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published on 5 November 2020 | reading time approx. 3 minutes
With the conversion of the so-called August Decree (Legislative Decree No. 104/2020) into law, the possibility was introduced to completely or partially defer the depreciation of tangible and intangible assets in the financial year 2020, in derogation of the provisions of the Italian Civil Code.
It should be emphasized that this is by no means an obligation, but rather an option provided by the legislator for all those entities which apply the national accounting standards (OIC) for the preparation of their financial statements. Thus, are excluded only those entities, which refer to the international accounting standards IAS/IFRS when preparing their annual financial statements.
If a company opts for the aforementioned deferral, it will de facto result in an extension of the depreciation period by one year, as the part of the depreciation that was not recorded in 2020 will be deferred to the next financial year. According to the same criterion, also the depreciation of the following years will be deferred, which will ultimately extend the original depreciation plan by one year.
The legislator currently foresees the above-mentioned deferral only for the financial year still running on August 15, 2020 (financial statements of 2020 if the financial year corresponds to the calendar year). However, the approved decree contemplates already a possible extension of this measure also to subsequent years.
Companies which decide to make use of this opportunity and thus don’t depreciate their assets (or depreciate them only partially) in the current financial year, are obliged to create a non-distributable revenue reserve, which must be equal to the amount of the depreciation that was deferred. If the annual profit is lower than the deferred depreciation, the reserve must be created by using other revenue or equity reserves or, if this is not possible, by using the profits of the following years.
Furthermore, the approved text of the law states explicitly, that the company must describe in the notes to the financial statements in detail the reasons of the deferral, the amount of the reserve created, as well as the effects on the equity, financial and profit situation.
From a fiscal point of view, the deferral of the depreciation is particularly interesting, because it improves the company's equity, financial and profit situation when looking at the balance sheet, but at the same time the improved annual result does not have a negative impact on the tax pressure of the current financial year.
This is mainly due to the application of the article 109, paragraph 4, letter b) of the TUIR, which in this case guarantees the deductibility of the depreciation from a tax perspective, even if it has not been included in the income statement. It is therefore possible to reduce, from a fiscal point of view, the increased income before taxes by the deferred depreciation when calculating the tax base. This applies not only to the corporate income tax IRES, but also to the regional value added tax IRAP.
This will of course cause a difference between the accounting and the tax values, which is why the resulting tax effect must be reported as a deferred tax liability on the liabilities side of the balance sheet.
Manuel Buratti
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