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Italian cooperatives: prevalence, patronage refunds and taxed profit

Predominantly mutual status, patronage refunds and indivisible reserves: how much cooperative profit is subject to IRES and what changes without prevalence.

A cooperative has “predominantly mutual” status (mutualità prevalente) when it trades mainly with its own members and demonstrates this every year in its financial statements through a ratio above 50%. Only where this is combined with the by-law clauses on dividends and reserves and with registration in the Register of predominantly mutual cooperatives (Albo delle cooperative a mutualità prevalente) does most of the profit allocated to indivisible reserves (riserve indivisibili) fall outside IRES (imposta sul reddito delle società, the Italian corporate income tax); in cooperatives without prevalence the exclusion is far narrower. The patronage refund (ristorno), where provided for in the deed of incorporation (atto costitutivo), returns the mutual benefit to members and is deductible for the cooperative.

The framework

Article 2512 of the Italian Civil Code (codice civile, c.c.) links prevalence to three types of mutual exchange: consumption, work, and contributions of goods or services by members. Article 2513 c.c. sets the prevalence parameters, which must be documented in the notes to the financial statements (nota integrativa): revenue from members above 50% of item A1; cost of members’ labour above 50% of the labour cost in item B9, including the “other forms of work inherent in the mutual purpose” (for example fees paid to members working as collaborators or on a self-employed basis, which are recorded under B7 in the financial statements); costs of goods or services supplied by members above 50% of items B6 or B7 respectively. Where there are several types of exchange, the weighted average is used; in agricultural cooperatives what counts is the quantity or value of the products contributed. Article 2514 c.c. requires the by-laws to provide, among other things, for a cap on dividends (the maximum interest rate on interest-bearing postal savings bonds, buoni postali fruttiferi, plus two and a half percentage points), a prohibition on distributing reserves and the devolution of the assets to the mutual funds upon dissolution. The status is lost after two consecutive financial years without prevalence or by amending those clauses (Article 2545-octies c.c.).

In every cooperative at least 30% of net profit must be allocated to the legal reserve (riserva legale) and a share to the mutual funds (fondi mutualistici) (Article 2545-quater c.c.), equal to 3% for all cooperatives: those affiliated with a recognised association pay it into their own association’s fund, the others into the fund designated by law (Article 11, paragraphs 4 and 6, Law no. 59/1992). Patronage refunds follow the criteria laid down in the deed of incorporation, in proportion to exchanges, and the financial statements must show business with members separately (Article 2545-sexies c.c.); in worker cooperatives they may not exceed 30% of total remuneration (Article 3, paragraph 2, letter b, Law no. 142/2001).

Amounts allocated to indivisible reserves do not form part of taxable income (Article 12, Law no. 904/1977), within the limits set out below. In predominantly mutual cooperatives a share of net profit remains taxable: 20% for agricultural and small-scale fishing cooperatives, 65% for consumer cooperatives, 40% for all others (Article 1, paragraph 460, Law no. 311/2004). In cooperatives without prevalence, by contrast, only 30% of profit (23% in consumer cooperatives) is excluded, provided it is allocated to an indivisible reserve provided for in the by-laws (paragraph 464, as supplemented by Article 17-bis, paragraph 2, Decree-Law no. 91/2014). In both cases, 10% of the profit allocated to the mandatory minimum reserve is also taxed (Article 6, paragraph 1, Decree-Law no. 63/2002). Amounts paid to the mutual funds remain deductible in every cooperative, up to 3% (Article 11, paragraph 9, Law no. 59/1992). Patronage refunds are deductible (Article 12, Presidential Decree no. 601/1973).

From 1 January 2027 the tax rules move, with new numbering, into Articles 263 et seq. of the consolidated income tax code (testo unico delle imposte sui redditi, Legislative Decree no. 117 of 19 June 2026); until then the provisions cited above apply. The Civil Code remains unchanged. The tax provisions of the special laws (including Article 12, Law no. 904/1977, Articles 7, paragraphs 1-3, and 11, paragraphs 9-10, Law no. 59/1992, Article 6, Decree-Law no. 63/2002 and Article 1, paragraphs 460-465, Law no. 311/2004) are repealed from the same date and carried over into the consolidated code (Article 376, Legislative Decree no. 117/2026); the other provisions of those laws remain in force.

What changes in concrete terms

A worker cooperative closes the year with net profit of 100,000 euros: 30,000 to the legal reserve, 3,000 to the mutual funds and 67,000 to the indivisible reserve provided for in the by-laws.

If it is predominantly mutual, the tax base is 40,000 euros: 40% of profit (40,000), plus 10% of the allocation to the legal reserve (3,000), less the 3,000 paid to the mutual funds, which are deductible (Article 11, paragraph 9, Law no. 59/1992). Before any other adjustments, IRES at 24% amounts to 9,600 euros.

If it has lost prevalence, the exclusion stops at 30,000 euros, which the 10% of the minimum reserve reduces to 27,000; the 3,000 paid to the funds remain deductible. The tax base rises to 70,000 euros and IRES to 16,800: 7,200 euros more on the same profit. This is why prevalence must be monitored during the year.

With members’ remuneration of 150,000 euros, the maximum patronage refund is 45,000. Where it is paid through the payroll as a supplement to remuneration, for a member with an employment relationship it does not form part of the social security contribution base (Article 4, paragraph 2, Law no. 142/2001); it nonetheless remains employment income for IRPEF purposes (imposta sul reddito delle persone fisiche, personal income tax), subject to ordinary withholding through the payroll. If instead it is used to increase share capital, a member who is an individual is not taxed until the shares are redeemed; alternatively, by resolution of the members’ meeting, the cooperative immediately applies a final withholding tax of 12.50%, paying it by the 16th of the month following the quarter in which the resolution was adopted: for an April resolution, by 16 July (Article 6, paragraph 2, Decree-Law no. 63/2002; from 2027 the rule moves into the consolidated income tax code). Members who are entrepreneurs and qualifying shareholdings remain outside this regime.

In practice

• The directors calculate prevalence at year-end and report it in the notes to the financial statements, together with data on business with members, including the other forms of mutual work; the statutory auditors (sindaci) verify it.
• The patronage refund is resolved upon when the financial statements are approved, on the basis of a calculation schedule that starts from business with members and, in worker cooperatives, complies with the 30% limit on remuneration; whoever runs the payroll receives the resolution before including the refund in pay slips.
• The resolution on the allocation of profit expressly states the legal reserve, the funds and the indivisible reserves: the tax return is built on that text.
• The 12.50% withholding requires a resolution of the members’ meeting and payment by the 16th of the month following the quarter in which the resolution was adopted: the option is exercised through payment. If payment is missing or late, the refund converted into capital remains taxable for the member upon redemption of the shares (Article 6, paragraph 2, Decree-Law no. 63/2002; Article 7, paragraph 3, Law no. 59/1992).
• For the cooperative audit (revisione cooperativa), carried out at least every two years and annually where special laws so provide (Article 2, paragraph 2, Legislative Decree no. 220/2002), the members’ register (libro soci), minutes, internal regulations and by-laws should be kept ready.

Mistakes to avoid

• Treating a cooperative without prevalence as a predominantly mutual one: in that case 30% (23% for consumer cooperatives) is the excluded share, not the taxed one.
• Forgetting to tax the 10% of profit allocated to the mandatory minimum reserve.
• Calculating labour prevalence on item B9 alone, leaving out members who work as collaborators or on a self-employed basis.
• Resolving on patronage refunds without criteria in the deed of incorporation, beyond the surplus generated with members or, in worker cooperatives, beyond 30% of remuneration: in these cases, or where the refund is advanced in pay slips before the resolution on the financial statements, it loses the exemption from contributions, which are then due as on remuneration (Article 4, paragraph 2, Law no. 142/2001).
• Noticing a decline in prevalence too late: the second year can be corrected only by checking the figure during the year.
• Distributing profits after covering losses with indivisible reserves that have not yet been reconstituted: the tax benefits are lost (Article 3, Law no. 28/1999).

References

Articles 2512, 2513, 2514, 2545-quater, 2545-sexies, 2545-octies c.c.

Article 12, Law no. 904 of 16 December 1977

Article 12, Presidential Decree no. 601 of 29 September 1973

Articles 7, paragraph 3, and 11, paragraphs 4, 6 and 9, Law no. 59 of 31 January 1992

Article 3, Law no. 28 of 18 February 1999

Articles 1, paragraph 3, 3, paragraph 2, letter b, and 4, paragraph 2, Law no. 142 of 3 April 2001

Article 6, paragraphs 1 and 2, Decree-Law no. 63 of 15 April 2002, converted by Law no. 112 of 15 June 2002

Article 2, Legislative Decree no. 220 of 2 August 2002

Article 1, paragraphs 460-464, Law no. 311 of 30 December 2004

Article 2, paragraphs 36-bis and 36-ter, Decree-Law no. 138 of 13 August 2011

Article 17-bis, paragraph 2, Decree-Law no. 91 of 24 June 2014, converted by Law no. 116 of 11 August 2014

Article 1, paragraphs 42-43, Law no. 178 of 30 December 2020

Legislative Decree no. 117 of 19 June 2026, Articles 263 et seq. and 376