The position expressed recently by the Supreme Court provides an important clarifying contribution to the complex case represented by the relocation abroad. In particular, the Court's decision invites the judges to make an in-depth evaluation on this issue and at the same time reduces the probative use by Tax Authorities of certain presumptive elements to qualify a particular case as " relocation abroad".

With the sentence No ° 14527 of May 28, 2019, the judges of Supreme Court (in Italian “Corte di Cassazione”) expressed positively in favour of a Dutch holding Company which was denied the reimbursement of withholdings made in Italy on dividends provided by its subsidiary. In providing their reasons, the judges highlighted the need to carefully evaluate cases relating to relocations abroad (“Esterovestizione”) and to consider as Company headquarters the place where the board of directors physically meets.

In particular, following a substantial inspection carried out by the Italian Revenue Agency, this considered the Dutch Company constituted fictitiously in the Netherlands in order to benefit from the favourable tax dividend regime provided for by the Bilateral Convention between Italy and the Netherlands for the avoidance of double taxation and the tax exemption regime in force in the Netherlands, and that it did not meet the requirements to benefit from the withholding tax refund. On the basis of these arguments, the Italian Revenue Agency demanded the repayment of the reimbursement disbursed but not due by issuing a specific refusal provision.

Against this claim, the Company and the Revenue Agency started a confront on several degrees of judgment which saw prevail the Company following its appeal to the Provincial Tax Commission since the decline of terms available to the Tax Authority to pretend the reimbursement. Subsequently, the Revenue Agency appealing to the Regional Tax Commission prevailing over the Company. The Regional Tax Commission justified its judgment in favour of the Tax Authorities on the basis of three reasons: 1) the rejection of the expiration of terms available for the purposes of the Revenue Agency’s claim, 2) the tax residence of the directors of the Company in Italy and in the United Kingdom; 3) the absence of any performance concerning the economic activity and of the effective management in the Netherlands.

Appealing to the Supreme Court, the Company saw its reasons accepted. The main points of the Court's decision, which first identified a lack of in-depth analysis by the judges regarding the defensive evidence provided by the Company, were based on the distinction between the residence of the directors (resident in Italy and in the United Kingdom) and the one of the Company.

The judges referred to art. 73 paragraph 3 of the Income Tax Code which considers as evidence for the attribution of the status of resident, the presence (for most of the year) in the Italian territory either of the registered office or of the administration office. Furthermore, the judges specified that the tax residence of the members of the board of directors of a foreign company that holds controlling interests, has assumed a probative value for the purposes of presumption regarding tax residence (unless taxpayer provides contrary evidence) from the year 2006, when entered into force the decree-law reshaped the wording of art. 73 paragraph 5. In addition to these observations, the judges considered the performance of a mere activity of participations management consistent with the nature of holding of the Dutch Company.

Since Supreme Court verified that the administration of the Dutch Company took place in the Netherlands, where the same meetings of the boards of directors and the shareholders' meetings took place in spaces used by the Company to carry out the contingent administrative and management activities, Supreme Court accepted the Company's appeal.

Therefore, this decision can be considered an important contribution which will have to be considered when qualifying relocation abroad cases.


Matteo Coppola              
Transfer Pricing Manager - Milan