An important decision by the Italian supreme Court concerning Dutch Holding company residence for tax purposes.
Decision N. 16697/2019 of the Italian Supreme Court (Corte di Cassazione) is of utmost importance as such decision concerns a Dutch sub-holding company (hereinafter “DutchCo”) which has been considered to be resident of Italy for tax purposes under Article 4(3) of the Italy-Netherlands Income and Capital Tax Treaty (hereinafter the “DTC”).
The Supreme Court confirmed the judgements of the lower Courts (first and second degree Court), making reference to:
- Some of its previous decisions concerning the same matter;
- The case law of the Court of Justice of the European Union dealing with the EU freedom of establishment.
With reference to the concept of “place of effective management” under Article 4(3) DTC, the Supreme Court observed that: 1) such concept is to be considered as equivalent to that of “place of management” provided for by domestic tax law in order to establish the tax residence of companies and other entities; 2) both the “place of effective management” under the DTC and the “place of management” under domestic law denote the place where the management and control functions of the company are effectively located and the relevant decisions are taken.
Based on these premises, the Supreme Court held that the Regional Tax Court was correct in deciding that the place of effective management of DutchCo was in Italy because:
- Management directives, strategic and operative decisions were taken in Italy by the managers of the Italian controlling company;
- Although the meetings of DutchCo’s board of directors, which the Italian directors normally did not attend in person, took place in the Netherlands, the decisions formally taken during such meetings were actually discussed and taken in advance in Italy;
- The Amsterdam office was only the place where the day-to-day business was carried out.
Even if we agree that Supreme Court’s decision is somewhat surprising as it seems to downgrade the importance of day-to-day management for the purpose of establishing the tax treaty residence of a company we have to remark that decision has to be taken into consideration as management of a foreign company, which is considered tax resident in Italy, may incur in a criminal procedure provided that the amount of unpaid taxes should exceed the threshold provided in the criminal tax law.
Paolo Comuzzi – Quorum