Italien fashion group, Dolce & Gabbana, had moved ownership of valuable intangibles to a subsidiary established for that purpose in Luxembourg.
The Italian Revenue Agency found the arrangement to be wholly artificial and set up only to avoid Italien taxes and to benefit from the privileged tax treatment in Luxembourg. The Revenue Agency argued that all decision related to the intangibles was in fact taken at the Italian headquarters of Dolce & Gabbana in Milan, and not in Luxembourg, where there were no administrative structure and only one employee with mere secretarial duties.
Dolce & Gabbana disagreed with these findings and brought the case to court.
In the first and second instance the courts ruled in favor of the Italian Revenue Agency, but the Italian Supreme Court ruled in favor of Dolce & Gabbana.
According to the Supreme Court, the fact that a company is established in another EU Member State to benefit from more advantageous tax legislation does not as such constitute an abuse of the freedom of establishment. The relevant criteria in this regard is if the arrangement is a wholly artificial and as such does not reflect economic reality.
Determination of a company’s place of business requires multible factors to be taken into consideration.
The fact, that the Luxembourg company strictly followed directives issued by its Italian parent company is not sufficient to consider the structure as abusive and thus to relocate its place of effective management to Italy. A more thorough analysis of the activity carried out in Luxembourg should have been performed. According to the Supreme Court something was actually done in Luxembourg.
Italy vs Dolce & Gabbana 21122018 Supreme Court Case No 33234 2018