In response no. 114 issued on May 23, 2024, to a request for a ruling, the Italian tax authorities provided clarifications on the value to be assumed for tax purposes in Italy for capital gains arising from the sale of shares acquired as a result of a gift.
1. The Specific Case of the Taxpayer
The case concerns a taxpayer residing in Italy who received a donation of shares in a foreign company (family holding) from their parents, who are non-residents. This inter vivos transfer was subject to a donation tax of 3% on the value of the donated shares in Belgium, but no income tax. The taxpayer intends to sell the donated shares and asks whether, for the determination of the capital gains subject to tax in Italy, the purchase value can be the normal value of the shares at the time of the donation, increased by the donation tax paid in Belgium.
2. The Italian legislation
According to Article 68, paragraph 6 of the Italian Income Tax Code (TUIR), the capital gain is equal to the difference between the amount received and the cost or purchase value subject to taxation, increased by any expenses related to their production, including inheritance and donation taxes, excluding interest expenses. In the case of acquisition by inheritance, the cost is the value defined or, in its absence, the value declared for inheritance tax purposes, and for securities exempt from such tax, the normal value at the date of succession opening. In the case of acquisition by donation, the cost is the donor's cost.
3. The Acquisition Value
In response to the taxpayer, the Italian tax authorities recalled the practice of the Ministry of Finance, which in circular no. 165 of June 24, 1998, clarified that for shares received by donation, reference must be made to the price paid at the last purchase for consideration, or to the value defined by the previous owner or, failing that, to the value declared for inheritance tax purposes. Accordingly, under the provisions of Article 68, paragraph 6 of the TUIR mentioned above, for the determination of capital gains (or losses), the cost or purchase value must be increased by all expenses related to their production. This means that the taxpayer can increase the purchase cost by all expenses and charges strictly related to the acquisition of the financial assets being sold (for example: inheritance and donation tax, notarial fees, brokerage commissions, stock exchange contract tax, etc.), excluding interest expenses.
In the present case, therefore, the Italian taxpayer must assume the original cost incurred by the donor (the parents), with the possibility of increasing it by all related expenses, including the donation taxes paid abroad. Conversely, the normal value of the shares can be used as the cost for calculating the capital gain only if this normal value had fiscal relevance for income tax purposes (for the donors).
4. Conclusions
This clarification provided by the Italian Tax Authorities highlights the complexity and importance of the correct tax valuation of shares received by donation, especially when involving donors who are not residents of Italy and/or shares in foreign companies. It is therefore essential to maintain accurate documentation of all costs and taxes paid in relation to the acquisition of the shares. This includes not only donation taxes but also any ancillary expenses such as notarial fees and brokerage commissions. Transparency and precision in documentation are fundamental to avoid future tax disputes.
It is also important to note the risk that the donation may be subject to international double taxation, either when there is a conflict of territorial connection criteria between two states or when the different regulations of the countries involved assume different values.
Taxpayers with complex assets and holdings characterized by transnational elements are therefore advised to carefully analyze domestic and international tax regulations, seeking assistance from our lawyers specialized in international taxation to help optimize asset management while complying with the regulations of all jurisdictions involved.
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.