On 19 July 2024, the Director of the Direct Tax Administration (the "DTA") issued a circular on the tax treatment of a simplified liquidation (dissolution without liquidation) carried out in accordance with article 1865bis of the Civil Code. In summary, such a transaction is to be treated for tax purposes as a transfer of the company's assets, unless the transaction can be treated for tax purposes as a merger. Subject to compliance with the conditions set out in article 170, paragraph 2 of the amended law of 4 December 1967 on income tax ("ITL"), the transaction may be carried out on a tax-neutral basis and the resulting profit may be exempt from tax.
I. Corporate income tax consequences
The director of the DTA has indicated that dissolution without liquidation, carried out in accordance with article 1865bis of the Civil Code, is in principle to be assimilated to a transfer of company assets, giving rise to taxation in accordance with article 169 ITL.
However, the circular specifies that such a dissolution without liquidation can be assimilated to a merger within the meaning of article 170, paragraph 2 ITL, provided that all the conditions laid down therein are met. In such a case, dissolution without liquidation (i) can be carried out on a tax-neutral basis, and (ii) the profit realized on the transfer of the company's assets can be tax-exempt.
It should also be noted that these same conclusions apply in a cross-border context, in accordance with article 170bis ITL. In this context, it should be noted that the term "cross-border" includes, under certain conditions, Member States of the European Union and the European Economic Area.
II. Commercial tax consequences
With regard to commercial tax (the "CT"), the Director of the DTA clarified that profits realized on dissolution without liquidation within the meaning of article 1865bis of the Civil Code are not subject to CT.
III. Net wealth tax consequences
With regard to net wealth tax (the "NWT"), the Director of the DTA ruled that: where the collective body has a NWT reserve for which the minimum holding period has not been met at the time of dissolution, the latter does not result in a breach of the five-year period provided for in paragraph 8a, subparagraph 3 of the amended law of October 16, 1984 on wealth tax (Vermögenssteuergesetz ("VStG")).
In addition, the DTA director pointed out that dissolution without liquidation has no impact on the NWT rating due by the dissolved company, provided that the NWT reserve is renewed by the company receiving the social assets, so that the five-year period condition is met.
However, he added, the reduction of the NWT due by the dissolved company is conditional on compliance with the conditions of paragraph 8a VStG.
In this same context, the Director of the DTA noted that, provided that the conditions set out in paragraph 8a, subparagraph 1 VStG are cumulatively met, such dissolution entails the closure of the operating year and, consequently, the NWT reserve must be constituted at the latest at the time of dissolution. In such a case, the company receiving the transferred corporate assets will be able to renew the NWT reserve (so that the five-year requirement is met).
Finally, the Director of the DTA felt it useful to make the following observation: all the above applies only to a dissolution without liquidation carried out in accordance with article 1865bis of the Civil Code, and not to a dissolution with liquidation.
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.