First three years’ losses: a new productive activity is proven by its organisation

Art. 84, paragraph 2, of Presidential Decree (d.P.R.) no. 917 of 22 December 1986 allows losses incurred in the first three tax periods from incorporation to be set against the income of subsequent periods up to the full amount of taxable income, without the 80 per cent limit in paragraph 1, provided that they relate to a new productive activity. In the two cases, the company had been incorporated in 2018 to manufacture footwear components on a contract-processing basis (conto lavorazione). The tax office had treated its activity as the continuation of pre-existing businesses and, for 2021 and 2022, had disallowed the portion of the 2020 loss used beyond 80 per cent. The indicators relied on by the tax office were the fact that the processing work and the end customers were the same, the initial employment of a significant share of the staff of two companies that later ceased trading, and the use of a factory sublet by an associated company, which was also the source of the orders. The tax court allowed the initial appeals: on the basis of the documents and the report of the taxpayer’s own expert (consulenza tecnica di parte), the organisational structure, plant and machinery had been set up from scratch, with purchases from third parties and a substantial expansion of the workforce. It therefore ruled out continuity with the pre-existing businesses, also in the light of the judgment of the Corte di cassazione (Italian Court of Cassation), First Civil Division, of 8 January 2025, no. 348, delivered on composition with creditors on a going-concern basis (concordato in continuità).

Incorporating a new company is not enough: whether the activity is new is assessed by looking at the business as an organised whole. Operating in the same sector as pre-existing businesses and sharing staff and customers with them are indicia to be weighed together, not self-sufficient proof. The tax court did, however, reject the ground alleging breach of the burden of proof borne by the tax authorities, treating the sufficiency of the tax office’s indicia as a question of fact, and decided on the documents produced by the company. In our view, since this is a relief provision, it is advisable to proceed as if the burden of proving that the activity is new lay with the taxpayer, notwithstanding art. 7, paragraph 5-bis, of Legislative Decree (d.lgs.) no. 546/1992. The Court of Cassation has held that paragraph 2, as replaced by Decree-Law (d.l.) no. 98/2011, applies to losses used from the tax period in progress on 6 July 2011 even if they were incurred earlier (Court of Cassation, Fifth Civil Division, order of 25 April 2025, no. 10919). Where a change of control occurs through the transfer of the majority of voting rights and the main activity changes, paragraph 3 also applies, and under art. 7, paragraph 1, of d.lgs. no. 148/2026, described as a provision of authentic interpretation (interpretazione autentica), the transfer is also relevant where it is the parent company that is sold. Paragraph 3 does not apply if the vitality test (test di vitalità) in paragraph 3-bis is passed; in that case the losses remain available for carry-forward up to the amount of equity referred to in paragraph 3-ter.

Summary note by Studio Antolini, based on specialised tax sources. The text does not reproduce the original contributions and does not constitute professional advice.