What are the requirements for credit loss deductibility?

To understand how to deduct the losses incurred from an uncollected credit from the balance sheet of a company, it is necessary that they derive from certain and precise elements.

This is only the first general rule to which we add other cases to be clarified, thanks to the support of expert consultants.

An article to define the boundaries of deductibility

Faced with the liquidity crisis suffered by many companies in Italy, due to the many unpaid invoices from insolvent debtors, entrepreneurs can avail themselves of the deductibility of the loss on credits that have not entered the cash.

But what are the paths to take? And above all, what are the criteria for accessing the deduction of losses in the balance sheet?

First of all, starting from the law, art. 101 paragraph 5 Tuir cites as follows: “credit losses are deductible if they result from certain and precise elements and in any case for credit losses, if the debtor is subject to insolvency proceedings or has concluded a restructuring agreement approved debts… ”.

Not all entrepreneurs, however, are experts in tax matters, it is therefore important to identify an experienced and specialized partner to deal with credit management and thus obtain a lower tax burden.

From a legislative perspective, it is possible to make an important distinction between the different types of loss:

• the loss may in fact derive from a credit not paid by a debtor subject to insolvency proceedings or who has concluded a restructuring agreement;
• or the losses may arise from debtors who are not subject to the cases described above.

The general rule: certainty and precision

It is good to reiterate that within Article 101, the general rule underlying the deductibility of credit losses is clarified, ie those cases in which there are certain and precise elements that define these losses.

The cases for which certainty and precision are evident are:

• low value credits
• credits whose right to collect has lapsed
• credits for which the debtor has defined a restructuring agreement
• when they are canceled from the financial statements of an IAS adopter due to extinguishing events.

The deductibility “in any case”

The quibbles of tax law can truly become a waking nightmare, especially in such a difficult economic transition time, when businesses have to fight every day against huge cash shortages due to credits they can’t collect.

However, there are cases of credit losses, which Article 101 paragraph 5 Tuir defines “deductible in any case” , without limits and starting from the date:

• of the declaration of bankruptcy
• of the compulsory administrative liquidation provision
• of the decree for admission to the composition with creditors procedure
• of the decree establishing the extraordinary administration procedure for large companies in crisis
• of the approval decree of the debt restructuring agreement
• of the registration in the register of companies of the certified reorganization plans
• for admission to foreign procedures, if the debtor is subject to foreign procedures equivalent to internal ones, provided for in states or territories with which there is an adequate exchange of information.

The accrual period for the deduction of a credit loss

Among the many questions that Credit Managers are often asked, when it comes to the deductibility of credit losses, the one relating to the relevant period is frequent. The Revenue Agency has established that “the deduction is allowed in the period of attribution in the financial statements, even when the attribution is implemented in a tax period subsequent to the one in which certain and precise elements have been highlighted …” .

However, care must be taken because the deduction is no longer allowed when it has been applied in a tax period subsequent to the one in which, according to the correct application of accounting principles, the credit should have been canceled from the financial statements.

Credit Group Italia will be able to support your company in the face of crisis situations caused and generated by bad credit management. Our company will show you the best way to follow in the context of credit recovery , in Italy and abroad, dealing with data checks and offering you the necessary legal protection in the most complex and articulated cases.