Goodwill and trademarks: it’s time to “recalculate”

The revaluation regime of corporate assets, introduced by the so-called August Decree (Law Decree no. 104/2020, was certainly one of the most effective regulatory interventions - in the midst of a pandemic emergency – concerning capital strengthening for companies. There are several advantages characterizing this measure also and above all compared to similar past experiences, which were mostly characterized by non-particularly favourable access requirements. In fact, among the main "innovation" aspects, which has rendered this measure highly attractive to taxpayers, there are:

1. the possibility to recognize for tax purposes the so-called revaluation and realignment higher values ​​through the payment of a 3% substitute tax
2. the possibility to opt (both for revaluation and for realignment purposes) for individual tangible and/or intangible assets (so-called cherry picking) without necessarily having to recognize higher values ​​per homogeneous categories;
3. the immediate tax recognition of the higher values ​​for the sole purpose of amortization (e.g. 2021 for taxpayers whose fiscal year corresponds to the calendar year) and
4. the opportunity - regardless of accounting principles adopted (i.e. IAS / IFRS vs ITA GAAP) - to proceed with the realignment of the lower tax values ​​to the higher statutory/accounting values ​​of goodwill and other intangible assets for which this opportunity had always been denied.

In addition, it is necessary to highlight the favourable effects for equity related to the emergence of latent capital gains that would have - prospectively - counterbalanced and supported the covering of "announced" losses, due to the pandemic context. In this regard, it should be noted that the positive effects were not only due to the creation of a new equity reserve deriving from the step-up of the accounting value of the asset, but also to the positive effect on the result for the year, generated from the disposal of items attributable to deferred taxation, which, following the recognition of higher tax values, had lost their raison d'etre.

Therefore, it is easy to understand the reasons underlying the exercise of the option for the aforementioned regimes (revaluation and/or realignment) made in the last year by many taxpayers, who, on the one hand, closed and approved their financial statements affected by the aforementioned options and, on the other hand, where convenient, paid the substitute tax for the tax recognition of higher values.

In this scenario, Budget Law 2022, through an intervention that is not so “timely”, introduces - with retroactive effect - significant changes aimed at clearly discouraging the option for the recognition of higher values tax with exclusive regard to goodwill and trademarks. In particular, it provides that the higher tax values ​​- deriving from the option for i) the revaluation of trademarks and/or ii) the realignment of the lower tax values ​​to the higher accounting values ​​of trademarks and goodwill - can be deducted for no more than one fiftieth, thus extending the tax recoverability period from 18 years (for these types of intangible assets) to 50 years.

This measure which, as mentioned, has a retroactive effect - and therefore, has its effects starting from fiscal year 2021 (for the so-called “calendar year” subjects) - provides alternative tools in favour of taxpayers to correct any options already undertaken "in progress". Specifically, a double possibility is given: i) cancel the tax recognition of the higher values ​​by means of a direct refund (or the recognition of a tax credit to be offset) of the sums already paid as substitute tax or, alternatively ii) proceed with the payment of an additional substitute tax (from 12% to 16%), net of the amounts already paid, in order to restore the status quo or proceed with the deduction of the higher values ​​through an amortization plan in 18 years.

Nothing is provided with regard to the possible cancellation of the accounting effects in the financial statements.

Therefore, companies that in this period are closing their accounts with regard to the past financial year 2021 and opted for the tax recognition of the higher values in 2020, will have to carefully weigh the best solutions - tailored to their specific case - to unravel the impasse created by the aforementioned intervention of the Stability Law.

Although the options provided by the legislator are quite clear from a fiscal point of view, the accounting effects that each choice could determine are less clear and therefore worthy of further attention. Under this last aspect, the main points to be taken into consideration may be different and therefore it is not possible to offer and/or outline specific scenarios valid for all cases. On the contrary, we could highlight the main aspects that each choice must carefully evaluate.

As an example: i) a subject who has revalued the trademark with simultaneous tax recognition of the higher values ​​and who intends to continue with the new tax amortization plan will have to examine - with the approval of the supervisory board where present - the sustainability connected to the maintenance of deferred tax assets recognized in the financial statements on the basis of a rather long and doubtful period of recoverability (as mentioned, 50 years); ii) a subject who, on the contrary, wishes to cancel the tax recognition of the higher values ​​even if not renouncing the statutory revaluation carried out will have to assess the impact of the deferred tax liability on the misalignment between accounting and fiscal values; iii) a subject could decide to evaluate the cancellation of both tax effects and accounting effects of the revaluation carried out. In this case, it is necessary to evaluate if and how this can be done or decide to proceed with a reapproval of the 2020 financial statements, or, rather, with a change in the valuation criteria to be implemented in the 2021 financial statements. Lastly iv) the possibility to pay the additional amount of substitute taxes - to restore a tax amortization plan over 18 years - could lead to a reduction in the reserves created following the revaluation itself.

Furthermore, in consideration of the significant modification of the longer amortization period, the legislator also introduces some precautionary provisions so that the rule in question is not avoided by means of extraordinary operations. In particular, it is provided, on the one hand, that in the case of sale of the trademark or goodwill (usually falling within a much broader perimeter, e.g. company sale), assignment to shareholders or destination for purposes unrelated to the operation of the business or to the entrepreneur’s personal or family use, or in the case of elimination from the production complex, any capital loss is deductible, up to the residual value of the greater value, on a straight-line basis for the residual amortization period (i.e. the residual "fiftieths"). On the other hand, moreover, it is established that for the assignee, the portion of the cost referable to the residual depreciable value of the higher value, net of any capital loss deducted by the assignor (as previously mentioned), is deducted on a straight-line basis for the residual depreciation period. This therefore requires the parties involved in the transfer of intangible assets to keep track of the fiscal nature of the aforementioned assets with adequate documentation.

It must also be pointed out that the revaluations and/or realignments carried out on assets other than trademarks and goodwill will continue to benefit from the subsidy regime established by the August Decree. It is also important to remember that the legislator has extended the possibility to revaluate corporate assets - with exclusively accounting purposes - also in the Financial Statements at 31 December 2021 (for the so-called “calendar year” subjects) with exclusive reference to assets that were not revalued in the previous financial statements.

In conclusion, the changes made by the Stability Law regarding the revaluation and realignment of trademarks and goodwill, impose the need to carefully assess not only the necessary tax consequences but above all the management of the accounting impacts that in some cases could have negative effects on the result for the year and on the stability of shareholders' equity.

All this in an economic context that has not yet found its way out of the pandemic emergency, although to date the expectations and prospects are strongly improving compared to the previous year. The above assessments must necessarily involve, in addition to the main actors “naturally” involved (e.g. the control bodies) in the correct representation of economic events in the financial statements, also the strategies that the company intends to pursue in the medium-long term (e.g. the forecast of the sale of a business unit containing revalued and/or realigned goodwill and/or trademarks could lead - in some situations - to the abandonment of the previous tax options).