Effect of the corporate transformation on the calculation of the holding period

The article 87 of the Italian Consolidated Tax Code, hereinafter also ICTC, provides the so called “Participation Exemption” which consists in the exemption from Income Tax, for 95% of their amount, of capital gains realized through the sale of corporate shares. The rule is applicable if the following requirements are met:

  • uninterrupted possession of the share from the first day of the twelfth month preceding the one of the transfer;
  • classification of the participation held within the financial fixed assets, in the first balance sheet filed after the ownership has been acquired;
  • tax residence of the participated company in a state or territory not considered under a “privileged tax regime”;
  • exercise by the participated company of a commercial enterprise, defined as such by article 55 of the ICTC.

Through its reply to a private letter ruling, n. 70 dated 1 March 2019, the Revenue Agency gave for the first time its opinion upon the possibility to apply the Participation Exemption in the event of the sale of a share by an entity that has been affected by a double transformation.

In particular, the letter ruling was aimed to understand that the double transformation occurred, somehow interrupted the holding period on head of the transformed company.

The Revenue Agency stated that two company transformations, carried out in accordance with article 170 of the ICTC, do not interrupt, for the purposes of calculating the holding period, the ownership of the share for the holding company, which will be calculated, for the transformed part, taking into account also of the period of time accrued on head of the transformed entity.