"NEWS July 6, 2016-Genuineness intermediate holding investment operations"

Posted by on Jul 6, 2016

In circular No. March 30, 2016/6 and relating to the fiscal discipline of acquisitions with debt, when you exit the stage of investment by the private equity fund, and therefore the related income taxes, the Administration invokes the need to ensure that the intermediate entity used by investors to have an actual roots in the economic fabric of the country of "settlement" and not "act as a mere conduit" not doing so a "real and genuine economic activity ".

By addressing the specific foreign investment holding intermediate formed as a vehicle, the considerations developed by the Administration have indeed raised some eyebrows among operators, which have been taken up by Assonime in circular No. 17/2016.

It is observed that the presence of intermediate holding in these forms of investment responds to extrafiscali needs of all value, such as: the apartheid of risk underlying the transaction, involving multiple investors, the best features compared to non-related investment guarantee, optimizing governance structures, the efficiency of the acquisitions and divestment of individual target company cash or collateral activities, support services, etc.

It should be added that the typical structure and physiological for these interim holding is not necessarily "light" if measured in terms of employees and management cost structure; as for the "through" intermediate holding function, this can be quite physiologically than its social aim which is that of optimization of investment.

For these reasons, does not seem correct to portray such facilities, so a priori, in the absence of "economic substance," but they completely functional to the finalisation of the transaction. In fact, in its circular, the disavowal of Assonime highlights tax treatment of the proceeds realized by the private equity fund – think of the exemption or reduced taxation of dividends and capital gains–which is part of the intermediate holding company, when it is located in a "collaborative" might determine censurable profiles concerning freedom of movement of capital.

Please remember that the Administration itself, in the circular 32 of 2011, had remarked that the character "inert" and then "potentially artificial" from a company established in a Member State, must be carried out with particular caution "in the case of financial holding companies": in fact, it's underlined in practice, "do not develop their activity a significant physical presence but they cannot be considered as forms of abuse of the right of establishment ".

A more balanced reading of the considerations set out in the recent circular then 6 of 2016, as evidenced by Assonime, seems to be one for which the need to try from the taxpayer the genuineness of the intermediate holding company and therefore participatory chain with which the investment was made referring to cases of investment funds placed in non-cooperative.

The fact remains that on this subject meet evidently more complex situations: on one side the concept, like said, features and therefore of genuine investment holding as an instrument; on the other side that the nature of the investment fund and its location.

The point therefore remains open due to the fact that the same analysis of the nature of conduit or otherwise of the holding company appears quite often an exercise in concreto anything but smooth.

Fabio Lad