Watch out for the taxman if you invest in loans between private individuals

The attractiveness of investing in lending crowdfunding can reveal some pitfalls, particularly from a tax point of view. Lending crowdfunding, also known as social lending or peer-to-peer lending, is a form of alternative financing that consists of loans between private individuals, made via online platforms and aimed at developing certain business projects.

In Italy, it has developed a lot in the real estate sector precisely to support development projects. Lending crowdfunding on the other hand was born mainly to help companies and individuals who very often cannot obtain financing from traditional credit institutions and turn to private individuals to realise their projects. It is often the case that entrepreneurs are asked to meet strict requirements for the granting of a bank loan.

For investors (called lenders), there are thus attractive profit opportunities. Through lending crowdfunding, in fact, the lender provides its own sum of money to support the realisation of a project, obtaining repayment of the capital plus agreed interest.

In a recent unpublished answer to an interpello, the Agenzia delle Entrate reiterated that lending crowdfunding portals cannot apply the 26 per cent withholding tax on income from investments made through their platforms, unless certain conditions are met: "Income, deriving from loans disbursed through lending crowdfunding platforms, received by a natural person outside the exercise of a business activity, contributes to the formation of the total income, but is subject to a 26% withholding tax," explains accountant Giampiero Gugliotta, managing partner of the firm CTL Advisory. Alternatively, this withholding is withheld as tax (simplified taxation), if the platform operator is a registered financial intermediary or a payment institution, authorised by the Bank of Italy (Art. 1, co. 43-44, L. 205/2017). Such income, if earned by a company, contributes to the formation of the overall income, given its attraction to the business income'. As the expert explains, it is precisely a recent answer from the Agenzia delle Entrate (Italian Revenue Agency) that summarised the tax treatment of the income (recalling answers no. 56/2020, 168/2020 and 687/2021). 'If these contribute to the formation of the investor's overall income,' Gugliotta further clarifies, 'they must be indicated in the relevant declaration; any withholding tax of 26% applied by the platform must also be indicated in the declaration. If the conditions for simplified taxation are met, the proceeds will be excluded from the formation of the overall income and the platform will apply a withholding tax of 26%'.

A question then appears legitimate: what can happen to those who have resorted to the above-mentioned ploy to reduce taxation? "Lending crowdfunding portals can only apply withholding tax on income received by investors if the platform operator is a qualified entity (Articles 106 and 114 of Legislative Decree 385/1993)," concludes Gugliotta. In the event that, while not meeting this requirement, the platforms had applied a 26% withholding tax to such proceeds, this must in any case be considered by the investor as a withholding tax. Consequently, the proceeds must be subjected to the declaratory regime by correctly liquidating the progressive Irpef tax due on such income by deducting the withholding tax incurred, since, in such case, it is to be considered applied as an advance payment'.