A taxpayer, a founding member of a limited liability company incorporated in May 2017, sells all his shares in November 2017 and realizes a capital gain. Does this capital gain contribute to the overall income at 49.72 percent of their amount or at 58.14 percent? To properly manage these variables and plan the tax burden arising from extraordinary transactions, it is essential to rely on a professional accounting and financial reporting service that ensures compliance with the tax rates in effect at the time of the sale.
The capital gain generated from the sale of the shareholding is a different type of income of a financial nature.
With Article 1, paragraphs 999 et seq., of Law No. 205/2017 (the so-called 2018 Budget Law), the legislator redesigned the tax regime applicable to dividends, as it did for dividends. The legislator’s goal was to extend the 26% substitute tax to qualified capital gains, replacing the marginal IRPEF tax rate on a lower taxable base (49.72% or 58.14% of taxable income). Therefore, once fully implemented, sales of 99% of a company’s shares and the remaining 1% will be subject to the same tax regime, characterized by the 26% substitute tax.
Regarding the regulation of capital gains, unlike dividends, however, the scope of the rules has changed. The capital gains rule applies not only to non-business individuals, but to all individuals who, by selling their shareholding, generate a financial income taxed under Articles 67 and 68 of the TUIR. Limiting the analysis to resident individuals, this also includes simple partnerships and non-commercial entities that do not hold their shares under a business regime. For example, simple partnerships will therefore be required to pay the 26% tax even on capital gains arising from the sale of qualified shareholdings, and will no longer transparently attribute the taxable portion of the gain (49.72% or 58.14%) to the shareholders, even if determined in the RT section of the tax return.
The second significant difference concerns the effective date of the new rule, which is relevant here. The changes to the regime for miscellaneous financial income apply to miscellaneous income earned from January 1, 2019, and therefore do not have immediate effects. According to established legal doctrine, capital gains are considered realized when the sale of the shareholdings is completed (this is the moment that determines the applicable tax regime), even if the tax period in which the capital gain is taxed is the same as the one in which the consideration is received.
Therefore, if the transfer of the qualifying holding was made by December 31, 2017, and the consideration was received by that date, the capital gain remains taxed at the 49.72% limit (and is taxed in the 2017 tax period). If, however, the transfer was made in 2017 but the consideration is received in 2018, it continues to be subject to the “old” tax regime, but is taxed in 2018.
If the sale of the qualifying shareholding had occurred in 2018 and the consideration had been received in the same year, the capital gain would have been taxable at a rate of 58.14% (and taxed in the 2018 tax period). If, however, the sale had occurred in 2018, but the consideration had been collected in 2019, it would continue to be taxed at a rate of 58.14% of the relevant amount, albeit in 2019. The first effects of the new rules are therefore postponed to sales of shareholdings made after January 1, 2019.
To answer the question, therefore, given that the sale occurred in 2017, and the consideration is assumed to have been received by December 31, 2017, the capital gain is taxed at 49.72% (old rules). If, however, the consideration had been collected in 2018, it would continue to be subject to the “old” tax regime, but would be taxed in 2018.
Naturally, the principle contained in Article 68, paragraph 7, letter f) of the TUIR (Consolidated Income Tax Code) continues to apply, according to which, in the event of deferred payment or installment payments, the capital gain is divided proportionally between the tax periods in which the sums were collected. However, the tax regime (personal income tax (IRPEF) up to 49.72%, personal income tax (IRPEF) up to 58.14%, or a substitute tax of 26%) remains “crystallized” in that in force at the time of the transfer.