Italy: Deductibility Of Losses On Receivables

News from the Law Decree nr. 83 dated June 22nd 2012 converted into the Law nr. 134 dated August 7th 2012.

1 INTRODUCTION

Article 33, paragraph 5 of the Law Decree nr. 83 dated June 6th 2012, converted into the Law nr. 134 dated August 7th 2012, has widened the hypothesis of automatic deductibility of losses on receivables for enterprise.

Modifications involve:

• Losses on receivables toward debtors subject to bankruptcy procedures;
• Losses on receivables toward debtors not subject to bankruptcy procedures.

Specific rules are than been introduced for IAS/IFRS subject.

2 DEBTORS SUBJECT TO BANKRUPTCY PROCEDURES

Losses on receivables generated by the approval by the relevant Court of Justice of the procedure of debts restructuring (under article 182-bis of the Royal Decree nr. 267/42) are now immediately deductible.

Before this new law, their deductibility was in any case subordinated to the demonstration of their non-recoverability .

Under this new modification instead, losses on receivables are automatically deductible if debtor is subject to the following procedures:

• Bankruptcy (as before);
• Administrative forced liquidation (as before);
• Pre-emptive agreement (as before);
• Extraordinary administration (as before);
• Debts restructuring agreement (new).

2.1 Certified recovery plans

Even after the above mentioned new rules, the recovery plans certified by a qualified professional (under article 67, paragraph 1, letter d) of the Royal Decree nr. 267/42) still remain outside of the institutions that allow the automatic deductibility on receivables' losses.

Therefore losses deriving from executions of these plans are not automatically deductible, but the usual "sure and precise elements" must be verified according to ordinary criteria for their deductibility.

2.2 Effective date

The new rule is not provided with a specific effective date.

Under the provision of the so-called "Tax Payer Statute" (Law nr. 212/2000) the same should be applied to the year 2013 (for subjects with financials' period equal to the calendar year).

3 DEBTORS NOT SUBJECT TO BANKRUPTCY PROCEDURES

We'd like to remind that "sure and precise" elements that gives the chance to deduct losses on receivables related to debtors that are not subject to bankruptcy procedures are in any case existing when alternatively:

• the receivable is of law amount and a period of 6 months has expired from its deadline;
• the receivable collection's right is prescribed.

The 2 above mentioned conditions are alternative, it therefore suffices that one of the two is verified in order to deduct their write off without the need to give additional proofs.

3.1 Receivable's amount and expiration date

3.2 Credits' collection prescription

Under the new law "sure and precise elements", that allow the loss on receivables deduction, are verified also when the right to collect those credits has prescribed.

Therefore after the prescription period has expired under the civil code rules, the losses deductibility becomes automatic.

Prescriptions terms

As a rule the ordinary prescription's term is 10 years..

In some cases terms are different as per the below summary tab.

3.3 Effective date

The new rule is not provided with a specific effective date.

Under the provision of the so-called "Tax Payer Statute" (Law nr. 212/2000) the same should be applied to the year 2013 (for subjects with financials' period equal to the calendar year).

4  IAS/IFRS SUBJECTS

With reference to subjects that file their financials according to international accounting standards, "sure and precise elements" are verified even when receivables are written off under extinguishing events.

4.1 Extinguishing events

Among credits' extinguishing events we have:

• pro-soluto receivables' sales
• transactions;
• conversions into share capital participations;
• renounces;
• prescriptions.

4.2 Effective date

The new rule is not provided with a specific effective date.

Under the provision of the so-called "Tax Payer Statute" (Law nr. 212/2000) the same should be applied to the year 2013 (for subjects with financials' period equal to the calendar year).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.