Forfeiture of PPC benefits

The topic under consideration this month concerns tax benefits for the purchase of agricultural land with special reference to the forfeiture of the same following the conclusion of a temporary lease store.

In Judgment no. 6688, the Justice of Laws, was confronted with a long-standing dispute resulting from the decision of the local Internal Revenue Agency by which it had ordered the recovery of ordinary registration and mortgage taxes in connection with a purchase of rustic land for which the purchaser had benefited from the tax benefits provided by Law No. 604-54 in favor of smallholder farming. More specifically, the recipient had been adjudicated by the Judicial Authority as a result of a transfer decree of the competent court in the real estate execution procedure.

The reason given by the agency for the recovery order consisted of the circumstance of the intervening conclusion of a lease contract for the same rustic fund within the five-year period.

In the first instance, the successful bidder, a direct grower, obtained from the provincial tax commission the annulment of the act, which was upheld in the second instance by the regional tax commission in a 2008 ruling.

The winning argument, made by the direct grower in the first instance and on appeal, was based, by way of simplification and summary, on the interpretation of the recognizability of the forfeiture under Art. 7 of L. no. 604-54 exclusively in the event that they permanently cease to run the fund. In the case at hand, on the contrary, the relief recipient argued that he had not lost the availability of the fund because the lease was to fall under the type of “intercalary” contracts, shorter, in the case at hand, than eight months and, by its nature, unsuitable to result in a persistent interruption and indeed limited and infra-annual.

Thus, the main argument for a decision favorable to the taxpayer and direct cultivator in the first and second instance was the failure to prove the permanent cessation of cultivation of the fund as a result of the lease relationship, which was characterized by a limited duration (less than eight months) and, therefore, only likely to result in a brief interruption of direct cultivation activity by the owner. The appellant also complained that the Internal Revenue Service had made a deficient and deficient preliminary investigation, which, moreover, had not been preceded by the appropriate assessment by the uniquely competent provincial department of agriculture.

The appeal in cassation was brought by the Internal Revenue Agency, which was unsuccessful in the first two instances, and was based on the alleged violation and misapplication of Articles 7, 1st co., of Law No. 604/54 and 11 co. 2nd, 3rd co., of Legislative Decree No. 228/01, as well as Articles 12 and 14 of the Prelegislations.

In essence, the Board assumes that a rustic land lease always and in any case results in the forfeiture of the small farm property benefit if and insofar as it is entered into before the expiration of five years from the purchase.

In particular, the agency considers it irrelevant whether the contract is seasonal or annual, as even limited duration would result in forfeiture of the benefit. Given the special nature of the legislation, in fact, any interpretation of the rule that determines different consequences based on the finality or temporariness of the termination of direct cultivation of the fund is prohibited.

We anticipate that the Court upheld the appeal of the Internal Revenue Service, ascertaining the legality and correctness of its actions and therefore overturning the first two rulings.

This ruling has been chosen to illustrate because there are no other precedents for cases in which the tax benefit was forfeited due to the intervening lease of the rustic property.

The Supreme Court has held that the public purpose of the legislation under consideration prevails, holding it always and in any case incompatible with the cessation of direct cultivation of the land, and this even when the interruption is temporary and there is no evidence of the beneficiary’s subsequent resumption of cultivation.

Thus, the Supreme Court, in the judgment under review, interprets Art. 7 of l. 604/54, sanctioning the forfeiture of tax benefits of the purchaser, permutant or emphyteuta who, before five years have elapsed since the purchases made under the same law, voluntarily alienates the land or the partial rights to it acquired, or ceases to cultivate it directly.

The Supreme Court considers as certainly falling within the assumptions of the law the lease of the fund, as a result of which the beneficiary discounts the loss of the tax benefit, unless it occurs in favor of the spouse or relatives within the third degree or relatives-in-law within the second degree, who, according to Art. 11, 3rd co. of Legislative Decree No. 228/01, are themselves engaged in the activity of agricultural entrepreneurs referred to in Article 2135 of the Civil Code.

With the peaceful and uncontroversial clarification that violation of the prohibition does not lead to the nullity of the lease, in light of the provision of a specific and suitable sanction in pursuit of the same objective (see Cass. Civ. 24623/07) .

Given the characteristics of the rule just mentioned, it is irrelevant that the contract with a person other than those strictly mentioned in the rule (spouse, relatives within the third degree and relatives-in-law within the second degree) is of limited duration (in our case, eight months), nor does it matter that said relationship qualifies as an intercalary.

The Supreme Court makes it clear that the nature of a lease of rustic intercropping means only one type of cultivation, indicating a short-cycle culture that takes place, and ends, within the realization of a product of the same kind of longer cycle. More precisely, it indicates a culture whose life cycle ends between harvest and the planting of another crop with a longer cycle (ref. Cass. Civ. 13631/04).

The intercalarity, it is thus pointed out in conclusion, has no consequence on the front of the tax benefits provided to protect the reorganization of small peasant property, since the lease is in any case decisive in sanctioning the cessation of direct cultivation by the owner.

The direct grower purchaser attempted a defense based on an earlier ruling of the same court, no. 3802/92, arguing that it confirmed the legitimacy of the first instance and appellate decisions favorable to him.

To be fair, the cited decision concerned an entirely different situation, in that it disputes–rightly so–the forfeiture of the benefit to the detriment of a person whose peasant family was less than one-third of that required to cultivate the fund. At that juncture, the Court said that the supervening failure of the proportionality relationship between the labor force and the extent of the fund did not constitute a reason for forfeiture since it was not included among the typical cases provided for in the aforementioned Article 7.

The defense, however, was inadequate, and indeed it is all too evident that the farmer’s argument, and, on closer inspection, that of the tax commission as well, would have endorsed potential, and easy, circumventions of the rule by entering into individual intercalary leases, of limited duration and infra cultural.

In the outcome, the Supreme Court then rejected the taxpayer’s proposed appeal against the tax assessment notice, confirming the legitimacy of the tax agency’s actions. The subject matter and its complexity have, for the rest, justified the compensation of the costs of the entire trial.

The firm, decisive and insuperable element, therefore, is and remains the prohibition to cease direct cultivation, under penalty of forfeiting the tax benefits enjoyed at the time of purchase.

Attorney Chiara Roncarolo

Attorney Maurizio Randazzo