At issue was deduction of VAT on purported costs incurred for intra-group services. Cost allocated to Rohm and Hass under a cost sharing agreement had been deemed non-deductible for VAT purposes by the Italien Tax Authorities, as the taxpayer had not been able to prove the effectiveness and relevance of these services.
The Regional Tax Commission (C.t.r.) dismissed an appeal filed by Rohm and Hass. In particular, the court noted that Rohm and Haas had not proved “that the services, allegedly provided by the other subsidiaries, forming part of a single group, had in some way directly and positively influenced the company’s performance, reduced any costs, favoured the improvement of the production and marketing of products, or reduced costs previously assumed for similar services, or even that the provision of new services had, even on a provisional basis, increased the company’s potential“.
Judgment of Supreme Court
The Supreme Court upheld the decision of the Regional tax commission and dismissed the appeal filed by Rohm and Hass as unfounded.
In order for intra-group cost to be deductible for VAT purposes, the taxpayer must prove that, a real service have been received which is objectively determinable and adequately documented. This burden of proof had not been lifted by the taxpayer.
Excerpt
“Moreover, the C.t.r. found that “the taxpayer has not proved that the services allegedly provided by the various subsidiaries had a direct and positive influence on the company’s performance, reduced any costs, favoured the improvement of the production and marketing of products, or reduced costs previously assumed for similar services, or even that the provision of the new services had, even on a provisional basis, increased the company’s potential”.
Although the grounds of the judgment under appeal contain a reference (inappropriate as regards VAT) to the lack of proof of the economic advantages achieved by the taxpaying company, the decision is based essentially on the consideration that the company has failed to discharge its burden of proof, failing to prove both the reality of the costs ‘allegedly’ incurred and their direct connection with the business activity carried out in practice (for example, with reference to the type of business organisation and the production needs of the subsidiary) and with the subsequent commercial operations carried out.
It should also be recalled that EU case law on the deductibility of VAT paid on overheads has underlined the need for an economic link between upstream and downstream supplies and, therefore, for proof that the expenditure concerned is part of the constituent elements of the price for all the taxable person’s products or services (Court of Justice, 29 October 2009, C-29/08, SKF, paragraph 57; Court of Justice, 22 October 2015, Case C-126/14, Sveda).
As regards the unfoundedness of the tax claim, put forward by the applicant in its defence, in the light of the ius superveniens, this Court, in a substantially similar case concerning subjectively non-existent transactions involving the supply of scrap, subject to the effects of VAT and the reverse charge system, set out the following principle of law: “as regards VAT, supply transactions carried out under the reverse charge system (the so-called “reverse charge”) are not subject to VAT. “reverse charge”), even if carried out under the apparent observance of formal requirements, are non-deductible in case of violation of substantive obligations, where the correspondence, even subjective, of the invoiced transaction with the one actually carried out, with the consequent non-existence of the obligation to pay the tax indicated on the invoice” (see judgment no. 16679 of 09/08/2016; Section 5, Order no. 2862 of 31/01/2019 Rev. 652333-01).
In the present case, too, although it is not disputed that the taxpaying company has duly carried out the reverse charge at its expense and made the transactions neutral, the absence of the substantive conditions, with regard to the proof of the effectiveness and pertinence of the costs, where established, would make the VAT relating to them non-deductible.”
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