Cura Italia Decree – Assignment of NPLs and conversion of DTAs into tax credits

CELF - Center of European Law & Finance | April.17.2020

italiano: Decreto Cura Italia – Cessione crediti deteriorati e conversione DTA in crediti d'imposta

Article 55 of Law Decree 18 of 17 March 2020 ("Cura Italia Decree" or the "Decree") introduces a new form of "monetization" of deferred tax assets ("DTA") as a way of providing financial support to companies, including banks. The new DTA conversion is contained in Article 55 of the Cura Italia Decree by replacing Article 44-bis of Legislative Decree 34 of 30 April 2019 (the so-called Growth Decree), which previously provided for incentives for businesses in Southern Italy by permitting shareholders to convert DTAs relating to tax losses and Notional Interest Deduction (Aiuto alla crescita economica— ACE surpluses into tax credits.

Most notably, under the new measure, companies that assign to any assignee (including special purpose vehicles incorporated under Italian Law 130/99) defaulted receivables (i.e. receivables where the borrower has failed to pay for more than 90 days after the payment was due) for consideration by 31 December 2020 may convert the DTAs relating to previous tax losses and ACE surpluses, even if they are not entered in the balance sheet.

Companies are therefore able to monetize the tax losses and ACE surpluses they have, without waiting to reach taxable income in future financial years. This will immediately reduce the need for liquidity to satisfy payment of taxes and contributions and increase companies’ cash availability.

The tax credits deriving from a DTA conversion may be deployed by companies as follows: (i) for offsetting purposes (without limitation on the amount) for the payment of taxes, withheld tax and social security contributions, (ii) assignment to third parties or to group companies, or (iii) to request a reimbursement. The rule applies to all companies, without limitations to sector or category, allowing manufacturing companies as well as banking or financial companies to benefit. However paragraph 4 provides that the benefit does not apply to companies in serious financial difficulties, or at risk thereof, as ascertained pursuant to Article 17 of Legislative Decree 180 of 16 November 2015, or in a state of insolvency pursuant to Article 5 of Royal Decree 267 of 16 March 1942, or Article 2, paragraph 1, letter b) of theCodice della crisi d'impresa e dell'insolvenza (Code of business crisis and insolvency), pursuant to Legislative Decree 14 of 12 January 2019.

As mentioned above, of particular note the Decree contemplates assignments for consideration of defaulted receivables made before 31 December 2020 to assignees that do not belong to the same group as the assignor ([1]). Against these assignments, the assigning company may convert into tax credits the DTAs relating to (i) tax losses that can be carried forward pursuant to Article 84 of Presidential Decree 917 of 22 December 1986 (limitations set forth for those who benefit from a profit exemption regime do not apply) and (ii) the notional return amount of the Notional Interest Deduction in excess of the total net income ("ACE surplus").

In order to qualify, tax losses and the ACE surplus must not have been computed as a decrease or used or deducted from taxable income as at the date of the receivables assignment.

For the purposes of the conversion into tax credits, tax losses and ACE surpluses are relevant up to 20% of the nominal value of the receivables assigned, which shall have a maximum nominal value of € 2 billion. If the company belongs to a group, the maximum amount of € 2 billion will include the assignments made at group level. Accordingly, for assignments of receivables with a nominal value of more than € 2 billion, the amount exceeding the threshold will not qualify for conversion of the DTA.

The conversion into tax credits takes place on the effective date of the assignment, following which the assignor may no longer deduct from its corporate income the previous tax losses and the ACE surpluses as regards the amount computed for the purposes of the DTA conversion.

The tax credits deriving from the conversion are non-interest-bearing, not subject to IRES and IRAP (Regional Income Tax) purposes, and need to be stated in the tax return.

The conversion of the DTAs into tax credits is conditional on the assignor exercising its option under Article 11, paragraph 1, of Legislative Decree 59 of 3 May 2016 and, where applicable, the payment of a 1.5% fee. The option shall be exercised by the end of the 2020 financial year on the effective date of the receivables assignment, and is effective starting from the following financial year.

This provision raises some doubts about the tax period in which the benefit may be employed (whether 2020, as the content of the first paragraph – the ‘conversion into tax credits takes place on the effective date of the assignment’ – seems to suggest). Although there is no unanimity on this point, we share the interpretation by which the tax credit, also in consideration of the rationale of the measure (i.e.reducing companies’ liquidity needs), should be immediately usable.

The Decree has not yet been converted into law. Before conversion, the provisions discussed herein may undergo modifications.


1 Pursuant to paragraph 6, the provisions introduced by Article 55 of the Decree ‘do not apply to the assignment of receivables between companies that are connected as controlling or controlled, even indirectly, by the same subject, pursuant to Article 2359 of the Italian Civil Code’.