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

Subtitle: From 2024, future dismantling and site restoration costs may be capitalised where a legal or contractual obligation exists and the amounts are supported by a sworn expert report

With the amendments published in March 2024, the Italian Accounting Standards Board (OIC) introduced a significant revision to the accounting treatment of costs relating to the dismantling of assets and the restoration of production sites.

Sources

• Amendments to OIC Accounting Standards – March 2024
• Ministerial Decree of 27 June 2025 – Coordination provisions on IRES and IRAP, including OIC 34 and updates to accounting standards OIC 16 and OIC 31
• Italian Revenue Agency Ruling No. 272/2022

What changes in practical terms?

Costs associated with the dismantling of installations and/or site restoration:

• must be capitalised as part of the asset’s cost at the time the obligation is incurred,
• rather than, as was previously common practice, at the time the expenditure is actually incurred.

Where a legal or contractual obligation exists, a provision for risks and charges is recognised in accordance with OIC 31, with a corresponding increase in the carrying amount of the asset pursuant to OIC 16. This updated value is then depreciated systematically over the asset’s useful life.

Which costs are involved?

• Dismantling of installations;
• Site restoration (e.g. land covering, remediation works).

Underlying rationale: two levels of information

The new approach is designed to provide:

1. Comprehensive balance sheet information, whereby the total cost of an investment also incorporates future decommissioning obligations;
2. Consistent performance information, as costs are depreciated over the asset’s useful life, enhancing comparability and ensuring a more faithful representation of results.

Civil law framework

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

• initial costs incurred for the acquisition or construction of the asset;
• estimated costs necessary for dismantling and removing the asset and restoring the site, provided that such obligations arise from laws, contracts, agreements or concessions.

These costs must be estimated on a forward-looking basis and discounted where relevant. They are recognised in the carrying amount of the asset and contribute to determining the related depreciation schedule. From a documentation perspective, a sworn technical expert report represents the appropriate instrument to substantiate both the amount and the nature of the provision, as well as to safeguard the company in the event of audits.

The objective of the OIC intervention is to align Italian accounting practice with international standards (IAS 16 and IFRIC 1), ensuring an economically accurate and transparent representation of future obligations associated with asset decommissioning.

Tax implications

From a tax perspective, the initial capitalisation of future costs allows for deduction on an accrual basis pursuant to Article 109, paragraphs 1 and 2(b), of the Italian Income Tax Code (TUIR), which provides that negative income components are deductible when recognised in the income statement for the relevant financial year.

This approach was confirmed by the Italian Revenue Agency in Ruling No. 272/2022, which acknowledges that dismantling costs recognised from the outset as part of the asset’s value may be depreciated and deducted in accordance with standard tax depreciation rates, even if the related expenditure has not yet been incurred in financial terms.

This marks a significant turning point: whereas in the past such costs were generally deductible only when actually incurred—resulting in deferred negative impacts—it is now possible to anticipate their tax recognition, generating a positive effect on deferred taxation and cash flow.

However, the following conditions must be met:

• the accounting recognition must be properly substantiated and documented;
• a certain and current legal obligation to incur the cost must exist;
• the economic estimate must be objective, reasonable and supported by an expert report.