Italy: What constitutes a transfer of a going concern?
A transfer of assets is regarded as a transfer of a going concern (TOGC) if either all or certain assets to be transferred fall within the definition set forth under article 2555 of the Italian civil code.
The determining factor is whether the assets may be considered, after the transfer, as an autonomous unit, sufficient for the purpose of carrying out a business.
Under article 2555 of the Italian civil code, a going concern is the "complex of assets organized by an entrepreneur for the exercise of an enterprise." The determining factor is whether the assets (both tangible and intangible ones – such as IP rights, customers and goodwill), rights and contracts to be transferred may be considered, after the transfer, as an autonomous unit which, from both an organizational and economic perspective, is sufficient for the purpose of carrying out a business.
In particular, the going concern must maintain its ability to operate and produce and cannot be deprived of essential parts thereof that disrupt the ability of the same to carry out its activities.
Based on the most recent Italian/EU case law, the transaction may also qualify as a TOGC when the transfer would only involve an organized group of employees. In particular, such case law states that it might be possible to have a TOGC in case of mere transfer of employees who:
- have particular skill and know-how
- are stably assigned to a common task, provided that such “stand-alone business” is pre-existing and is able to continue carrying out the specific services normally offered to customers
- possess particular skills, are stably coordinated and organized so that the services and activities they provide interact, and are recognized for these attributes
- possess operational capacity due to their specific know-how (or for instance, through their deployment or use of copyright, patents and other IP rights).
The above could also means that if the transfer includes even only one employee with the relevant assets and that employee, with the transferred assets, is able to perform a business function previously carried out by the transferor (eg, due to his or her knowledge), then the transaction at stake may qualify as a TOGC.
Therefore, even if the parties try to structure their transaction as if it were not a TOGC (eg, by structuring the transfer of a group of assets as a mere transfer of assets under a simple asset transfer agreement), the parties involved in the transfer of assets may, nevertheless, face the risk that other third parties (such as the Italian Tax Authority) will enforce their rights by having the implemented transaction re-qualified as a TOGC (as opposed to a mere transfer of assets).
In this respect, Italian case law has further clarified that, even though not all of the assets and rights pertaining to a certain business (or unit of a business) are transferred, such transfer may still be considered a TOGC under Italian law. In particular, a TOGC occurs even when the transfer of some assets/relationships is excluded by the parties and even when such excluded items are essential for the purpose of conducting the relevant business, provided that, notwithstanding such exclusion, the complex of items being transferred maintains (at least potentially, taking also into account any subsequent restructuring envisaged by the parties) a residual functionality with respect to carrying out the relevant business.
In conclusion, determining whether the sale and purchase of multiple assets constitutes a TOGC under Italian law may be difficult in some instances. In any case, such determination must be made on a case-by-case basis, which should also include a tax analysis, in light of the parties’ intentions and the objective functionality of the transferred assets to carry out a certain business.
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