Italy: Italian Supreme Court rules on place of effective management

International Tax Review is part of Legal Benchmarking Limited, 1-2 Paris Garden, London, SE1 8ND

Copyright © Legal Benchmarking Limited and its affiliated companies 2025

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Italy: Italian Supreme Court rules on place of effective management

Sponsored by

sponsored-firms-hager.png
ib-italy.jpg

Gian Luca Nieddu and Barbara Scampuddu of Hager Partners analyse a Supreme Court ruling which declared a company was resident in the Netherlands because its effective management took place in this jurisdiction.

The Italian Supreme Court, with decision No. 14527/2019 published on May 29 2019, ruled on a new case of tax residence of a foreign company which, after inspection, was deemed to be in Italy. The takeaways from the Supreme Court are the following:

  • The residence of a company must be identified by referring to Article 73, paragraph 3, of the Presidential Decree No. 917/1986 (Income Tax Code). The provision refers to the presence in Italy, for most of the fiscal year, either of the registered office or of the place of effective management.

  • Additionally, the place of effective management is the place where management activities of the entity are carried out and the directors' meetings take place. Besides, it is the place appointed, or permanently used, for the centralisation of corporate bodies in order to manage internal and external relationships and then provide inputs for the activity of the entity.

  • The tax residence of the directors is not of itself a proof of the entity's tax residence. Nevertheless, directors' tax residence could be assumed as a presumptive element for tax residence of the company (unless the taxpayer provides contrary evidence) from the year 2006, when Article 73, paragraph 5 of the Income Tax Code entered into force.

  • The mere activity of participations management performed by a company could be consistent with the nature of a holding company. Therefore, such activity could not be considered as a presumptive element to qualify a company fictitiously constituted abroad.

The case at stake started from a request submitted by a Dutch company (ABV) regarding the reimbursement of withholding tax paid in Italy by its Italian subsidiary on dividends distributed for the fiscal year 2001. Italian tax authorities initially accepted the request of the ABV and paid back the withholding tax. However, after subsequent checks from the competent local tax office, the reimbursement initially granted was then challenged, arguing that the ABV had been incorporated in the Netherlands exclusively to benefit from the favourable fiscal dividend regime provided by the Italian-Netherland double tax treaty and from the Dutch tax regime concerning the exemption of dividends from taxable income.

The taxpayer appealed against this last position of the tax office before the Provincial Tax Court which ruled in favour of the former as the deadline to ask for the reimbursement of the withholding tax back had already expired at the time of the checks of the local tax office. In turn, the local tax office appealed before the Regional Tax Court. This court overturned the decision of the first degree judge and affirmed that: (i) the terms to challenge the reimbursement initially granted after automated controls had not expired, (ii) the ABV was not tax resident in the Netherlands since its directors resided in Italy and in the UK and (iii) the ABV did not perform any economic activity in the Netherlands.

By aligning its ruling with other decisions concerning cases of relocation abroad (for example, see decisions no. 7739/2012, 2869/2013, 33234/2018 and 33235/2018), the Supreme Court rejected the decision of the Regional Tax Court. Specifically, the decision identified a lack of in-depth analysis which, if conducted, would have ascertained that the place of effective management of the ABV was effectively located in the Netherlands, where meetings of the board of directors physically took place and where the entity had dedicated premises where management activities were conducted.

Hager Partners

T: +39 02 7780711

E: gianluca.nieddu@hager-partners.it and barbara.scampuddu@hager-partners.it

W: www.hager-partners.it

more across site & shared bottom lb ros

More from across our site

Nobody likes paperwork or paying money, but the assertion that legal accreditation doesn’t offer value to firms and clients alike is false
Ryan hopes the buyout will help it expand into Asia and the Middle East; in other news, three German finance ministers have called for a suspension of pillar two
SKAT, which was represented by Pinsent Masons, had accused Sanjay Shah and other defendants of fraudulent dividend tax refund claims
TP managers must be able to explain technical issues in simple terms, ITR’s European Transfer Pricing Forum heard
Prudential had challenged HMRC over VAT group relief; in other news, Donald Trump unveiled timber and wood tariffs, and the European Commission published a ViDA implementation strategy
Australia’s CbCR rules have ‘widespread support’ and do not put American companies at a competitive disadvantage, the FACT Coalition said
Baker McKenzie advised two of the member firms involved, while several advisers provided transaction counsel to US-based Grant Thornton Advisors
Foreign remittance requirements put additional administrative burden on Indian law firms and strain their relationship with foreign associate firms, according to practitioners
She will formally take over the leadership of the private client firm in July next year, succeeding the veteran Margaret Robertson
Turley will succeed the veteran Grant Wardell-Johnson on Wednesday, October 1
Gift this article