When carry-forward stops: change of control, change of business and the vitality test

A restaurant group is thinking of buying an SRL that has been dormant for two years, with €300,000 of accumulated tax losses. At the 24% IRES rate, those losses promise 72,000 euros of tax savings. The adviser sounds a warning: if the group buys the majority and changes what the company does, the carry-forward may vanish altogether.

Why the law distrusts loss-making shells

A company with large losses and little activity is attractive to anyone making profits: by buying it and moving a profitable business into it, the buyer could shelter those profits with losses that arose elsewhere. This trade in loss shells is precisely what paragraph 3 of article 84 sets out to prevent.

The rule does not forbid buying a loss-making company, nor changing its business. It forbids combining the two: once both the controlling ownership and the business actually carried on change, losses built up under the old set-up no longer follow the company into the new one.

The two conditions in paragraph 3

The first condition concerns ownership: the holdings representing the majority of voting rights at the ordinary shareholders' meeting are transferred to, or otherwise acquired by, third parties, even temporarily. What counts is the overall majority, even if reached through several deals or by different buyers.

The second condition concerns the business: the main activity actually carried on in the years when the losses arose is changed. The law treats as a change a move into a different sector or product segment and, in any event, the acquisition of a going concern or a branch of one.

The change of business counts if it happens in the tax period during which the transfer takes place, in the two following periods or in the two preceding ones. The window therefore spans five years: a company that switches business two years before its majority is sold does not escape the rule.

The closing words of the paragraph cast a wide net: acquiring a going concern or a branch counts as a change of business even within the same sector. A loss-making company that, after the change of majority, receives a business from another firm owned by the new shareholder is therefore caught.

Which losses are caught

The restriction applies to the losses standing at the end of the tax period before the majority transfer. If the transfer happens after the first half of the tax period, however, the losses standing at the end of the period in progress at the transfer date are caught as well.

For a company whose financial year matches the calendar year, a majority sale in March 2026 catches losses built up to 31 December 2025. A sale in October 2026, past the halfway mark, also catches the loss that will arise during 2026 itself.

Legislative decree no. 148 of 7 August 2026 supplied an interpretation: a majority transfer is also deemed to occur when the stake sold is in a company that controls the loss-making entity, within the meaning of article 2359 of the Civil Code. Selling the holding company does not get round the rule.

The update note states that this interpretation remains effective until the start date set by article 377 of the new consolidated act approved by legislative decree no. 117 of 2026. For 2026 deals it must therefore be taken into account when assessing an indirect acquisition.

The timetable of a deal therefore matters as much as its substance. Moving a sale from October to June changes the set of losses involved, but it does not switch the rule off: if both conditions are met, the losses built up before the transfer remain exposed.

The vitality test

Paragraph 3-bis offers a way out for companies that, despite changing owner and business, were still alive. The restriction does not apply if the profit and loss account for the year closed at the loss reference date shows core revenue and employee costs above 40 per cent of the average of the two preceding years.

Both figures must clear the threshold. Revenue means revenue from the core business, not one-off income; staff costs mean the cost of employed labour with the related contributions, as classified under article 2425 of the Civil Code. Companies using international accounting standards take the corresponding items.

The accounts to examine are those for the year closed at the loss reference date, meaning the end of the period whose losses are caught. The two earlier years provide the average. A company that slashed revenue or headcount in its last year before the sale therefore runs a real risk of failing the test.

The net equity ceiling

Passing the vitality test does not free every loss. Paragraph 3-ter provides that, in that case, losses may be carried forward only up to a total equal to the economic value of the company's net equity at the reference date, as shown in a sworn valuation report.

The report is prepared by a person appointed by the company from among those listed in article 2409-bis, first paragraph, of the Civil Code. Twice the total of the contributions and payments made in the twenty-four months before the reference date is then deducted from the appraised value.

Without a sworn report, carry-forward is allowed up to the book net equity in the accounts closed at the reference date, net of contributions and payments from the last twenty-four months, this time without doubling. Neither measure counts grants paid by law by the State or other public bodies.

Doubling recent payments has a clear purpose: to stop shareholders from inflating equity shortly before a sale in order to unlock more losses. With the valuation route, a capital increase made in the two preceding years therefore cuts the ceiling by twice its own amount.

Not only losses: interest and ACE

Paragraph 3-quater extends the same rules to other tax attributes that can be carried forward: the excess interest expense that article 96, paragraph 5, allows to be deducted in later years, and the excess of the economic growth allowance, known as ACE, preserved under article 5 of legislative decree no. 216 of 30 December 2023.

Anyone assessing the purchase of a company must therefore list every tax attribute that can be carried forward, not just the losses. A balance sheet with excess interest or unused ACE can lose those amounts too if the deal falls under paragraph 3 and fails the vitality test.

Partnerships are not exempt. Paragraph 3 of article 8 of the TUIR applies article 84, paragraph 3, to general and limited partnerships: there too, a change of majority combined with a change of business blocks the carry-forward of losses allocated to the partners.

Checks before buying or selling

• Rebuild the losses by year of origin and check their nature
• Document the main activity carried on in the years the losses arose
• Find out whether the buyer plans to change sector or bring in a business within the next two years
• Run the vitality test on the accounts of the last three years
• Estimate the net equity ceiling, with and without a sworn valuation
• List excess interest expense and any unused ACE

When pricing a loss-making company, the tax value of its losses deserves caution. If the buyer plans to repurpose the business, that value may shrink to the net equity ceiling or disappear; if the buyer plans to carry on the same business throughout the relevant period, carry-forward stays subject only to the ordinary rules.

The seller has an interest in these checks as well. What a buyer will pay for a loss-making company depends on how much of those losses survives the deal: presenting the vitality test and an equity estimate from the outset avoids negotiations built on a tax value that later evaporates.

The rules that apply in 2026

Deals in 2026 are assessed under article 84 as it stood before the reform, including paragraphs 3 to 3-quater as amended by legislative decree no. 192 of 13 December 2024. Decree no. 117 of 2026, which repeals the article, takes effect from 2027.