Structure and process, legal regulation and consentsStructure
How are acquisitions and disposals of privately owned companies, businesses or assets structured in your jurisdiction? What might a typical transaction process involve and how long does it usually take?
Acquisitions and disposals of privately owned companies, businesses or assets are typically carried out through a one-to-one negotiation between the buyer and the seller. In most cases, the buyer and the seller are limited liability companies or joint-stock companies.
Depending on the complexity of the deal and the value of the transaction, the process may be carried out through an auction process organised by the seller with the support of financial, legal and other advisers.
A standard auction process in Italy would entail a first phase during which several buyers are invited to submit preliminary and non-binding offers, on the basis of which one or more potential buyers are then admitted to a second phase (depending on the process, one of the potential buyers may be granted with exclusivity for a limited period of time to finalise the deal). During the second phase, the potential buyers carry out all the due diligence activities (if not conducted in the first phase), then possibly submit a binding offer to the seller and engage in a negotiation process.
In general, a standard acquisition process lasts around six months from the start of the negotiations (in some cases, depending on, inter alia, the complexity of the deal, the process may take longer time).Legal regulation
Which laws regulate private acquisitions and disposals in your jurisdiction? Must the acquisition of shares in a company, a business or assets be governed by local law?
Private acquisitions and disposals in Italy are normally regulated by applicable Italian law provisions. Indeed, the parties may choose the law of a different jurisdiction to regulate their contractual obligations, although certain law provisions may not be derogated from by the parties (eg, the laws regulating the transfer of a real estate asset). Moreover, an Italian court may impose the application of certain mandatory provisions of Italian law and refuse to apply any law other than Italian law as the governing law of a contract if its application is manifestly incompatible with public policy in Italy.Legal title
What legal title to shares in a company, a business or assets does a buyer acquire? Is this legal title prescribed by law or can the level of assurance be negotiated by a buyer? Does legal title to shares in a company, a business or assets transfer automatically by operation of law? Is there a difference between legal and beneficial title?
In the case of a sale, the buyer acquires full ownership of the shares, business or assets purchased from the seller. Indeed, Italian law prescribes that the seller shall ensure that the buyer acquires such ownership right over the transferred asset, and in cases where the buyer loses ownership over an asset because of third party’s rights, the seller shall indemnify the buyer for any losses incurred in respect thereto. Nevertheless, in the acquisition agreement, the buyer may negotiate additional guarantees to be given by the seller with respect to the transferred asset.
Although the general principle of Italian law is that, upon agreement among the parties, the ownership is transferred to the buyer, the duly executed perfection of the transfer of shares, a business or assets may require additional formalities. In particular, for the transfer of the shares of a joint-stock company, either the endorsement of the shares’ certificates or the registration of the transfer on both the share certificates and the shareholders’ ledger is required, while for the transfer of quotas of limited liability companies or for the transfer of a business or certain assets (eg, real estate assets) a specific deed must be executed before an Italian public notary, then registered with the competent public registers.
The distinction between beneficial and legal title is not expressly provided by the Italian civil code; therefore, it is not a common concept in private transactions. Such a distinction is instead considered in different fields such as tax law.Multiple sellers
Specifically in relation to the acquisition or disposal of shares in a company, where there are multiple sellers, must everyone agree to sell for the buyer to acquire all shares? If not, how can minority sellers that refuse to sell be squeezed out or dragged along by a buyer?
In cases where there are multiple sellers, all such sellers must expressly agree to transfer their shares in a company unless the company’s by-laws or a shareholders’ agreement, or both, provide for a specific right of one of the sellers (generally the majority shareholder) to drag along all the other shareholders in order to sell to the buyer 100 per cent of the shares (in such a case, the seller is obliged to sell). Exclusively in acquisitions of listed companies, a buyer may have the right, upon the occurrence of certain circumstances, to squeeze out minorities that are not willing to sell their shares.Exclusion of assets or liabilities
Specifically in relation to the acquisition or disposal of a business, are there any assets or liabilities that cannot be excluded from the transaction by agreement between the parties? Are there any consents commonly required to be obtained or notifications to be made in order to effect the transfer of assets or liabilities in a business transfer?
In the context of an acquisition or disposal of a business, the buyer will be jointly liable with the sellers for the tax liabilities of the transferred business for the year of the transfer and the two preceding years, and this regime would apply even if different agreements have been reached between the parties. See questions 33 to 35 regarding employment-related matters.
In addition, the seller will continue to be liable for the debts concerning the transferred business unless the creditors have agreed otherwise.
Finally, contracts (other than those having a personal nature) and receivables relating to a transferred business are automatically transferred to the buyer unless the parties agree otherwise. Specific notification duties or the obtainment of express waivers or consents may be provided by the contractual documentation concerning the agreements or receivables that are part of the transferred business.Consents
Are there any legal, regulatory or governmental restrictions on the transfer of shares in a company, a business or assets in your jurisdiction? Do transactions in particular industries require consent from specific regulators or a governmental body? Are transactions commonly subject to any public or national interest considerations?
The government has special rights (golden powers) in connection with the approval of certain corporate resolutions related to the disposal or change of use concerning assets or companies identified as having strategic importance (eg, telecommunication companies, companies manufacturing military products, metropolitan networks, routers and long-distance networks, facilities used for the provision to end-users of certain services, high-tech companies). In particular, the special rights of the government include, in certain circumstances:
- a veto right to certain corporate resolutions concerning extraordinary transactions (such as a merger, demerger, transfer of technology);
- the right to impose specific conditions in the case of an acquisition (direct or indirect) by a non-EU purchaser of a controlling stake in a company owing strategic assets; and
- the right to oppose the above acquisition in only exceptional cases if the specific conditions are not sufficient.
Moreover, depending on the type of industry, certain transactions may require consent from regulators or public authorities, or both. For example, the acquisition of stakes representing 10 per cent or more of an Italian bank needs to be authorised by the Bank of Italy.
Are any other third-party consents commonly required?
Generally speaking, consent is not required to execute a transfer of shares, assets or business. However, a consent may be required in certain specific cases such as, among others, for transfers of shares, the consent of the board of directors of a company in cases where the shares are to be transferred to a competitor, provided that such consent is statutorily required by the company’s by-laws; and for asset transfers, the consent of certain authorities may be required in cases where the asset is subject to specific restrictions for public interest reasons.
Moreover, third-party consents typically required in private transfers of shares, a business or assets are those expressly provided in commercial or financing agreements.Regulatory filings
Must regulatory filings be made or registration (or other official) fees paid to acquire shares in a company, a business or assets in your jurisdiction?
Depending on the characteristics of the transaction and of the target company, business or assets, certain acquisitions may be subject to specific regulatory filings including, by way of example and without limitation, antitrust filings, or filings with the Bank of Italy or the European Central Bank if the target is a credit institution or a financial intermediary.
Moreover, certain registration fees must be paid in the event that certain acts or documents, or both, are to be filed with specific public registers.
Advisers, negotiation and documentationAppointed advisers
In addition to external lawyers, which advisers might a buyer or a seller customarily appoint to assist with a transaction? Are there any typical terms of appointment of such advisers?
In addition to external lawyers, both the buyer and the seller may resort to the assistance of other external advisers depending on the nature of a deal (eg, tax advisers, financial advisers and technical advisers).
The appointment of such advisers is formalised by means of engagement letters that set forth the terms and conditions of appointment, such as fees (success and abortion fee mechanisms are quite usual), liability of the adviser, termination, confidentiality and exclusivity obligations.Duty of good faith
Is there a duty to negotiate in good faith? Are the parties subject to any other duties when negotiating a transaction?
Under Italian law, the parties have the obligation to negotiate in good faith, which consists of obligations of loyalty, fairness and respect for the other party in all contractual relationships as well as in the negotiation phases preceding the execution of a contract. In the case of a breach by one party of such good faith principle, the other party may require to be indemnified for all damages suffered. Apart from compliance with this principle, the seller and the buyer - which shall always comply with all applicable laws - as well as the relevant representatives (eg, directors) are entitled to, and must, pursue respectively the seller’s and buyer’s best interests.Documentation
What documentation do buyers and sellers customarily enter into when acquiring shares or a business or assets? Are there differences between the documents used for acquiring shares as opposed to a business or assets?
Generally speaking, a set of preliminary documents (eg, memorandum of understanding, letter of intents) is usually exchanged between the parties both in the case of asset deals or share deal transactions.
Regarding the transaction documents, in the case of an asset deal the parties have to execute a sale and purchase agreement - which may be entered into by means of a public deed (ie, a deed to be executed before a notary public) - regulating exclusively the transfer of the assets or the business.
Regarding share deal transactions, the parties normally execute a share and purchase agreement whose subject matter is the transfer of the shares (or quotas in the case of a limited liability company) with no need for the parties to describe the assets owned by the target company.
The structure of the documents referred to above is quite similar, although the relevant provisions may vary depending on the kind of transaction and the type of assets or business sold.
Are there formalities for executing documents? Are digital signatures enforceable?
Transaction documents have to be executed in compliance with certain specific formalities, depending on the type of transaction.
For example, for asset deal transactions regarding exclusively the transfer of real estate assets, a notarial deed will be executed (this is normally executed also in the case of a transfer of a business).
As to share deal transactions, the notarial transfer deed is required for transfers of quotas of limited liability companies only, while in the case of a transfer of shares of a joint-stock company, the transfer may be implemented also by means of endorsement of the share certificates (with notarial certification of the signature). In both case, the relevant framework share and purchase agreement between the parties is executed in private form.
All agreements that do not need to be executed in notarial form may be also executed by digital signature. However, this kind of signature is very unusual.
Due diligence and disclosureScope of due diligence
What is the typical scope of due diligence in your jurisdiction? Do sellers usually provide due diligence reports to prospective buyers? Can buyers usually rely on due diligence reports produced for the seller?
The scope of due diligence consists of identifying any issues related to the asset, business or company to be purchased in order to decide whether to execute the deal and, in the case of a positive outcome, how to protect the buyer from any possible liabilities related to the transaction. In particular, in the case of a share deal - depending also on the size and on the business carried out by the target company - the legal due diligence may cover the following areas of investigation: corporate matters, commercial agreements, labour law matters, administrative and environmental law matters, antitrust, litigation, banking, intellectual property (IP) and regulatory matters.
It is not very common that sellers provide prospective buyers with due diligence reports, particularly because of the costs related. However, in auction processes, it may be possible to have vendor due diligence reports that are made available to prospective buyers, which in certain cases may rely upon such reports under terms and conditions that are agreed between the parties and regulated in the transaction documents.Liability for statements
Can a seller be liable for pre-contractual or misleading statements? Can any such liability be excluded by agreement between the parties?
Parties have the obligation to negotiate in good faith and, pursuant to article 1337 of the Italian civil code, in the event such principle is breached by any of the parties (eg, in cases of unjustified interruption of the negotiations), this party shall indemnify the counterparty for any losses suffered by the latter. The seller is liable also for misleading statements where such statements have caused a prejudice or loss, or both to the buyer. In this respect, it is worth mentioning that, under Italian law, the parties may exclude the above liability both with respect to conduct that occurred during the negotiation phase as well as in relation to misleading statements possibly contained in the transaction documents, provided that such liability may not be excluded in relation to damage proved to be the consequence of gross negligence or wilful misconduct of the other party.Publicly available information
What information is publicly available on private companies and their assets? What searches of such information might a buyer customarily carry out before entering into an agreement?
A lot of information on private companies may be retrieved in the competent companies register and include, inter alia, the following: financial statements, corporate structure, registered office and local units, value added tax (VAT) number, duration of the company, amount of the corporate capital, composition of the corporate bodies, by-laws and history of all corporate and organisational changes. All of the above information is easily obtained from the companies register, and is consulted first by prospective buyers before entering into negotiations for the acquisition of a private company.
Generally speaking, information regarding ownership of assets, as well as any lien on the same, may be collected insofar as the relevant assets are registered with public registers (eg, real estate, cars, etc).Impact of deemed or actual knowledge
What impact might a buyer’s actual or deemed knowledge have on claims it may seek to bring against a seller relating to a transaction?
As a general rule, under Italian law, no claim may be brought by the buyer against the seller with respect to potential liabilities actually known by the buyer. Likewise, no indemnification may be claimed by the buyer in the case of reasonably recognisable potential liabilities, unless the seller declared that the goods to be transferred were free from defects. However, with respect to private company acquisitions, it is quite common that, if the buyer is aware of certain potential liabilities (eg, a pending litigation), he or she will seek to negotiate the inclusion of a special indemnity clause in the transaction documents that therefore protects him or her against certain specific risks or issues expressly identified therein.
Pricing, consideration and financingDeterming pricing
How is pricing customarily determined? Is the use of closing accounts or a locked-box structure more common?
The price of private companies is normally determined by the parties with the assistance of financial advisers based on standard evaluation criteria and parameters (eg, discounted cash flows, multiples of certain values such as earnings before interest, tax, depreciation, and amortisation). As to payment terms, closing accounts and locked-box structures are both common. The price set through the locked-box structure is generally subject to adjustment for unpermitted leakages (such as extraordinary bonuses, dividends), while the closing accounts entail an adjustment - to be calculated with reference to the closing date - on the basis of certain criteria that are to be agreed by the parties (eg, net debt, working capital). In practice, the locked-box structure is most commonly used in transactions involving private equity funds, and it is usually preferred by parties in order to avoid post-closing adjustments.Form of consideration
What form does consideration normally take? Is there any overriding obligation to pay multiple sellers the same consideration?
As a general rule, the form of consideration depends on the agreement between the parties. Cash consideration is by far the most common form of consideration, while other consideration forms, such as payments in kind (eg, shares of other companies), are seldom adopted by the parties.
In the case of multiple sellers, under Italian law, there is no overriding obligation for the buyer to pay the same kind of consideration to each of the sellers. However, it is highly uncommon that the buyer would pay cash exclusively to certain sellers while paying in kind to the other sellers.Earn-outs, deposits and escrows
Are earn-outs, deposits and escrows used?
In practice, earn-out clauses, deposits and escrows are commonly used in the Italian market. Usually, earn-out clauses are agreed by the parties when the profitability of the target company is expected to increase as a consequence, for example, of certain planned investments. In these cases, the amount of the portion of the price to be paid after closing is generally based on the performance of certain specific indexes or parameters.
Moreover, it is quite usual that a portion of the price is placed in escrow to guarantee the indemnification obligations of the sellers possibly provided in the transaction documents. In this case - such as for deposits - the parties use third-party entities (normally financial institutions) as escrow agents or depositories.Financing
How are acquisitions financed? How is assurance provided that financing will be available?
The buyer can finance an acquisition by raising equity from private entities or receiving financing by financial institutions or using both such sources. Indeed, it may also happen that the seller finances the transaction granting the buyer a vendor loan.
To ensure that financing will be available at closing, the buyer may provide equity commitment letters issued by its controlling entities (this is mainly used in private equity transactions) or debt commitment letters, or both; or, less commonly, executed loan agreements according to which the ultimate lender commits to lend the buyer the funds necessary to complete the transaction at closing.Limitations on financing structure
Are there any limitations that impact the financing structure? Is a seller restricted from giving financial assistance to a buyer in connection with a transaction?
As a general rule, there is no specific limitation that may have an impact on the financing structure, except for those limits that the target companies must comply with in order to provide financial assistance with respect to the purchase of its own shares. In fact, under Italian law, a joint-stock company is allowed to provide financial assistance for the purchase of its own shares only if it complies with certain strict mandatory requirements. Such limits do not apply to the possible financial assistance directly given by the seller to the buyer.
Conditions, pre-closing covenants and termination rightsClosing conditions
Are transactions normally subject to closing conditions? Describe those closing conditions that are customarily acceptable to a seller and any other conditions a buyer may seek to include in the agreement.
Closing is typically subject to certain conditions precedent that must be satisfied (or waived if this is provided by the transaction documents) by a certain date.
The following conditions precedent are typically included in acquisition agreements and are customarily acceptable to a seller:
- regulatory approvals (ie, competition clearance, approval by governmental bodies or regulatory entities);
- third-party consents (eg, such as consents from third parties required under specific contracts) or waivers (such as the waiver by other shareholders of their pre-emption right possibly provided under the target’s by-laws); and
- conditions and deliverables specifically related to the deal (eg, the execution of certain actions or transactions before closing).
In addition to the above, the buyer may also seek to include the following closing conditions:
- non-occurrence of material breach to the seller’s representations and warranties;
- compliance with certain contractual covenants;
- absence of material adverse effects; and
- availability of financing (this is less common, because the seller would normally require the transaction as fully financed at signing).
What typical obligations are placed on a buyer or a seller to satisfy closing conditions? Does the strength of these obligations customarily vary depending on the subject matter of the condition?
The conditions set forth in the acquisition agreement may require certain activities by one of the parties - seller or buyer - or by both parties, depending on the conditions actually provided in the acquisition agreement. Therefore, it is very common to provide an obligation on the buyer to take all actions necessary to obtain a regulatory approval (eg, antitrust clearance) or the financing necessary to complete the transaction. In such a case, it is not rare to see cooperation obligations that both parties have to fulfil with respect to certain matters (eg, the seller shall cooperate with the buyer in the antitrust clearance process by providing specific information on the target and its business). The strength of those obligations may vary depending on the conditions precedent, and thus, while certain obligations are regulated in detail in order to make them stronger (eg, regulatory approval), others may be inserted even if the relevant subject matter does not jeopardise the execution of the deal (eg, the obtainment of a waiver from a third-party supplier with respect to a change of control clause contained in the relevant supply agreement).Pre-closing covenants
Are pre-closing covenants normally agreed by parties? If so, what is the usual scope of those covenants and the remedy for any breach?
The pre-closing covenants are normally agreed by the parties and regulated in the transaction documents. In addition to the covenants related to the conditions precedent and their occurrence (see question 23), the pre-closing covenants usually provided are those regulating:
- the interim management of the company (or business or asset, as the case may be), whereby the seller undertakes to cause the target to be managed in the ordinary course of business, or not to carry out certain activities or transactions without the prior consent of the buyer; and
- the carrying out of certain specific activities or transactions that, although not provided as conditions precedent, shall be completed before closing.
If a party is in breach of any of the pre-closing covenant, then the other party will be entitled to require indemnification for any loss possibly suffered or, in the case of a material breach, to terminate the agreement. In this respect, it is quite common to insert a provision - normally required by the seller - that prohibits the termination of the agreement for breach of any covenant, allowing the non-breaching party to ask instead for indemnification only.Termination rights
Can the parties typically terminate the transaction after signing? If so, in what circumstances?
As mentioned in question 24, except for cases of termination upon mutual agreement by the parties or in cases where the consummation of the transaction becomes illegal by operation of law or banned by a judicial order, the parties are typically not allowed to terminate the transaction after signing unless:
- a material breach of the contract has occurred and, at the same time, the parties have not expressly excluded the right to terminate the agreement for a breach of contract (see question 24);
- one or more of the conditions precedent have not occurred within the term provided by the parties (ie, the long-stop date); or
- specific termination events are expressly provided for in the acquisition agreement.
Are break-up fees and reverse break-up fees common in your jurisdiction? If so, what are the typical terms? Are there any applicable restrictions on paying break-up fees?
Break-up fees and reverse break-up fees are not very common in Italy, and depend mainly on the size of the deal and the kind of parties involved. However, particularly in cases where the transaction is subject to financing or approval, or both, by foreign governmental bodies or authorities (normally from emerging market countries), it is becoming increasingly common to provide reverse break-up fees that become due and payable by the buyer in cases where the latter is unable to complete the deal because of the lack of such financing or authorisations. Unless the break-up fee is qualified as a penalty under Italian law (in such a case, it may be subject to a reduction by judicial decision if deemed unfair in terms of amount), there is no specific restriction in the payment of such fees, which most of the time are put in escrow to guarantee the relevant payment.
Representations, warranties, indemnities and post-closing covenantsScope of representations, warranties and indemnities
Does a seller typically give representations, warranties and indemnities to a buyer? If so, what is the usual scope of those representations, warranties and indemnities? Are there legal distinctions between representations, warranties and indemnities?
A seller typically gives representations and warranties to a buyer and, in the case that any of such representations and warranties is or becomes untrue or incorrect, the seller shall indemnify the buyer for any loss that the buyer itself or the company has suffered in respect thereto.
The scope of providing representations and warranties is normally to provide the buyer with a fair and complete description of certain matters concerning the seller (eg, authority, title) and the target (eg, share capital, financial statements, material agreements, assets, IP rights) and, therefore, allow the buyer to rely on such statements in order to complete the transaction.
As to indemnities, these are normally obligations that grant one of the parties (usually the buyer, considering that most of the representations and warranties are given by the seller as well as for the covenants assumed by the same) the right to be indemnified against damages or losses that are suffered because, for example, of a breach of a covenant or the untruthfulness of one or more of the representations and warranties given, or upon the occurrence of certain events in respect of which special indemnities are provided in the acquisition agreement.Limitations on liability
What are the customary limitations on a seller’s liability under a sale and purchase agreement?
The following limitations on a seller’s liability are typically included in a sale and purchase agreement, although a number of further limitations (eg, tax deductions) may apply to a seller’s liability:
- de minimis: a claim below a certain amount is not eligible for indemnification;
- threshold: no indemnification is required unless a certain amount of claim is reached (then it may be provided that the indemnification is limited to the amount exceeding such threshold only or, alternatively, to the entire amount of the claim);
- cap: no indemnification is due by the seller once a maximum amount of indemnification (ie, the cap, which is normally identified as a percentage of the purchase price) is reached; and
- time limitations: the seller’s indemnification obligation ceases after the expiry of certain time limits (these are negotiated by the parties and may vary depending on the type of representation and warranty given).
Is transaction insurance in respect of representation, warranty and indemnity claims common in your jurisdiction? If so, does a buyer or a seller customarily put the insurance in place and what are the customary terms?
Insurance in respect of representation, warranty and indemnity claims is not very common in Italy, although its use has been increasing in the past few years. The policy is usually issued and executed by the buyer (the seller normally requires the buyer to execute such insurance policy) in order to exempt the sellers from assuming an indemnification obligation in relation to the buyer, particularly in cases where those sellers were investment funds.
The terms of such insurance policy - both economic and legal - must depend on each case and on the characteristics of the transaction in respect of which such policy is issued. Certain risks are not usually covered, such as bribery and corruption matters.Post-closing covenants
Do parties typically agree to post-closing covenants? If so, what is the usual scope of such covenants?
Parties typically agree post-closing covenants, which very much depend on the type of transaction as well as on the parties involved. Indeed, the following covenants may be inserted into a standard acquisition agreement:
- non-competition covenant: the seller and the managers of the target company shall not compete with the target within a certain territory and for a limited period of time;
- non-solicitation covenant: the sellers shall not hire the target’s employees or managers for a certain period of time (exceptions to this covenant are normally provided); and
- an obligation of the buyer to cause the company to perform some actions, such as adopting incentive plans for the employees or the managers, or both, of the target; and to maintain a directors and officers insurance policy for a certain period of time for those directors or managers that ceased from their role within the company on, or soon after, the closing.
Are transfer taxes payable on the transfers of shares in a company, a business or assets? If so, what is the rate of such transfer tax and which party customarily bears the cost?Transfer of a participation in an Italian company
A transfer of a participation in an Italian company is VAT-exempt.
As regards registration tax, if the transfer is executed in writing before a notary public, its execution triggers registration of the deed with the Italian tax authorities (ITA) within 20 days and registration tax at a fixed rate of €200. If, instead, the transfer of shares is executed through a private written deed, it has to be registered only upon certain events provided by Italian tax law.
By provision of law, the seller and the purchaser of shares are jointly liable for the payment of the registration tax in relation to the ITA. Nevertheless, the burden of taxation is generally shifted onto the purchaser.
When the transfer concerns shares issued by joint-stock companies resident in Italy for tax purposes, the Italian tax on financial transactions (called the Tobin Tax) also applies and, by provision of law, the purchaser is solely liable for the payment of such tax, which applies at a proportional rate of 0.2 per cent of the purchase price (certain exceptions are provided by law).Transfer of a business including a going concern
A transfer of a business is outwith the scope of VAT.
By provision of law, a transfer of a business shall be executed in writing and is subject to registration with the ITA within 20 days. Such registration triggers the application of registration tax.
The taxable base of registration tax is equal to the aggregate value of all the assets, net of liabilities, included in business entity, plus goodwill (if any).
For the purposes of calculating the taxable base of each asset, the liabilities are allocated pro rata to the book value of each asset.
In general, subject to the availability of special advantageous rates, the following standard rates would apply to the different categories of assets (if any) included in the business:
- 15 per cent: agricultural land;
- 9 per cent: building land, buildings (and other assets permanently annexed thereto);
- 0.5 per cent: receivables pertaining to the business; and
- 3 per cent: other assets (including goodwill).
When the price is not allocated on the different categories of assets, the higher rate applies to the overall value of the business.
In the case that real estate assets are included in the business, mortgage and cadastral taxes apply levied at an aggregate flat rate of €100 (ie, €50 for mortgage tax plus €50 for cadastral tax).
The seller and the purchaser of a business are jointly liable for the payment of the above transfer taxes in relation to the ITA.
These taxes are typically borne by the purchaser but the parties may agree differently in the contractual documentation.Transfer of assets
The transfer taxes regime depends on the specific asset that is transferred.
In principle, a transfer of specific assets is subject to VAT at the standard 22 per cent rate (reduced rates of 10 or 4 per cent are available for the transfer of specific goods).
Generally, a transfer of assets subject to VAT (other than real estate and registered movable assets) shall not be registered except for certain specific cases provided by Italian tax law (in such cases, registration tax is generally levied at a fixed rate of €200).
Moreover, if the transfer concerns real estate assets, mortgage and cadastral taxes apply, generally levied at an aggregate rate of 3 per cent (ie, 2 per cent of mortgage tax plus 1 per cent of cadastral tax). Reduced rates are available for certain transfers (eg, where one of the parties is an investment fund).Corporate and other taxes
Are corporate taxes or other taxes payable on transactions involving the transfers of shares in a company, a business or assets? If so, what is the rate of such transfer tax and which party customarily bears the cost?
Assuming that the seller is an Italian company or a permanent establishment in Italy of a foreign company:
- in the case of a transfer of a participation in an Italian company, capital gains realised upon a transfer for consideration of shares contribute to determine the taxable business income of the seller, subject to corporate income tax (IRES) at the current 24 per cent rate. Such capital gains are taxed in the fiscal year in which they are realised or, upon election, in up to five equal instalments, when the relevant shares have been held for not less than three years. A ‘participation exemption’ regime, exempting 95 per cent of the capital gain in the hands of the seller, applies when certain conditions are met. In principle, for companies other than banks and financial entities, no regional tax on productive activities (IRAP) would be payable on such capital gains;
- in the case of a transfer of a business including a going concern, capital gains realised contribute to determine the taxable business income of the seller, subject to IRES at the current 24 per cent rate. Such capital gains are taxed in the fiscal year in which they are realised or, upon election, in up to five equal instalments, when the relevant business has been held for not less than three years. In principle, capital gains deriving from the transfer of a business are not relevant for IRAP purposes; and
- in the case of a transfer of assets other than trading assets, capital gains realised contribute to determine the taxable business income of the seller, subject to IRES at the current 24 per cent rate. Such capital gains are taxed in the fiscal year in which they are realised or, upon election, in up to five equal instalments, when the relevant assets have been held for not less than three years. In principle, capital gains deriving from the transfer of assets are subject to IRAP at the 3.9 per cent rate (which could be increased on a regional basis of 0.92 per cent).
Employees, pensions and benefitsTransfer of employees
Are the employees of a target company automatically transferred when a buyer acquires the shares in the target company? Is the same true when a buyer acquires a business or assets from the target company?
In general terms, whenever a transfer takes place in the ownership of a company, the employment agreements existing at the time of the transfer continue after closing and the employees’ terms and conditions of employment are preserved, considering that the employing entity remains the same.
In the event that the transaction should qualify as a transfer of a business or a part thereof, certain statutory provisions that implemented EU directives on transfers of businesses shall apply, entailing the automatic transfer of the employees.Notification and consultation of employees
Are there obligations to notify or consult with employees or employee representatives in connection with an acquisition of shares in a company, a business or assets?
A transaction structured as a share deal would not entail a legal obligation to inform or consult in advance works councils, external trade unions or employees. Obligations to this effect may, however, derive from existing collective agreements, both at a national or a company level. In addition, Legislative Decree No. 25/2007, which transposed Directive 2002/14/EC (establishing a general framework for informing and consulting employees in the European Union), provides for some general information and consultation obligations, including on any company decisions that would result in material changes in the organisation of work for employers staffed with more than 50 employees. In this regard, information and consultation obligations may apply also to share deals that are capable of leading to substantial changes in the organisation of work or in contractual relations.
Further information obligations towards employees’ representatives derive from the implementation in Italy of Directive 2004/25/EC on takeover bids and Directive 2011/61/EU on alternative investment fund managers. In particular, specific obligations to inform employees’ representatives (or, in the absence of such, the employees themselves) should be fulfilled in cases of takeover bids and when an alternative investment fund acquires the control of a non-listed company or an issuer.
Moreover, in the case of a transfer of a business with more than 15 employees, a written notice shall be given in advance by the seller and the purchaser to the works councils existing at the production units that are involved, and the external unions that entered into the national collective agreement applied by the companies involved. In the absence of works councils, the notice shall be sent only to the external unions belonging to the major national unions.Transfer of pensions and benefits
Do pensions and other benefits automatically transfer with the employees of a target company? Must filings be made or consent obtained relating to employee benefits where there is the acquisition of a company or business?
As previously mentioned, Italian law requires that, within the frame of a transfer of a business or a share deal, the employees’ terms and conditions of employment are preserved. However, it does not require the transfer of a particular benefit plan to the extent such plan cannot continue to be identical as prior to the transfer (eg, a bonus plan that is based on the seller’s economic targets, or a benefit plan that is specific to the seller’s group), provided that such plan is replaced by opportunities that are not less favourable.
As far as pensions are concerned, following the transaction’s completion, the employees would continue to belong to the public pension system, and the purchaser would be liable for the payment of the relevant social security charges.
Transferred employees may also continue to participate in a pension fund (supplementary to the public one and incorporated in a separate legal entity from the employer) established at industry level by the applicable national collective agreement, to which both the employer and the employees may contribute.
In the case of a transfer of a business, if the same national collective agreement is applied by the buyer, the employees would continue to belong to the same scheme (and the buyer would pay the relevant charges). If, instead, the national collective agreement should change as a consequence of the transfer, the contributions accrued in the fund might be transferred to the fund established by the different national collective agreement applied by the buyer, if existing. If the employees participate in a company pension fund (which, however, is usually present only in banks and insurance companies) that they are obliged to leave as a consequence of the transfer of the business, the contributions accrued in such private fund may be transferred to the fund established by the national collective agreement applied by the buyer.
Moreover, in the case of a share deal, the employee continues to participate in the same national collective bargaining or company pension fund, because the transfer does not entail any change in the applicable collective bargaining agreement or in the employing entity.
Update and trendsKey developments
What are the most significant legal, regulatory and market practice developments and trends in private M&A transactions during the past 12 months in your jurisdiction?Key developments36 What are the most significant legal, regulatory and market practice developments and trends in private M&A transactions during the past 12 months in your jurisdiction?
One of the trend in the Italian market is the growing use of insurance policies to cover possible indemnity obligations of the seller arising from the breach of representations and warranties given to the purchaser pursuant to the acquisition agreement (so called warranty and indemnity or W&I insurance). This is particularly common in sectors such as real estate and renewable energy, where a sensible increase in policies’ number and a certain degree of standardisation of terms and conditions of these policies can be detected. The use of W&I policy is not rare also when the selling entities are investment funds (especially those that are in the process of being liquidated).