ALFA S.R.L. (hereinafter referred to as “Company,” “Applicant,” or “Taxpayer”) declares to be a consulting company that intends to engage, either personally or through its corporate vehicles, in the “purchase and management of rights related to legal disputes, including potential ones (litigious assets), with financial content, both with respect to companies, associations, foundations, and professionals, and private individuals.” Essentially, the Company, being unrelated to the legal disputes of others due to lack of interest, would enter into an agreement with the party involved, the holder of a disputed credit right, whereby it would acquire the so-called litigious credit and the legal position of the latter (including all related rights and obligations) directed towards the recovery of the credit, subject to judicial determination or a settlement agreement. As consideration for the acquisition of the litigious assets/credit rights subject to litigation, the Company would provide the original party involved (hereinafter referred to as “Transferor”) with:
a) assumption of legal costs and technical consultancy fees;
b) assumption of the risk of bearing the costs of an unsuccessful outcome of the legal dispute.
From an accounting and balance sheet representation perspective, the transaction would be treated as a “multi-year service, in progress” (in cases where its duration exceeds one year): all related costs (e.g., legal expenses and technical consultancy fees) would be recorded as suspended costs on the assets side until the outcome of the corresponding lawsuit is known, which may result from a judgment, settlement, or abandonment of the litigation.
In the event of a favorable outcome of the lawsuit, either through a judgment or a settlement, the Company would receive a share of the recognized compensation right, which would partially cover the costs incurred [as mentioned in point (a)], and the excess would be divided between the Applicant and the Transferor, the original party involved, based on agreed parameters (e.g., 50% between the parties).
Conversely, in the event of an unsuccessful outcome, the Company would not receive any reimbursement for the costs incurred, and if ordered to pay the opposing party’s legal costs, it would be obligated to reimburse them.
Following the request for additional documentation, the Taxpayer also specifies that:
1) “The disputed right subject to the transfer agreement is not simply the collection of a certain and determined credit resulting from an enforcement procedure but relates, at most, to the legitimacy and/or validity of the entitlement to a credit right held by its owner, which is indeterminable both in terms of existence and amount… the nature of the disputes concerns the legitimacy and validity of the credit right”;
2) “The (potential) credit resulting from a favorable outcome of the disputes should always be connected to a hypothesis of compensation for economic damages…”;
3) “The transfer of litigious assets/disputed rights… (note: will be) considered a VAT-exempt transaction under Article 2, paragraph 3, letter a) of Presidential Decree 633/72…”;
4) In the case of a favorable outcome of the dispute, the amounts received from the losing party, claimed to be compensatory in nature, would be exempt from VAT pursuant to Article 15, paragraph 1, of Presidential Decree 633/72, as they do not constitute consideration for a service provision or sale of goods. The judgment should be subject to a registration tax of 3% pursuant to Article 8 of the Part I Tariff attached to Presidential Decree 131/86;
5) In the event of an unsuccessful outcome, the Applicant “will not receive any amount from the party called in question or from the transferor of the litigious assets, and therefore, no amount will be relevant for VAT purposes. However, the originally agreed compensation for the consultancy and management services during the phase preceding the formalization of the transfer of litigious assets (consideration for the Investigative Activity – point 3.1 of the Transfer Agreement) remains subject to VAT.”
The Applicant requests clarification on:
a) the correct VAT classification of the operation involving the management of litigious credits it intends to acquire, specifically whether this operation is subject to VAT or exempt;
b) whether it can deduct the VAT it has paid for legal and consultancy expenses.
Source: agenziaentrate.gov.it
