertion in the Plan, before the request application, of the installment provision. On this point, the Explanatory Report to the Decree clarifies in this sense that the provision contained in paragraph 4 intends to favor the installment payment of tax debts before the collection phase begins.

From an application standpoint, it is not regulated how the interaction with the Revenue Agency occurs in relation to the accrual of the above benefits.

Exclusion from Taxable Income of Contingent Assets and Deductibility of Losses on Receivables

In relation to the impacts for direct tax purposes, Article 14, paragraph 5, of the decree, resolving a gap in the Business Crisis Code (CCII), regarding the agreement with creditors referred to in Article 19 thereof, provides that “From the publication in the business register of the contract and agreement referred to in Article 11, paragraph 1, letters a) and c), or of the agreements referred to in Article 11, paragraph 2, Articles 88, paragraph 4-ter, and 101, paragraph 5, of Presidential Decree of December 22, 1986, No. 917 apply”.

Therefore: the condition for the exclusion from taxable income (partial if one considers the treatment of any tax losses, excess interest expenses or ACE) of contingent assets that may originate from the contract or agreements, but also, on the creditor side, for the deductibility of any losses on receivables, is the publication in the Business Register of the aforementioned acts; as also provided for by the applicable rules. The legislator has, therefore, “covered” with the provision in question the new procedures, including restructuring agreements with extended effectiveness (Article 182-septies) and those with reduced formalities (Article 182-novies).

The rule in question does not, however, extend to the new institutes the provision of Article 14, paragraph 5-bis, Legislative Decree No. 472/1997, which excludes the application of joint and several liability in the matter of business transfer, nor does it say anything regarding VAT and the applicability of Article 26, paragraph 3-bis of Presidential Decree No. 633/1972. Since the new institutes referred to in Article 11, paragraph 1, letters a) and c) do not fall within the scope of Royal Decree No. 267/1942, nor are they defined as bankruptcy procedures, it appears difficult to consider such rule applicable to them.

Rather, they could be evaluated as subsequent agreements between the parties, with application of paragraph 2 of Article 26, naturally within the temporal limit of one year. For the new types of restructuring agreements, one could operate in extension of Article 182-bis of the Bankruptcy Law.

However, it is not understood why, for direct taxes, the legislator has explicitly stated the application of the specific rules as seen above, while it has not done the same regarding VAT; thus insinuating in the reader the doubt that it does not wish to allow the creditor to recover/reduce the tax not collected (or deriving from the different obligation resulting from negotiations), contrary to what is established by more recent EU and national case law, among all, Court of Justice of the EU, judgment of June 11, 2020, case C-146/19 and judgment of February 22, 2018, case C-396/16 and Cass., November 16, 2020, No. 25896.