In general terms, inherence can be described as the
relationship between the cost and the enterprise, where the
cost has a specific relevance to the determination of income;
this is a result of its connection not to a specific revenue,
but rather to an activity potentially able to produce income.
Based on this assumption, in order to consider a cost
deductible (i.e. inherent), the taxpayer is required to
demonstrate clearly the connection with the activity, providing
the tax authority with "sufficient" documentation.
The Italian Supreme Court recently ruled on this topic
(decision no. 20113/18) regarding the deductibility of costs
associated with the construction of swap bodies (casse
mobili). The ruling involved Italian company ITA Co, which
specialises in the manufacture of semi-trailers, containers,
fittings for vehicles, ISO and special containers. The local
tax authorities disregarded the deductions of costs incurred by
ITA related to the construction of swap bodies, citing a lack
of inherence. The adjustment filed by the tax authorities was
challenged by the taxpayer, first before the local Court of
First Instance, then before the Regional Tax Court
(Commissione Regionale della Lombardia – sez.
Distaccata di Brescia). In line with the latter's
decision, the Supreme Court upheld the taxpayer's arguments and
rejected those put forward by the tax authorities.
The case can be summarised as follows. ITA conducts all
activities (and bears the related costs) necessary to build
swap bodies. Then, it sells the finished products to a leasing
company (or LCo). The LCo leases the swap bodies to a company
controlled by ITA. The swap bodies are then rented by ITA,
which gives them to its clients as a gratuitous loan for the
period necessary to provide them with new swap bodies, which
are regularly purchased and paid for. The price paid by the end
client is sufficient to remunerate the initial rent under the
The Supreme Court stressed that – in line with the
current jurisprudence – the judgment on the inherence
of the cost refers to the corporate object of the enterprise
"in the sense that it is deductible if it is functional to the
single social activities or, in any case, if it brings to the
enterprise a useful, objectively determinable and adequately
Under this view, the inherence does not in essence integrate
a link between costs and revenues, but is essentially related
to the correlation between costs and company activity, even if
only potentially capable of generating taxable income.
Regarding intragroup relations, the inherence of the cost,
within the limits of reasonableness and proportionality, is
connected to the concepts of coherence and economic utility
"interpreted as indexes of the existence or not of the
inherence rather than essential requirements".
In conclusion, the inherence of the costs paid by a company
belonging to a multinational group must be evaluated according
to the criterion of coherence and the economic usefulness of
the entire activity carried out by the group. Therefore, the
application of these criteria must essentially bring out the
advantages gained by all the companies belonging to the group
and not only those gained by a single company.
Gian Luca Nieddu (email@example.com) and Barbara
Tel: +39 02 7780711