Italy vs
Edison, April 2016
Civil Judgment
Sect. 5 No. 7493 Year 2016 President: CICALA MARIO
Rapporteur:
VIRGILIO BIAGIO Date of publication: 15/04/2016
JUDGMENT - on
appeal r.g.n. 12882/08 brought by:
AGENZIA DELLE
ENTRATE, in the person of its Director pro tempore, with an address for service
in Rome, Via dei Portoghesi
12, at the Avvocatura Generale
dello Stato, representing
and defending it;
- applicant -
against
EDISON s.p.a., in the person of its legal representative pro
tempore, with an address for service in Rome at Via della
Scrofa 57, at the offices of Giancarlo Zoppini,
Giuseppe Russo Corvace and Giuseppe Pizzonia, lawyers, who represent and defend it pursuant to
the power of attorney provided in the documents;
-
counterclaimant -
against the
judgment of the Regional Tax Commission of Lombardy No 38/11/07, filed on 22
March 2007.
and on appeal
r.g.no. 4011/09 brought by:
EDISON s.p.a., in the person of its legal representative pro fempore, with an address for service in Rome at Via della Scrofa 57, at the offices of Giancarlo Zoppini, Giuseppe Russo Corvace
and Giuseppe Pizzonia, who represent and defend it by
proxy;
- appellant -
against
AGENZIA DELLE
ENTRATE, in the person of its Director pro tempore, with an address for service
in Rome, via dei Portoghesi
no. 12, at the Avvocatura Generale
dello Stato, who represents
and defends it;
-
counterclaimant -
against the
judgment of the Regional Tax Commission of Lombardy no. 107/17/07, filed on 17
December 2007.
Hearing the
report of the cases made in the public hearing of 25 November 2015 by the
Rapporteur Cons. Biagio Virgilio;
Hearing of
Fabrizio Urbani Neri, Avvocato dello Stato, on behalf of the Agenzia delle Entrate and Cristiano
Caumont Caimi, Avvocato dello Stato, on behalf of Edison
S.p.A.; hearing of the Public Prosecutor, in the person of Luigi Cuomo,
Substitute Public Prosecutor General, who concluded that appeal no. 12882/08
should be allowed and appeal no. 4011/09 rejected.
In fact
1.1. The Agenzia delle Entrate
appealed to the Court of Cassation (bearing the number 12882 of 2008), on the
basis of four grounds, against the judgment of the Regional Tax Commission of
Lombardy of 22 March 2007, which rejected the appeal of the Office and
confirmed the unlawfulness of two notices of assessment issued to EDISON s.p.a. for IRPEG and ILOR for 1995 and 1996 respectively.
In particular, the assessment for 1995 concerned the recovery for taxation
purposes of interest income deriving from a payment (in excess of Lire
500,000,000,000) made by Edison s.p.a. to its foreign
subsidiary Selm Holding International S.A., based in
Luxembourg, which the Office considered to be an interest-bearing loan falling
within the scope of Article 76, paragraph 5, of the Consolidated Income Tax Law
(old numbering), concerning transfer pricing, despite the fact that the company
had qualified it as a non-interest-bearing payment on account of a future
capital increase. The assessment for 1996 concerned, first of all, the failure
to account for interest income deriving from both the same transaction referred
to in the previous notice and similar payments (amounting to £600,000,000) made
by Edison to the foreign subsidiary Tanti lnvestimentos
Intemacionais S.A., with registered office in
Madeira, which the Office considered to be interest-bearing loans and not
payments on account of a future increase in capital; in addition, the notice
contained other observations, by which it was contested that the accrual
principle laid down in Article 75 of the TUIR had been infringed.
1.2. The
appellate court, with regard to the question of the fruitfulness or otherwise
of the remittances in question, held that they, as accounted for by the parent
company, "are in any case unproductive of interest and it is under this
formal aspect that the possibility of presuming the accrual of interest income
cannot be considered existing"; it added that, also pursuant to art. He
added that, also pursuant to Article 42 of the Consolidated Income Tax Law,
interest on borrowed capital is presumed to be received at the due date and in
the amounts agreed in writing, unless there is proof to the contrary, and no
formal document shows any request for such proof to the contrary; in
conclusion, he affirmed that what has been declared and ascertained in the
documents constitutes valid proof of the actual unproductive nature of the
remittances. As to the other claims for 1996, based on the violation of the
accrual principle, the CTR noted that this "fulfilment.... ratione temporis appears to have
been carried out by the appellant, as is also noted in the contested
ruling"; and that "in any case, in relation to the revenues for which
it is claimed that they were accounted for in the tax year following the year
of competence, this is an accounting requirement, albeit limited to residual
turnover, which occurred, as can be deduced, from year to year and such as not
to determine irregularities, at least substantial, of a taxing nature and
negative effects, therefore, on tax collections as a whole, even
multi-yearly".
1.3. Edison s.p.a. has resisted with a counter-appeal.
1.4. The
Revenue Agency filed a memorandum.
1.5. Counsel
for Edison S.p.A. submitted written observations pursuant to Article 379, last
paragraph, of the Code of Civil Procedure.
2.1. Edison s.p.a. appealed to the Court of Cassation (n. 4011 of
2009), putting forward two grounds, against the decision of the Lombardy
Regional Tax Commission of 17 December 2007 whereby, rejecting the company's
appeal, it confirmed the inadmissibility of the appeals it had lodged with the
Milan Provincial Tax Commission against two notices of refusal of the
facilitated settlement of the dispute concerning the above-mentioned
assessments, requested by the taxpayer pursuant to Article 16 of Law no. 289 of
27 December 2002.
The appeal
judge confirmed that the appeals had been brought before a judge with no
functional jurisdiction, since the dispute was already pending, following the
Office's appeal, before the Regional Tax Commission of Lombardy, adding that
the erroneous indication of the appeal judge contained in the refusal decision
was not relevant in the opposite sense, an error that could only legitimise the submission of a new appeal to the competent
judge with a possible request for re-examination within the time limits.
2.2. The
Revenue Agency has resisted with a counter-appeal.
Consideration
in law
1. As a
preliminary step, for reasons of connection pursuant to article 274 of the code
of civil procedure, appeal no. 12882 of 2008 should be joined with appeal no.
4011 of 2009.
2.1. For
reasons of logical and legal priority, appeal No 4011/09 should be examined
first.
By its first
ground of appeal, Edison SpA complains that the
judgment under appeal is null and void for infringement of Article 5(3) of
Legislative Decree No 546 of 1992, in so far as the CTR and, before it, the
Milan Provincial Tax Commission, in declaring that it lacked jurisdiction, did
not indicate the tax court considered to have jurisdiction, as required by that
provision, for the purposes of resuming the proceedings before it. The second
plea alleges infringement of Article 7(2)(c) and Article 10 of Law No 212 of
2000, observing that the bringing of the action before the CTP should be
regarded as admissible, since it was the result of an excusable error due to
the - in turn - incorrect information contained in the contested refusal
decision.
2.2. The
grounds are unfounded. It is sufficient to note in this regard that: a) the
special provision of Article 16(8) of Law no. 289 of 2002 is applicable in this
case. (a) the special provision in Article 16(8) of Law No 289 of 2002,
according to which an appeal against a refusal to settle a dispute must be
brought "before the court before which the dispute is pending", is
applicable in the present case; (b) the Court of First Instance (CTP) before
which the appeal was brought declared that it lacked functional jurisdiction on
the basis that, at the time the appeal was lodged, the dispute was already
pending before the Regional Tax Commission (which was therefore the competent
court) following the appeal lodged by the Office; (c) the erroneous (or even
omitted) indication in the contested measure of 'the court (. (c) the erroneous
(or even omitted) indication in the appealable act "of the court (...) to
which it is possible to appeal" (indication prescribed by the
above-mentioned Article 7, paragraph 2, letter c, of the Statute of Taxpayers'
Rights and, in general and in similar terms, by Article 3, paragraph 4, of Law
no. 241 of 1990) does not result in the nullity of the act, which is not
provided for by the law, nor in the admissibility of the appeal before a court
lacking jurisdiction, but rather in the procedural recognition of the excusability of the error committed by the appellant and,
therefore, the extension of the time limit in the case of late submission of
the appeal before the competent court (among others, on art. 7 cited above,
Court of Cassation n. 10822 of 30 June 2010, and Court of Cassation n. 675 of
30 June 2010, on art. 7 cited above), Cass. nos. 10822 of 2010, 19675 of 2011,
10520 of 2015; in general, Cass. sez. un., nos. 362 of 2000, 9947 of 2009).
2.3. In conclusion, the appeal must be dismissed. There are justified reasons
for setting off the costs of the present appeal.
3. We can
therefore examine appeal no. 12882 of 2008.
3.1. Edison
S.p.A. first of all objects to the fact that it is inadmissible pursuant to
Article 369(2)(4) of the Code of Civil Procedure. The objection is unfounded
since, in the case of appeals against judgments of the tax commissions, the
unavailability of the parties' files (which, under Article 25(2) of Legislative
Decree No 546 of 31 December 1992, remain part of the case-file) is such that
it is not possible for the parties to appeal. (which, under art. 25, second
paragraph, of legislative decree no. 546 of 31 December 1992, remain part of
the official file and are returned only at the end of the trial) means that the
appellant is not required, under the aforementioned provision, to produce his
own file and, on its behalf, an authenticated copy of the deeds and documents
contained therein on which the appeal is based, since the file is already part
of the official file whose transmission he has requested under the third
paragraph of art. 369. 369 (unless the said party has irregularly obtained the
return of the party's file from the secretariat of the tax commission); nor is
it required, for the same reason, to produce a copy of the deeds and documents
on which the appeal is based and which may be contained in the other party's
file (Cass, sez. un., no. 22726 dcl 2011).
3.2. In its
first ground of appeal, the Agenzia delle Entrate complains of a
breach of Article 76(5) of Presidential Decree No 917 of 1986 (TUIR, old
numbering).
It submits, in
that regard, the following question of law: <whether, pursuant to Article
76(5) of Presidential Decree No 917 of 22 December 1986 (under the numbering
prior to Legislative Decree No 344 of 12 December 2003), in the case of
financing granted by a company, the taxpayer is entitled to a tax credit for
the purposes of Article 76(5) of Presidential Decree No 917 of 22 December
1986. 344), in the case of loans granted by an enterprise established in the
territory of the State to companies, controlled by it, not resident in the
territory of the State, the components of income deriving from the transaction,
for the enterprise that has made the loan, must be valued - whatever the
conditions agreed upon by the parties - assuming as consideration the normal
value of the service provided and if, consequently, in the presence of payments
of money between the aforesaid persons, the court of merit, which finds that
such remittances are in any event unproductive of interest", may not
nevertheless consider the question of the classification of the transactions in
which the payments are based (that is to say, whether they are sums given as a
loan or on account of future capital increases) to be absorbed?
3.3. It should
be noted that: (a) the objection of inadmissibility of the plea on the ground
that it is accompanied by a multiple question is unfounded since, irrespective
of any other consideration regarding the admissibility of multiple or
cumulative questions, in the present case the question is not multiple at all,
since it poses a single legal question, which is linked to the grounds of the
judgment under appeal; (b) the objection of external jurisdiction raised by the
appellant is inadmissible and in any event unfounded: the judgment relied on
(CTP Milan no. 280/27/01 of 29/10/2001 of 29/10/2001 of 29/10/2001 of
29/10/2001 of 29/10/2001 of 29/10/2001) is inadmissible and in any event
unfounded. (CTP Milan no. 280/27/01 of 29/10/2001), in fact, became res
judicata before, or in any case during, the appeal proceedings, and therefore
its - alleged - expansive effect had to be challenged there (otherwise, the
judgment was subject to the remedy of revocation) (Cass, sez. un., No. 21493 of
2010); moreover, the judgement is based on the tax relationship, as configured
by the claim made by the administration in the tax assessment notice and by the
grounds of appeal put forward by the taxpayer, and the dispute decided by the
aforementioned judgement of the Provincial Tax Commission of Milan, although
relating, in part, to the same case (in relation to the year 1993), concerned a
tax claim based on completely different legal grounds (violation of art. 75
TUIR for the non-deductibility of interest expense paid by Edison s.p.a. to the banking system).
3.4. The plea
is well founded.
The Agenzia delle Entrate
points out that the appellate court could not avoid resolving the decisive
preliminary issue concerning the classification of the payments made by Edison SpA to its foreign subsidiaries, namely whether they
constituted financing, according to the Office's view, or payments on account
of future capital increases, according to the taxpayer's view.
According to
the appellant, the aforementioned court erred in equating the two alternative
hypotheses put forward by the parties, on the basis of the consideration that
the sums involved were "in any event non-interest bearing", since, if
the transactions were to be qualified as loans, the rules laid down in Article
76, paragraph 5, of the TUIR (old numbering, now Article 110, paragraph 7), on
the so-called transfer pricing, would be applicable, notwithstanding the agreed
free nature of the loans themselves.
The
aforementioned provision provides, as far as it is relevant here, that
"The components of income deriving from transactions with companies not
resident in the territory of the State, which directly or indirectly control
the company, are controlled by it or are controlled by the same company that
controls the company, are valued on the basis of the normal value of the goods
sold, the services provided and the goods and services received, determined in
accordance with paragraph 2, if it results in an increase in income";
paragraph 2 refers to art. Paragraph 2 refers to Article 9 of the Income Tax
Code (which has retained that numbering also following the amendments made by
Legislative Decree No 344 of 2003), which, in paragraph 3, provides that
"Normal value, except as provided in paragraph 4 for the goods referred to
therein, means the average price or consideration for goods and services of the
same or similar kind, in conditions of free competition and at the same stage
of marketing, at the time and place where the goods or services were acquired
or provided, or, failing that, at the nearest time and place. In determining
the open market value, reference shall be made, as far as possible, to the
price lists or tariffs of the person who supplied the goods or services and,
failing that, to the price lists and tariffs of the chambers of commerce and to
professional rates, taking into account customary discounts. In the case of
goods and services subject to price regulation, reference shall be made to the
measures in force".
3.5. It must
be premised that the legislation in question does not constitute an
anti-avoidance regulation in the strict sense of the term, but is aimed at
repressing the economic phenomenon of transfer pricing (shifting of taxable
income following transactions between companies belonging to the same group and
subject to different national laws) considered in itself, so that the proof to
be provided by the tax authorities does not relate to the higher national
taxation or the actual tax advantage obtained by the taxpayer, but only to the
existence of transactions between related companies at a price apparently lower
than the normal one. 2697 of the Italian Civil Code, and on the subject of tax
deductions, the taxpayer has the burden of proving that such transactions have
taken place for market values to be considered normal in the light of what is
specifically provided for by the cited art. 9, paragraph 3, of the Consolidated
Act on Income Taxes (da ult, Cass. no. 18392 of 2015).
That said,
according to a recent orientation of this Court, the conclusion of a
non-interest bearing loan granted by the parent company in favour of its
subsidiaries, which can be traced back to the scheme of the gratuitous loan, is
not limited by the fact that the parent company, resident in the State, and the
companies residing in other countries belong to the same corporate group, thus
creating a cross-border intra-group transaction, since the gratuitousness of
the transaction, which excludes the stipulation of interest payments due by the
borrower, does not contrast with the provision of Article 76, paragraph 5,
cited above. This is because the application of the grandmother is subject by
law to the twofold condition that the intra-group transaction generates income
components (positive or negative) for the taxpaying company and that the
application of the criterion of normal value generates an increase in taxable
income; and these conditions are not met in the granting of a
non-interest-bearing loan, since the same performance - having as its object
the payment of interest - which constitutes the necessary term of comparison
with respect to normal value, is extraneous to such transaction (Cass. No.
27087 of 2014; see also Cass. No. 15005 of 2015).
The principle
cannot be accepted.
The rationale
of the legislation in question is to be found in the principle of free
competition set out in Article 9 of the OECD Model Convention, which provides
for the possibility of taxing profits deriving from intra-group transactions
which have been governed by conditions different from those which would have
been agreed upon between independent enterprises in comparable transactions
carried out in the free market.
It follows
that the valuation "at arm's length" is irrespective of the original
ability of the transaction to generate income and, therefore, of any negotiated
obligation of the parties relating to the payment of the consideration (see
OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax
Administrations, paragraph 1.2).
In fact, it is
a matter of examining the economic substance of the transaction that has taken
place and comparing it with similar transactions carried out, in comparable
circumstances, in free market conditions between independent parties and
assessing its conformity with these (cf, on the
criteria for determining normal value, Court of Cassation no. 9709 of 2015):
therefore, the qualification of the non-fruitfulness of the financing, possibly
made by the parties (on whom the relevant burden of proof is incumbent, given
the normally onerous nature of the loan agreement, pursuant to article 1815 of
the Italian Civil Code), proves to be irrelevant, as it is in itself incapable
of excluding the application of the criterion of valuation based on normal
value.
It should be
added that it would be clearly unreasonable, and a source of conduct easily
aimed at evading the legislation in question, to consider that the
administration can exercise this power of adjustment in the case of
transactions with a consideration lower than the normal value and even
derisory, while it is precluded from doing so in the case of free contracts.
3.6. The
second ground of appeal is not relevant.
3.7. The third
plea alleges infringement of Article 75 of the TUIR (old numbering, now Article
109) in relation to the secondary entries in the notice of assessment for 1996.
The question is asked whether the principle of accrual, set out in that
provision, 'requires the taxpayer to allocate costs and revenue in the
financial year in which they become certain and objectively deductible and
whether breach of that principle allows the tax authorities to adjust the tax
return in accordance with it, without it being relevant that the costs and
revenue were then allocated to a subsequent financial year'. The plea is
inadmissible on the ground that the question is unsuitable for the purposes of
Article 366a of the Code of Civil Procedure, since it makes no reference to the
specific case and to the error of law ascribed to the judgment under appeal.
3.8. Lastly,
the fourth ground of appeal alleges the nullity of the judgment on the ground
of apparent grounds, pursuant to Article 36(1)(4) of Legislative Decree No 546
of 1992, in so far as the referring court, again with reference to the
recoveries referred to in the previous ground of appeal and their correct
temporal allocation, stated that such compliance 'appears to have been carried
out by the appellant, as is also apparent from the judgment under appeal'.
The plea is
inadmissible on the ground that the statement complained of has no independent
decisive value, the court at issue having immediately explained why, 'in any
event', there was no breach of the rule relied on.
4. In
conclusion, with regard to appeal r.g. no.
12882/2008, the first plea should be upheld, the second absorbed, and the third
and fourth declared inadmissible; the judgment under appeal should be set aside
in relation to the upheld plea and the case referred to another section of the
Regional Tax Commission of Lombardy, which will comply with the principle of
law set out in paragraph 3.5, as well as ruling on the costs of the present
proceedings.
P.Q.M.
The Court
shall join appeal No 4011 of 2009 to appeal No 12882 of 2008. Dismisses appeal
No 4011 of 2009 and orders costs to be paid. upholds the first plea in law in
appeal No 12882/2008, declares the second plea in law to be inadmissible and
declares the third and fourth pleas inadmissible
Set aside the
judgment under appeal in relation to the upheld plea and refer the case,
including the costs, to another division of the Regional Tax Commission of
Lombardy.
Delivered in
Rome on 25 November 2015.