Italy vs Alfa Gomma Sud s.r.l. July 2014, Supreme Court 16480

« | »

The tax authorities had issued an assessment where deductibility of service costs charged to an Italien company had been disallowed for tax purposes, as the Italien company – according to the tax authorities – had not provided sufficient proof of the benefits from the purported services received (marketing, telephone, EDP and legal, accounting and tax consultancy services).

Judgement of the Supreme court.

The Court dismissed the appeal of Alfa Gomma and ruled in favor of the tax administration..

Excerpts from the Judgement

“By the second ground, alleging infringement of Article 2697 of the Civil Code, the appellant criticises the judgment of appeal in so far as it finds that Alfa Gomma Sud did not discharge its burden of proof, since the documentation produced does not make it possible to carry out an adequate check as to the existence, relevance and usefulness of the costs of the services charged by the parent company Alfa Gomma SpA. It submits that, in so doing, the court of second instance wrongly burdened the taxpayer with the burden of proving facts and legal relationships relating to other entities, since it was only required to offer evidence of the contractual source of the costs charged by the parent company and of their regular invoicing to the taxpayer subsidiary.”

“In fact, the OECD Guidelines on the provision of intra-group services already state in §7.25 that “the allocation [of costs] may be based on turnover” and in §7.27 they clarify that, however, “when an indirect allocation method is used, the relationship between costs and services appears unclear and therefore it may be difficult to assess the benefit obtained”. The legitimacy of the administrative practice (Ministerial Circular No. 32/9/2267 of 22 September 1980) which justifiably subordinates the deductibility of costs deriving from contractual agreements on services rendered by the parent company (cost-share agreements) to the actuality and inherent nature of the expense to the business activity exercised by the subsidiary and to the real advantage derived by the latter, without the control requirements of the parent company, peculiar to its function as shareholder, being relevant in this regard. In such a perspective, it is not sufficient to show the contract concerning the services provided by the parent company to the subsidiaries and the invoicing of the fees, since those elements necessary to determine the actual or potential benefit obtained by the subsidiary receiving the service must specifically emerge.”

“…In the present case, the services concretely provided to Alfa Gomma Sud remained in the appeal at the level of a purely abstract statement..”

Click here for English translation

Click here for other translation

Italy Supreme-Court-18-July-2014-No.-16480.pdf

Related Guidelines