ANTI-ABUSE PROVISIONS AND POWERS OF THE ITALIAN REVENUE (1)

di Vito D'Ambra e Davide Passananti

 

Considering that the topic to be treated by our Commission is “attack against tax evasion and freedom of business decision”, please answer the following questions by bullet points.

 

1. Anti-Abuse Provisions

 

1.1 Is there an effective generic anti-abuse clause in your jurisdiction?

In Italy, there are only specific rules regarding tax avoidance.
Although this is the traditional position based on the interpretation of the our actual tax legislative provisions, let me point out that recently the Italian Supreme Court changed interpretation and considers the existence of a general anti-abuse clause, although it is not expressly provided by any tax legislative provision, as a general principle of our giuridical system based on the general principle of “taxation according to the concrete ability to pay taxes” contained in the art. 53 of the Italian Constitution (judgments noo. 30055/08, 30056/08, 30057/08, 30058/08).
The main elusive operations are however provided as specific cases by the art. 37-bis of the  Presidential Decree n° 600/73. Let me point out that I do not agree with some scholars that think that a general anti-avoidance clause rule is provided by the first two paragraphs of the mentioned art. 37-bis of the same legislative decree no 600/73 because the same first two paragrafs, in virtue of the specific provision of the third paragraph of the same article, are applicable only in the specific cases herein provided. Therefore, although I (as many other scholars) go on thinking that, in our giuridical system, a transaction can be considered as elusive only when it is expressly provided and forbidden by the legislator,  nowadays, as I wrote before, the Supreme Court created a great confusion and gave an enourmous power in the hands of the Tax Revenue and of the Courts.
In virtue of the confusion created by the Supreme Court, it is currently at the legislator' s study a reform of the legislation, but there are a lot of discussions regarding the content of the future reform.

1.2 Can you please provide us with a brief example of a situation in which the generic anti-abuse clause is applicable?
The anti-abuse clauses can be applied when, through several operations with no valid economic reasons, we can obtain a tax reduction. The tax saving is not considered an abuse operation if the taxpayer demonstrates the economic purposes of the behaviours.

1.3 Can you please indicate which specific anti-abuse clauses are in force in your jurisdiction (e.g. transfer pricing, controlled foreign companies, thin capitalization, payments made to entities that are established in tax havens)?
In our jurisdiction there are many specific anti-abuse clauses in force. We have special provisions regarding transfer pricing, dividend washing, dividend stripping, CFC, payments made to entities that are established in tax havens, et cetera.

1.4 Are there any legal restrictions to the use of tax havens in financial operations?
As for the financial operations, carried out in tax havens, there are several restrictions. For example, the art 47 c. 4 of the Presidential Decree No 917 of 1986 provides that “ profits from companies resident in countries or territories with privileged tax system, are included in the taxable income”. Some exceptions are allowed: for example the opportunity to demonstrate, by a ruling, the commercial nature of the operation.

 

2. Bank Secrecy Disclosure Provisions

 

2.1 Under what circumstances bank secrecy may be disclosed in your jurisdiction?

2.1 In our jurisdiction the banking secrecy can be easily disclosed  by the Tax Revenue or by the Tax Police, if there is the irrepressible need of avoiding a convenient shelter for the tax evasion and for the economic criminality.

 

2.2 Does this disclosure depend on a court decision?

2.2 The disclosure doesn’t depend on a Court decision . On the basis of the provisions contained in the Presidential Decree n° 600/1973, it is sufficient the authorization of the central director of the assessments of the Tax Office or from the regional director of the same office or from the local commandant of the Tax Police. The taxpayer has to be informed on the current investigations.

 

2.3 To what extent the financial institutions must provide information regarding their clients to the Tax Authorities?

2.3 The Banks must provide all the required information to the Tax Office within certain limits of the inspection activity previously authorized by the same Authority. Access in our jurisdiction is the maximum explanation of the intrusiveness of the government’s power.

 

2.4 Do the provisions applicable on this matter in your jurisdiction establish any consequences/penalties in case the financial institutions do not proceed to this discloser?

2.4 The Banks can’t refuse to cooperate with the Tax Revenue. In case that the financial institutions do not proceed to the requested disclosure, the Tax Revenue must apply monetary penalties according to the legislative decree n. 471/97.

 

2.5 In what concerns to the entity under the bank secrecy disclosure, what are the legal instruments at its disposal to react against the decision of disclosure?

2.5 All that is detected during the banking inspection cannot be attacked autonomously by the taxpayer. The banking inspection can be contested only in the petition against the following assessment notice, before the Tax Court.

 


3. Abusive Tax Planning provision

 

3.1 Are there any rules specifically regarding abusive tax planning (e.g. applicable to those situations in which the actions adopted aim at obtain, exclusively or mainly, tax advantages)?

Reference is made to the answer below n°1.1.
In Italy there are rules specifically related to the abusive tax planning. For example, the mentioned art.37 bis of the Presidential Decree lays out that the agreements between subsidiaries and affiliates companies according to the art. 2359 of the civil code are punished by an anti-abuse provision, if one of these companies has its head office in a country not contained in the White List (which should include the Countries that provide the exchange of information);

 

3.2 Which obligations are the entities who promote these schemes, the so-called promoters (e.g. lawyers, tax consultants), liable for?

Yes: the lawyers and the tax consultants, if certain conditions are met, can be sentenced with administrative penalties and for the most serious violations also with criminal penalties including the prison sentence.
In case that a criminal punishment is sentenced, the administrative monetary penalty is not applicable.

 

3.3 Are there any consequences for non compliance with these rules destined both to the beneficiary of the tax planning scheme and to its promoters?

Administrative penalties are generally applied only to the taxpayers and the tax crimes only to his legal representatives. However, the taxpayers and his legal representatives in order to to avoid or reduce their liability, could accuse the tax consultant if their behaviours has been caused by his opinion.

 

4. Freedom of business decision

 

4.1 In your jurisdiction, are there any provisions specifically destined to protect freedom of business?

In Italy according to the art. 41 of the Constitution the freedom of business enterprise plays a central role.  Moreover, following the entry into force of the European laws, provisions to protect the free enterprise has risen sharply. Despite all, in our country, free enterprise is very limited  due to an excessive tax burden. The production of wealth, innovation and the creating jobs are restricted by a heavy bureaucracy (source Studi Confindustria , Italian Association of Enterprises, research published on the 10 of April 2010)

 

4.2 Could you please provide brief comments on whether there is an effective effort of your tax legislation to balance the attack against tax evasion with freedom of business decision?

Unfortunately in our jurisdiction the freedom of business enterprise is highly deficient. Before the mentioned position of the Supreme Court (reference is made to answer 1.1.) there was a balance between the attack against tax evasion and freedom of business decision, therefore it is necessary an urgent legislative reform regarding the anti abuse matters.

 

5. Miscellaneous

 

5.1 Under what grounds may the tax authorities initiate a tax inspection?

Tax inspections and assessments are governed by the Presidential Decree n. 600/73.
There are various grounds that may allow a tax inspection, amongst them:
The omission of the tax return or of the balance sheet;
if the statement of income is inconsistent with the parameters set by the law;
random audits on taxpayers et cetera.
For example, most companies must comply with the standards of tax adequacy: the tax return is appropriate if it indicates an income equal to that is estimated by the Tax Revenue. In the case of non-matching, the Tax Revenue will proceed to the assessment. However against these assessments the taxpayer may file a petition before the Tax Courts (Commissione tributaria provinciale, and for the appeal before the Commissione tributaria regionale), and later before the Supreme Court.
If the balance sheet or the accounting books are false or not fair, the powers of the Tax Revenue are of course more significant

 

5.2 What are the legal instruments at disposal of the tax payer to oppose to the tax inspection?

The spirit of tax inspections should be a mutual cooperation between taxpayers and tax authorities. Moreover, tax payers may file petitions before the Tax Court only after the notice of the assessment also for the violations committed during the tax inspections until it has been issued the so-called notice of assessment. However during the tax inspections, the taxpayer may be assisted by a lawyer and/or by a tax consultant.

 

5.3 Is there a wealth tax in your jurisdiction? Can you please describe briefly under which circumstance shall be applicable?

In our jurisdiction there is a local wealth tax, named I.C.I. regarding real estates.
Following the law n° 93/2008, this tax has been abolished on the first house. In any case this tax is not progressive as income taxes, but burdens on the value of the building with a fixed percentage decided by the Town Council with a precise city council deliberation, that has to be issued  by December 31 of each year with effect for the following year.

 

6. Other relevant issues

 

6.1 Please feel free to provide with some additional comments regarding specific aspects of your jurisdiction that you may find relevant in the context of the above referred topic.

 

See our comments below 1.1 and 4.


(1) Italian Report 2010, Tax Commission U.I.A. (Union Internationale des Avocats)