Italy Finalizes Tax Guidance on Over-Indebtedness Under New Insolvency Code

Context

The publication of Part II of Circular 9/E on 21 October 2026 by Italy's Agenzia delle Entrate marks the closure of a regulatory gap in the tax treatment of over-indebtedness (sovraindebitamento) and debt discharge (esdebitazione) under Legislative Decree 14/2019, known as the Codice della crisi d'impresa e dell'insolvenza. This legislation fundamentally reformed Italy's insolvency framework, introducing mechanisms to facilitate corporate crisis prevention and restructuring. However, the tax implications of these new procedures for individuals and small businesses remained unclear until this guidance was finalized.

This circular is particularly significant because it provides the first official interpretation from the Italian tax authority on how these insolvency procedures interact with Italy's complex tax system. The four procedural areas addressed—consumer debt restructuring, minor concordat procedures, controlled liquidation of over-indebted persons, and debt discharge—are all relevant to individuals and micro-enterprises that fall outside the scope of standard corporate insolvency procedures. The guidance is thus crucial for tax practitioners advising these groups.

What's Changing

The circular provides concrete guidance on four key procedural areas:

Consumer Debt Restructuring (Articles 67–73)

This section clarifies how tax obligations are treated when consumers enter into debt restructuring plans. It specifies which tax debts can be included in these plans and under what conditions partial or total discharge of such debts may occur. The guidance is particularly important for individuals facing financial distress, as it provides clarity on how their tax liabilities will be treated in the restructuring process.

Minor Concordat Procedure (Articles 74–83)

The minor concordat procedure is a simplified insolvency procedure for small businesses. The circular clarifies the tax treatment of debts that are discharged or restructured through this procedure, including any potential tax consequences for the business owners. This is critical information for sole traders and micro-enterprises that may qualify for this streamlined process.

Controlled Liquidation of Over-Indebted Persons (Articles 268–277)

This section provides guidance on the tax implications of controlled liquidation, a process that allows over-indebted individuals to liquidate their assets under court supervision. The circular specifies which tax liabilities must be paid in priority and how any remaining debts are treated, providing crucial guidance for individuals navigating this complex process.

Debt Discharge Provisions (Articles 278–283)

The debt discharge provisions are among the most significant aspects of the 2019 insolvency reforms, as they allow over-indebted individuals to be discharged from their remaining debts after completing a restructuring or liquidation process. The circular clarifies the tax treatment of any discharged debts, specifying whether and under what conditions such discharge may have tax implications.

Implications for Tax Practitioners

The finalization of this guidance is particularly important for tax practitioners advising clients who are navigating financial distress. The circular provides much-needed clarity on how insolvency procedures interact with Italy's tax system, allowing practitioners to provide more accurate and comprehensive advice. It is especially relevant for those advising consumers, sole traders, and micro-enterprises, as these groups were previously operating in a regulatory gray area.

The circular also signals a consultative approach by the Agenzia delle Entrate, as it incorporates feedback gathered during a formal public consultation period that ran from 26 June to 24 July 2026. This suggests that the guidance reflects practical concerns raised by insolvency practitioners, tax advisors, and other stakeholders. Practitioners should familiarize themselves with the specific provisions of the circular to ensure they are providing up-to-date advice to their clients.

Outlook and What to Watch

As of 21 October 2026, this circular is a standalone regulatory guidance item with no known subsequent revisions. It does not overlap with recent coverage of real-estate wealth reporting or e-invoicing compliance for forfettari taxpayers, making it a distinct and important development in Italy's insolvency framework.

Practitioners should monitor any potential updates or additional guidance from the Agenzia delle Entrate, particularly as the circular is implemented in practice. The effectiveness of these procedures in providing relief to over-indebted individuals and small businesses will be an important area to watch, as will any unintended consequences that may arise from the interaction between insolvency procedures and tax obligations.