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New anti-avoidance rules and enhanced cooperation in the proposed Italian tax reform

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A cooperative compliance programme, on the one hand, and a general anti-avoidance rule on the other, will be the features of a partial reform of the Italian fiscal system over the next year.

In March 2014, the Italian Parliament approved Law n 23 of 2014 (the Fiscal Delegation Law) which empowered the government to enact, within a year (before March 27 2015), a partial reform of the Italian fiscal system.

In particular, the government is delegated to adopt legislative decrees for a revision of the Italian abuse of law and tax avoidance discipline and for the introduction of an enhanced cooperation system between taxpayers and the tax administration.

Among the other items under reform, some of the rules governing the computation of the corporate income tax base and, especially, a revision of the interest deduction regime, which dates back to 2008, and of the taxation of cross-border operations, including controlled foreign company (CFC) legislation).

Italian anti-avoidance legislation and practice is highly controversial . The tax administration can challenge transactions entered into by taxpayer not grounded on valid commercial reasons on the basis of a codified anti-avoidance rule enshrined in article 37-bis of Presidential decree n 600 of 1973. But what has become really critical is the multitude of recent juridical pronouncements, which basically find their roots in the principle of abuse of rights elaborated by the European Court of Justice in the Halifax case (ECJ Case C-255/02) and on the ability to pay principle enshrined in article 53 of the Italian Constitution.

In recent years the confusion between the application of the anti-avoidance rule and the more general abuse of law discipline have boosted tax litigation in Italy, cracking the relationship between taxpayers and the tax administration.

In this context, the Fiscal Delegation Law underlines the need for a statutory definition of abuse of law and looks for an integration of the present anti-avoidance legislation and the case law definition of abuse of law. The new statute, which will shape the first Italian general anti-avoidance rule (GAAR), is also due to take into account the EU guidelines provided by recommendation n 2012/772/UE of 6 December, 2012, according to which “an artificial arrangement or an artificial series of arrangements” consist in avoiding taxes if “if it has been put into place for the essential purpose of avoiding taxation”, if “it defeats the object, spirit and purpose of the tax provisions that would otherwise apply and if “it lacks commercial substance”. Following article 8 of the Fiscal Delegation Law it is expected that the government will also address the penalty regime related to tax avoidance.

According to article 6 of the Fiscal Delegation Law the government is also empowered to adopt a new regime of enhanced cooperation between taxpayers and the tax administration, with a special focus on large companies. This will imply the adoption of new forms of cooperation and communication and is expected to grant incentives in the form of less administrative fulfillments. The new regime will require the adoption by companies of structured tax risk management systems, with a clear internal identification of roles, responsibilities and procedures. The initiative can be seen as a step forward in the cooperative compliance programme for large business taxpayers launched by the OECD and, in the form of an informal consultation, initiated by the Italian tax authority in June 2013.

Giovanni Rolle (giovanni.rolle@taxworks.it) is a partner at WTS R&A Studio Tributario Associato – Member of WTS Alliance, the principal Italian correspondents of the tax disputes channel on www.internationaltaxreview.com.

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