Participative Financial instruments: an Italian approach to Sukuk? (Part II)
As mentioned in the first of this series of articles, the so-called participative financial instruments (PFIs) (strumenti finanziari partecipativi) have been introduced by the company law reform in 2004 and are provided under Article 2346, paragraph 6, and Article 2411, paragraph 3 of the Italian Civil Code. After having presented the main features of PFIs (see Part I), it is now time to dig more into the various aspects of the instruments, including their tax and accounting treatment. Subsequently, in Part III, it will be possible to try to compare PFIs, or at least some of them, and Sukuk and understand whether there are indeed similarities between the two.
As already anticipated, on the basis of the aforementioned law provisions, two different interpretations have been provided by the scholars. According to the first one, all kinds of financial instruments provided by the Civil Code which can be issued by a joint stock company would be similar to debt instruments, as the underlying transaction would be that of a financing. Therefore the bond regulation would apply to all of them. According to the prevailing view, however, different types of financial instruments would exist, depending on the nature of the contribution and of the underlying transaction. In fact, as to the first interpretation, the law also provides for instances where services, goods and receivables can be contributed, which is not compatible with the concept of financing. As to the nature and pursued goal of the issue of financial instruments, these should be considered as an empty ‘shell’ capable of accommodating different structures. According to this theory, particular value should be given to the ‘participative’ feature of the instruments, which would exclude a right of reimbursement for the holders, according to a profit and loss-sharing approach which is immanent to Islamic finance.
Drawing a line in the wide field of financial instruments between true ‘participative’ instruments and debt instruments has an effect also on the applicable tax regime. Generally speaking, in the first case, the profit would be treated similarly to dividends; in the second case as interest. This is the case also as far as the accounting treatment is concerned. Instruments of the first kind will be accounted as a reserve in the balance sheet of the issuer and therefore will contribute to the ‘capitalization’ of the issuer, being part of its net equity. Such reserve, as any other component of the net equity, would be capable of being reduced by the company’s losses, before or, according to certain scholars, even pari passu with the share capital. However, the reduction of the reserve, according to the most recent theory, would not necessarily mean the corresponding annulment of the instruments, with the consequence that if this would be reduced to zero, the instrument holders would lose all their rights. In fact, also in this case, depending on the instrument regulation, their holders would be entitled to participate, in full or in part, in the liquidation of the company assets, after repayments to creditors.