Additional IRES and Business Branch Transfer: Cassation Court 16571/2025 and the Limits of AE Circulars

The Italian tax landscape is notoriously complex, and regulatory interpretations are often subject to debate. In this context, rulings by the Court of Cassation play a fundamental role, providing clarity and guidance for legal professionals and businesses. A prime example is the recent judgment no. 16571 of June 20, 2025, which addresses a matter of paramount importance concerning the additional IRES and the transfer of a business branch. This decision, presided over by R. C. and reported by Judge M. C., with the participation of the Public Prosecutor T. B., quashed and remanded a previous ruling by the Second Level Tax Commission of Bolzano, dated March 22, 2022, establishing a definitive stance on the interpretation of Article 81, paragraph 16, of Legislative Decree no. 112 of 2008 and Article 176, paragraph 4, of Presidential Decree no. 917 of 1986.

The Regulatory Framework: Additional IRES and Extraordinary Transactions

The additional IRES is a component of Corporate Income Tax that applies in certain circumstances, often linked to exceeding specific revenue thresholds. Extraordinary transactions, such as the transfer of a business branch, represent crucial moments in a company's life, with significant tax implications. The transfer of a business branch, in particular, allows a company to transfer part of its business to another entity, maintaining operational continuity but with a new legal and fiscal structure. The regulation of these transactions is complex and requires careful assessment of tax effects, especially concerning the application of taxes such as IRES and its additions.

The relevant articles in this case are Article 81, paragraph 16, of Legislative Decree no. 112 of 2008 (converted with amendments by Law no. 133 of 2008) and Article 176, paragraph 4, of Presidential Decree no. 917 of 1986 (TUIR). These provisions govern specific aspects of the tax regime applicable to the transfer of a business branch, but their interpretation, especially regarding the calculation of revenue for the additional IRES, has generated uncertainty.

The Crucial Issue: Revenue Calculation for the Tax Threshold

The core of the dispute, as highlighted by judgment 16571/2025, concerned the determination of the tax regime applicable to the additional IRES following the transfer of a business branch. Specifically, it had to be established whether, for the purpose of verifying the exceeding of the minimum threshold for tax application, the revenue volume of the transferred business, earned by the transferor in the previous tax year, should also be included. This is a question of enormous practical relevance, as the inclusion or exclusion of such revenue can determine whether the additional tax applies or not, with consequent economic impacts for the companies involved.

Headnote of Judgment 16571/2025: "Regarding the additional IRES, for the identification of the applicable tax regime in the case of a business branch transfer, Articles 81, paragraph 16, of Legislative Decree no. 112 of 2008 (converted with amendments by Law no. 133 of 2008) and 176, paragraph 4, of Presidential Decree no. 917 of 1986, must be interpreted to mean that for the purpose of verifying the exceeding of the minimum threshold for tax application, the revenue volume of the transferred business earned by the transferor in the previous tax year is not to be included, in the absence of references contained in the aforementioned legal provisions and the impossibility of filling this gap through the indications derived from the Revenue Agency's circular no. 35/E of June 18, 2010, which does not constitute a source of law and, as a purely internal act of the issuing Public Administration, cannot affect the tax relationship governed by the principle of reservation of law under Article 23 of the Constitution."

This headnote is disarmingly clear and of fundamental importance. The Court, in fact, establishes that the revenue of the transferred business, earned by the transferor in the previous tax year, must not be included in the calculation of the minimum threshold for the additional IRES. The reason is twofold: firstly, the cited legal provisions (Articles 81, paragraph 16, of Legislative Decree no. 112/2008 and 176, paragraph 4, of Presidential Decree no. 917/1986) contain no explicit reference to such inclusion. Secondly, and this is a crucial aspect, the regulatory gap cannot be filled by the indications provided by a Revenue Agency circular, specifically circular no. 35/E of June 18, 2010.

The Principle of Reservation of Law and the Role of Circulars

Judgment 16571/2025 strongly reaffirms a cornerstone principle of our legal system: the principle of reservation of law, enshrined in Article 23 of the Italian Constitution. This principle establishes that no personal or patrimonial performance can be imposed except by law. This means that in tax matters, the rules governing taxation and tax calculation must be established by a state law, approved by Parliament. Revenue Agency circulars, while useful for providing interpretative guidance within the administration, do not have the force of law and cannot supplement or amend legal provisions.

The Court of Cassation emphasizes that circular no. 35/E of 2010, being a purely internal act of the Public Administration, cannot affect the tax relationship between the taxpayer and the State. This statement is vital because it protects taxpayers from extensive or restrictive interpretations of tax laws that are not based on the law. In practice, if a law does not explicitly provide that a certain element (such as the revenue of the transferred business) must be included in the calculation of a taxable base or threshold, an administrative circular cannot introduce such an obligation.

• Absence of Legal References: The specific laws do not provide for the inclusion of the revenue from the transferred business branch for the additional IRES.
• Irrelevance of Circulars: Revenue Agency circulars are not sources of law and cannot supplement the law.
• Principle of Reservation of Law: Article 23 of the Constitution guarantees that tax impositions derive solely from law, protecting taxpayers from administrative arbitrariness.

Conclusions: Legal Certainty for Businesses

Judgment no. 16571 of 2025 by the Court of Cassation represents a beacon of clarity in the complex tax landscape. It not only resolves a specific interpretative issue concerning the additional IRES and the transfer of a business branch but also strengthens taxpayer protection by reiterating the inviolable principle of reservation of law. For businesses and professionals in the sector, this ruling offers greater legal certainty, enabling more accurate tax planning and reducing the risk of disputes based on administrative interpretations not supported by primary legislation. It is an important reminder for the financial administration to always operate in compliance with legislative dictates, without exceeding the boundaries of its interpretative function.