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The Italian Supreme Court, with its recent ruling no. 16001 dated April 8, 2013 has ruled that foreign companies that have their decision-making and operational center in Italy, must submit their annual VAT return to the Italian tax authorities.

A foreign corporation (in this case a German GmbH), operating in the rental car business, had assets amounting to 4 million Euros seized by the Court of Bolzano for not having submitted annual VAT returns from 2004 to 2010 (with unpaid tax for each year amounting to more than 77,000 Euros).

The trial judge had stated, in relation thereto, that the aforesaid company, although formally having its registered office in Germany, had to be considered, for tax purposes, resident in Italy, based on the following facts:

• The operative and decision-making center was located in Italy;

• The car rental business was carried out almost entirely in Italy;

• The company current accounts had been opened in Italy;

• The bank loans had been requested in Italy by the legal representative.

The trial judge had, therefore, considered the company to be a dummy foreign company that, in reality, operated in Italy. This assessment was also shared by the Supreme Court Judges in the judgment analyzed below.

This judgment allows us, in fact, to review the fundamental question of so-called  dummy foreign companies defined by the law as companies located in a State with a more favorable tax regime in order to escape the more onerous Italian tax regime (Italian Supreme Court no. 2869 dated 07/02/2013,).

We must point out, in relation thereto, that Community legislation and, in particular, the European Union Treaty (article 54) recognizes the freedom of establishment not only to individuals but also to businesses.

The aforementioned provision states that companies incorporated under the law of a Member State and having their registered office, central administration or principal place of business within the Union shall, for the purposes of the application of the provisions hereof, be treated in the same way as natural persons who are EU nationals.

The problem, as mentioned above, is when the decision to set up a company in a country other than Italy is motivated solely by reasons of fiscal convenience.

The reaction of national legal systems has, therefore, been to consider foreign companies resident for tax purposes, provided certain conditions are met.

In Italy, this issue is governed by article 73 of the Consolidated Income Tax Act, according to which, for  the purpose of income tax, companies are considered to be resident if, for most of the tax period they have had their head office or registered office or their main activity in Italy (cfr. paragraph 3: Main activity is construed to mean the activity that is essential to the achievement of the objectives laid down by the company’s law, articles of incorporation or bylaws or – in absence thereof – the activity actually carried out in Italy; cfr. paragraphs 4 and 5).

 A great number of rulings have been handed down by the Italian courts in this matter..

The Italian Supreme Court held with judgment no. 2869 that a company incorporated under Luxembourg law was not a dummy foreign company in view of the fact that its administrative headquarters and registered office were located in Luxembourg. The Supreme Court judges held, in fact, that it was not necessary to ascertain the existence of economic reasons other than those relating to the fiscal convenience, but instead, the court had to ascertain whether the creation of the company was motivated by relevant and genuine economic reasons.

Another recent ruling has reaffirmed the need to verify the existence of a permanent establishment in Italy, which occurs when the administration and programming of all the activity which is necessary to ensure that the company’s objectives are achieved are carried out in Italy (Supreme Court judgment no. 7080 dated January 24, 2012,.

The Supreme Court also held, with its judgment no. 29724, that a company is permanently established in another country even if its business is handled by a representative in Italy.



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