Vincenzo Zucchi spa is an Italian company that operates in the textile sector.
Following an audit an assessment was issued related to various controlled transaktions – deductions for bad debt, deductions for costs, lack of income on a loan, income from sale of goods to foreign subsidiaries, cost of goods and services purchased from subsidiaries in non EU countries, costs of employees VAT etc.
The adjustment was partially upheld and partially dismissed by the Court of Appeal.
An appeal and cross appeal was then filed with the Supreme Court by the tax authorities and Vincenzo Zucchi.
Among the objections in the cross appeal filed by Vincenzo Zucchi was a claim stating that transfer pricing rules were not applicable in the case since the group was using global tax consolidation.
Judgement of the Supreme Court
The Supreme Court upheld the second plea in the main appeal (undue deduction of costs charged by the subsidiary Basitalia Leasing S.p.A.), rejecting all the other pleas in the main appeal and the cross-appeal. The judgment under appeal was set aside in relation to the upheld plea, and referred back to the CTR for reconsideration and also for the costs of these proceedings.
In regards to the second plea in the appeal on deduction of costs based on an unauthenticated private contract
“The tax appeal court based its decision on the point in question essentially on the use of a document that was unquestionably unregistered, therefore devoid of a certain date, and not even signed by the taxpayer company.
As regards the first aspect, it is clear that Article 2704, paragraph 1, of the Italian Civil Code has been infringed, since it is documentary evidence that cannot be relied upon by the tax office precisely because of the lack of the “certainty” requirements provided for by such legislative provision (see Section 5, Sentence no. 7636 of 31 March 2006, Rv. 588675 – 01).
In addition, the failure of the taxpayer company to sign the contract also makes the correlative contractual obligation uncertain and, in the final analysis, invalidates the judgment of the Lombardy Regional Tax Court in so far as it entails a misapplication of Article 109(1) of Presidential Decree 917/1985, with particular regard to the “certainty/determinability” of the negative income component in question.”
In regards to the plea in the cross appeal on global tax consolidation
“It is rather evident that these are autonomous legal provisions, which in their literalness do not contain direct elements of connection/coordination.
This leads to the systematic hermeneutical solution that, in the case of intra-group sales of goods or services, taxation at “normal value” is not affected by the establishment of the so-called unified tax group, or, even better, that the unification of the income statement of the companies belonging to a group opting for the (global) consolidation, according to the logic of the algebraic sum of individual corporate income, is based on the prior – autonomous determination of the same according to the general rules.
Moreover, investigating the rationale of the domestic rules on transfer pricing, this Court has repeatedly ruled, with a clearly prevailing orientation, that it should not be found in anti-avoidance purposes, but in those of preventing distortion of free competition and preserving the tax power of the EU member states (ex pluribus, in this sense, see Cass., 1232/2021, 16948/2019, 9673/2018, 18392/2015).”
“Concluding on the decision points under examination, it is appropriate to formulate the following principle of law:
“The rules on transfer pricing under Article 11O, paragraph 7, in relation to Article 9, paragraph 3, Presidential Decree 917/1986 and the “global tax consolidation” under 130, ss., Presidential Decree 917/1986 are distinct and autonomous, so that they do not interfere with each other and must be applied separately, since the effects of the option for group taxation are limited by the specific provision of Article 131 of the same TU.”
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Italy_20220502_Case no 13718