OIC 16 update: future dismantling and site restoration costs now deductible

The Amendment

With the amendments published in March 2024, the Italian Accounting Standards Board (OIC) substantially revised the accounting treatment of asset dismantling costs and site restoration obligations.

Sources

• Amendments to OIC Accounting Standards – March 2024
• Ministerial Decree of June 27, 2025 – Coordination Provisions for IRES and IRAP with OIC 34 and Updates to OIC 16 and OIC 31
• Italian Revenue Agency Tax Ruling No. 272 / 2022

What Changes in Practice?

Dismantling and site restoration costs:

• Must be capitalized as part of the asset’s cost when the obligation arises.
• Rather than when the expenditure is actually incurred, as commonly occurred in practice.

Once a legal or contractual obligation exists, a provision for risks and charges must be recognized pursuant to OIC 31, while the corresponding amount is added to the carrying value of the asset under OIC 16. This additional value is subsequently depreciated over the useful life of the asset.

Which Costs Are Affected?

• Plant and equipment dismantling costs.
• Site restoration costs (e.g. land remediation, environmental restoration activities).

The Underlying Rationale: Two Levels of Information

The new approach aims to provide:Il nuovo approccio mira a fornire:

1. Comprehensive balance sheet information: the total investment cost includes future decommissioning obligations.
2. Consistent performance reporting: the cost is allocated over the useful life of the asset, improving comparability and the faithful representation of financial results.

Corporate Law Perspective

Under the revised OIC 16, the cost of tangible fixed assets may include:

• Initial acquisition or construction costs
• Estimated costs required to dismantle and remove the asset and restore the site, provided that such obligations arise from laws, contracts, agreements, or concessions.

These costs must be estimated prospectively and discounted where material. They are recognized as part of the asset’s carrying amount and therefore affect the depreciation schedule. From a documentation standpoint, an independent technical assessment is generally considered the most appropriate support for determining the amount and nature of the provision and for defending the accounting treatment during audits or tax inspections.

The objective of the OIC amendment is to align Italian accounting practice with international standards (IAS 16 and IFRIC 1), ensuring a more accurate economic representation of future obligations associated with asset retirement.

Tax Implications

Dal punto di vista tributario, la capitalizzazione iniziale dei costi futuri produce una deduzione per competenza ai sensi dell’art. 109, commi 1 e 2, lett. b), del TUIR, secondo cui i componenti negativi di reddito sono deducibili quando risultano imputati a conto economico nell’esercizio di competenza.

This approach was confirmed by the Italian Revenue Agency in Tax Ruling No. 272 / 2022, which acknowledged that dismantling costs recognized from the outset as part of the asset’s value may be depreciated and deducted according to the ordinary tax depreciation rates, even if the related cash outflow has not yet occurred.

This represents a significant development: whereas such costs were previously deducted only when actually incurred, it is now possible to anticipate their tax recognition, generating a favorable impact on deferred taxation and cash flow management.

However, the following conditions must be met:

• The accounting recognition must be properly justified and documented.
• A current and legally enforceable obligation must exist.
• The estimate must be objective, reasonable, and supported by appropriate technical evidence.