Divestment rules on alternative investments funds (AIFs) linked to long-term savings plans (Piani individuali di risparmio a lungo termine, PIR) create an “operational complexity” for pension schemes, according to Inarcassa’s president Giuseppe Santoro.
If an AIF compliant with tax incentives returns capital with a shares cancellation, the investor, for example a Casse di Previdenza, will have to face a levy on the income already received from investments, Santoro explained.
First pillar Casse di Previdenza and second pillar schemes – Fondi Pensione – can invest via PIR, that would have an holding period of five years if investors want to avoid taxes, otherwise those allocations are considered divestments, without tax breaks.
Italy’s 2017 budget law encouraged long-term investments for at least five years in companies, especially small and medium-sized (SMEs) firms, via PIR, introducing tax breaks on the income from those investments facing normally a 26% levy.
The budget law passed in 2018 allows Casse di Previdenza and pension funds to invest up to 5% of total assets in long-term investments.
Inarcassa asked the tax authority in Italy, the Revenue Agency (Agenzia delle Entrate), to clarify rules on capital repayments made by closed AIFs, compliant with the rules on tax exemption.
The scheme wanted to understand in particular whether capital repayments, with or without the liquidation of shares in AIFs, could constitute a divestment, having consequences on the amount of tax to be paid by Inarcassa.
The Revenue Agency replied to Inarcassa, saying that capital repayments resulting in the “cancellation of the shares in AIFs” represent divestments, therefore with an obligation to reinvest the capital within 90 days, to comply with the holding period, otherwise, the so-called recapture mechanism is applied, with the resumption of taxation on income received, even in the medium term, president Santoro explained.
The Agency also clarified that capital repayments, which do not involve the cancellation of the shares in AIFs but simply reduce their relative value, do not constitute disinvestments.
“The reply received by Inarcassa leads to some consequences in the management of the taxation of an AIF compliant with [tax] incentives,” Santoro said.
Casse di Previdenza have complained in the past of high taxes paid (€2.6bn, including €640m linked to returns on investments), calling on the government to expand the tax break policy to further invest in the real economy.
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