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AEMCarnelutti: Italian Government boosting distressed assets market amid COVID-19 Emergency

On March 17, 2020, the Italian Government enacted Law Decree No. 18 (“Decreto Cura Italia” or “Decree”) issuing measures aimed at strengthening the national health service and economic support for families, workers and enterprises in connection with the COVID-19 epidemiological emergency.

Among all implemented measures, Article 55 of the Decree will probably have a significant impact on the distressed assets sale market in Italy. The Decree aims at boosting the assignment of non-performing loans and receivables (“crediti deteriorate”) by allowing the transformation, for an amount proportional to the amount of non-performing loans transferred to third parties by December 31,2020, of a portion of the DTAs (whether or not they are recorded in the financial statements) into tax credits, that may be used, without any limit, to offset any tax or social security contribution or transferred (intra-group or to third parties) or claimed as a refund in cash.

The non-performing loans or receivables that can be assigned may be of either commercial or financial nature, provided that NPLs are defined, for the purpose thereof, as past-due loans over ninety days from the due date.

The convertible deferred tax assets are referred to:

(i) tax losses carried forward according to article 84 of the Presidential Decree No. 917/1986 TUIR; and

(ii) excess Notional Income Deduction (NID) carried forward (i.e. still unused or deducted from taxable income at the date of the transfer of NPLs).

The portion of DTAs convertible into tax credit is equal to 20% of the nominal value of the assigned claims, provided that, for the purposes of conversion, a limit of 2 billion euros in terms of nominal value shall apply to the total amount of NPLs transferred by 31 December 2020. For entities belonging to groups, the above limit is calculated taking into account all assignments made by the entities belonging to the same group. The conversion of the DTAs into tax credits takes place on the effective date of the assignment of the non-performing loans or receivables. From the effective date of the assignment, the assignor will no longer be able to offset the taxable income with the tax losses carried forward, nor deduct or utilize as a tax credit the excess NID carried forward, for an amount equal to the portion of DTAs converted into tax credits.

Compliments of AEM Carnelutti – a member of the EACCNY.