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May 26, 2021

Italy extends accounting step-up election to financial year 2021

Executive summary

On 21 May 2021, Law Decree n. 41 of 22 March 2021 (Sostegni Decree) was converted into ordinary law (Law n. 69/2021) and published in the Official Gazette. Among other economic stimulus measures, Law n. 69/2021 introduces the possibility to elect for a specific regime of accounting step-up in the financials ending 31 December 2021 rather than in those ending 31 December 2020, as previously stipulated by the rules.

Detailed discussion

Law Decree n. 104/2020 (August Decree) and the 2021 Budget Law had revamped the possibility to step-up the value of certain business assets (i.e., land, certain real estate properties, equipment, patents, trademarks, goodwill and other intangibles) and participations in the financial statements of Italian companies for the period following the one ongoing as of 31 December 2019, i.e., for the fiscal year (FY) ending 31 December 2020 for calendar year entities.1 For companies with a FY that does not align with the calendar, the election for the regime could have been advanced to the Financial Statement drafted for the fiscal year in course as at 31 December 2019.

Such step-up election was made available in three different versions:

  • Both for accounting and tax purposes (Accounting and Tax Step-Up)
  • For tax purposes only in order to align the tax basis of the qualifying assets to their higher accounting value (Tax Realignment)
  • For accounting purposes only (i.e., Accounting Step-Up)

The election for the Accounting and Tax Step-Up may still be exercised during 2021 provided that FY 2020 financials are not yet approved2 while the election for the Tax Realignment is in principle available until the payment of the FY 2020 income tax balance payment.

With respect to the Accounting Step-Up, the original deadline was the approval of the FY 2020 financials. However, as mentioned, Law n. 69/2021 has now extended the possibility to elect such Accounting Step-Up (which still relates to assets recorded in the 2019 books) in the financials related to the FY following the one ongoing as of 31 December 2020 (i.e., with reference to the FY ending 31 December 2021 for calendar year entities). Such extension is not provided for the Accounting and Tax Step-Up nor for the Tax Realignment.

Based on the above, the Accounting and Tax Step-Up and Tax Realignment are still available only for:

  • Calendar year entities that will approve FY 2020 financials within the extended deadline (i.e., 30 June 2021)
  • Non-calendar year entities that have not elected for such step-up regimes in the financials related to the FY in course as at 31 December 2019

While any Accounting Step-Up can be made for free, a 3% substitute tax computed on the stepped-up amount is required in the case of an Accounting and Tax Step-Up as well as in the case of Tax Realignment. The 3% substitute tax payment can be made in three equal annual installments by the deadline for the annual balance payment of income taxes (which is currently set for the end of the sixth month following the closing of the FY). In such case, the stepped-up value is recognized for IRES (Imposta sul Reddito delle Societa’, i.e., Corporate Income Tax or CIT) and IRAP (Imposta Regionale sulle Attivita’ Produttive, i.e., Local Tax) as of the FY following the FY of the election (i.e., the step-up elected with reference to FY 2020 is effective from 1 January 2021 for calendar year entities).

In the case of a disposal of stepped-up assets, there is a “claw back” period of three years, meaning that assets disposed of before the three-year period will retain their original tax basis when calculating the related capital gain/loss.

Moreover, in the case of a tax step-up (i.e., in the case of an Accounting and Tax Step-Up as well as in the case of Tax Realignment), a corresponding amount (net of the 3% tax), needs to be registered in the net equity as a revaluation reserve. If such reserve is distributed to the shareholders, an increasing adjustment to the taxable income for the same amount is triggered. It is however possible to elect for the tax recognition of the said reserve by paying a substitute tax equal to 10% of the amount of the reserve.

The Accounting Step-Up and the Accounting and Tax Step-Up are only available to Italian companies adopting Italian Generally Accepted Accounting Principles (ITA GAAP) while the Tax Realignment is also available to companies under International Financial Reporting Standards (IFRS). Therefore, the extension provided by Law n. 69/2021 does not affect companies under IFRS.


For additional information with respect to this Alert, please contact the following:

Studio Legale Tributario, International Tax and Transaction Services

Ernst & Young LLP (United Kingdom), Italian Tax Desk, London

Ernst & Young LLP (United States), Italian Tax Desk, New York



  1. See EY Global Tax Alert, Italy’s 2021 Budget Law: A review of key tax measures, dated 1 February 2021.
  2. In principle, the statutory deadline for financial approval will expire 120 days after the fiscal year end; however, if specific conditions are met, said deadline could be extended for an additional 60 days.

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.


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