What is a holding company and why is it strategic?
In the current economic climate, both nationally and internationally, holding companies are confirmed as an essential tool for the strategic management of corporate groups.
Their functions range from organizational simplification to asset planning, tax optimization, and ownership restructuring.
Holding companies in generational transition
Holding company regulations are particularly relevant for generational transitions, allowing for a smoother transfer of responsibility and leadership from one generation to the next while preserving business continuity.
How to establish a holding company
But how is a holding company established? What are the operational and tax procedures for structuring a parent company?
There are various options available, and the choice of the most suitable instrument depends on multiple factors, such as the group’s structure, the nature of the business, tax considerations, and, above all, strategic objectives.
Among the most frequently adopted solutions, two main approaches stand out: contribution and spin-off (in particular, spin-off with hive-off).
Formation by contribution
A widely used method for establishing a holding company is the contribution of assets to a company, whether newly incorporated or pre-existing. The assets contributed may be equity investments, a business, or a branch of a business.
1.1 Contribution of Shares
The contribution of shares, the most common option, involves one or more individuals (natural or legal persons) contributing their interests in other operating companies to a newly incorporated or existing company, receiving shares or stock in the beneficiary company in exchange.
In this case, the contribution allows the ownership chain to be expanded by introducing a new company, which typically acts as a holding company for the operating companies whose shares or stock were the subject of the transaction.
Since it falls within the rules on contributions in kind (and with reference to joint-stock companies), the transaction requires an appraisal of the value of the contributed shares.
Tax advantages of the holding company
From a tax perspective, the transaction is generally subject to the arm’s length rules set forth in Article 9 of the Consolidated Income Tax Code. However, what makes this choice common and possibly very advantageous is the opportunity, under certain conditions, to carry it out using one of the controlled realization regimes provided for by law.
The main relevant regulations are:
- Article 177, paragraph 2 of the Consolidated Income Tax Code, applicable when the transferee company obtains or increases, as a result of the transaction, control of the company whose shares are being transferred.
- Article Article 177, paragraph 2-bis of the Consolidated Law on Income Tax (TUIR), which extends the regime of the previous paragraph if the transferee company neither acquires control of a company nor increases its controlling interest, if both of the following conditions are met: a) the transferred shares represent a percentage of voting rights exercisable at the ordinary shareholders’ meeting greater than 2 or 20 percent, or a share of the capital or assets greater than 5 or 25 percent, depending on whether the shares are represented by securities traded on regulated markets or other shareholdings; b) the shares are transferred to a company, existing or newly established, owned solely by the transferor or, if the transferor is a natural person, by the transferor and his or her family members.
- Article 175 of the Consolidated Law on Income Tax (TUIR), on the other hand, addresses contributions, made in the course of a business, of controlling or affiliated shares or interests.
Although each has specific eligibility requirements, all three regimes allow, if the equity investments received are recorded in the transferee’s balance sheet at a value equal to their tax cost, the transferor to be tax neutral, thus significantly reducing the tax burden and making it particularly advantageous from a tax perspective.
1.2 Transfer of a Business or Business Unit
An alternative to the transfer of equity investments described above is the transfer of a business or business unit. In this case, the operating transferring company—which becomes a holding company following the transfer—transfers an organized business complex to a new company, receiving a stake in the latter’s share capital in exchange.
Pursuant to Article 176 of the Consolidated Law on Income Tax (TUIR), the transaction can benefit from the tax neutrality regime, which guarantees the continuity of tax values, regardless of any higher current values identified in the appraisal.
This tool is particularly useful and used in cases where it is necessary to legally separate different strategic business areas, dividing them into multiple companies for better value. For example, a common case is the transfer of operational activities to the beneficiary company, while retaining the real estate business and the acquisition of equity investments in the transferor, thus allowing the latter to assume the role of holding company.
Formation through a spin-off with hive-off
Another method of establishing a holding company is a spin-off. In particular, the spin-off with hive-off option is highlighted, introduced by Legislative Decree 19/2023 and governed by Article 2506.1 of the Italian Civil Code.
A spin-off with hive-off is a split in which the demerged company transfers all or part of its assets to one or more pre-existing or newly established beneficiaries, with the shares in the beneficiary being allocated not to its shareholders but to the demerged company itself.
As a result of the transaction, the demerging company typically becomes the holding company of the beneficiary, usually retaining, as in the case of a business transfer, only assets not belonging to the company’s core business and instead separating the operating division.
Although apparently very similar to a contribution, a demerger with spin-off does not require an appraisal. It should be noted that the choice between a contribution (of a business or a business unit) or a demerger with spin-off (of a business or a business unit), while pursuing the same objective and potentially achieving the same final result, requires careful consideration of the different civil and tax implications of the two different transactions.
Conclusions
Holding a company as a long-term strategic choice
The establishment of a holding company represents a crucial strategic step in managing entrepreneurial and family business assets, enabling rationalization of corporate governance and asset planning, including from a medium- to long-term perspective.
Importance of a Case-by-Case Assessment
The methods through which a holding company can be established, from the transfer of shares or businesses to the more recent spin-off, offer different solutions, each with specific operational and statutory advantages and tax implications.
The choice of the most suitable method for its formation, given the various possible alternatives, cannot be standardized but must be carefully evaluated on a case-by-case basis, taking into account the economic context, the group’s strategic and family objectives, and the statutory and tax implications of each instrument.
(Article written in collaboration with Dr. Asia Zaltron, a collaborator at Studio Righini)
