Tax design

26 November 2020 By Lisa Jucca Follow @LJucca

Rome is letting lenders turn past losses into fiscal credits if they merge. The capital boost may make shaky state-controlled Monte Paschi more appealing to buyers such as UniCredit, without breaking state aid rules. But even healthy groups, like Credit Agricole or BPM, may gain.

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Italy’s draft 2021 budget law includes a provision allowing companies and banks that will carry out a merger next year to transform past tax losses into credits. The law would limit such credits at 2% of the total assets of the smaller company.

Companies willing to take advantage of the proposed measure would have to pay the state a fee equal to 25% of the tax credits.

Companies could claim up to 25% of the credit the year of the merger, and the remaining part in the following year.

Banca Monte dei Paschi di Siena has deferred tax assets worth about 5 billion euros. A merger between Monte Paschi and a larger rival such as UniCredit would imply a capital benefit of around 2 billion euros net of the fee, according to Breakingviews calculations.

Italy’s 5-Star Movement party, a government coalition partner, wants to cap tax breaks at 500 million euros.

More than 7,000 Italian companies, including banks, would be eligible.

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Companies willing to take advantage of the proposed measure would have to pay the state a fee equal to 25% of the tax credits.

Companies could claim up to 25% of the credit the year of the merger, and the remaining part in the following year.

Italy’s 5-Star Movement party, a government coalition partner, wants to cap tax breaks at 500 million euros.

More than 7,000 Italian companies, including banks, would be eligible.

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