ING Bank SPA received interest on a loan granted to a Dutch group company, Ing Lease Interfinance B.V..
The tax authorities considered that the interest rate on the loan was significantly lower than an arm’s length interest rate and issued a notice of assessment, changing the interest rate from 3.90% to 6.81%, resulting in additional taxable income.
ING Bank disagreed with the assessment and appealed to the Provincial Tax Commission and later to the Regional Tax Commission, which ruled in favour of the tax authorities.
ING Bank then appealed to the Supreme Court.
Judgment of the Court
The Supreme Court referred the case back to the Regional Tax Commission for a more detailed explanation of why the tax authorities’ arguments for an upward adjustment of the interest rate were considered decisive for the decision issued.
“6.7. In the present case, both parties pointed to evidence supporting the correctness of the loan interest rate as stated by them. Neither party has rigorously proved what the normal interest rate would have been in the free market between independent operators.
6.7.1. The CTR, however, did not clarify why the arguments put forward by the tax administration to estimate the correct interest rate should be considered decisive, while the additional ones acquired at the trial (rate recorded by the Bank of Italy, coeval intra-group financing rate, etc.) should be considered without any doubt recessive.
6.8. The reasoning proposed by the CTR therefore appears to be so incomplete and lacking in several passages as to be merely apparent. The second and third grounds of appeal are therefore well founded and must be allowed.”
Click here for English translation
Click here for other translation