In decision No. 3386 of February 6 2024, the Italian Supreme Court analysed the registration tax regime concerning a contribution of real estate assets, located in Italy, in favour of an English company, made in 2011 by its Italian sole shareholder and director. Given that the Italian Revenue Agency claimed that the company was to be regarded as resident in Italy for direct tax purposes, it also challenged the application of the €200.00 fixed registration tax, arguing that the transfer of real estate assets should have been subject to the 7% proportional tax applicable to contributions to Italian companies.
Analysis of the case
Article 4, Note IV, Part I of the Tariff attached to Presidential Decree No. 131/1986 states that deeds of incorporation or capital increases are subject to a fixed €200.00 registration tax, if the receiving company has its “registered office or administrative seat” in another member state of the EU (as was the case for the UK at the time).
Although the registration tax framework does not refer to the notion of tax residence valid for corporate tax purposes set forth in Article 73(3) of Presidential Decree No. 917/1986, the Court of Cassation’s case law is firmly oriented towards affirming that such notion also applies in the field of indirect taxes (see decisions No. 1544/2023, No. 23153/2022, No. 11710/2022, No. 24872/2020, and No. 15184/2019).
In the judgment at hand, the Supreme Court further specified that, in principle, the legal presumption of residence in Italy set out by Article 73(5-bis) in Presidential Decree No. 917/1986 may also apply in the field of registration tax. In particular, under such a presumption, a foreign company is deemed to be tax resident in Italy by law if:
It has a controlling interest in a company or other commercial entity tax resident in Italy; and
It is controlled by any individual or entity that is tax resident in Italy or managed by a board of directors mainly composed of Italian resident directors.
It is up to the taxpayer to provide contrary evidence. In the Supreme Court’s opinion, this rule is aimed at fighting the fictitious placement of companies abroad with an anti-evasion purpose on the grounds of EU tax law, the constitutional duty to contribute to public expenditure, and OECD-derived principles. Therefore, even though such a presumption is provided for within the Income Tax Consolidation Act, it has a general anti-avoidance purpose and should be relevant for applying indirect taxes.
Apart from this general reasoning, in the case at hand, the court did not actually apply the legal presumption (since the UK company had no shareholdings in Italian companies) but resolved that the ordinary residence rules set forth by Article 73(3) of Presidential Decree No. 917/1986, ratione temporis in force, are applicable: a company is regarded to be tax resident in Italy if, for most of the tax year, it has in the territory of the state "the registered office, or the seat of administration or the main object of business in Italy”.
Therefore, the attraction to Italy of the tax residence of the UK company triggers that the contribution in kind of real estate assets is subject to registration tax at the proportional 7% rate applicable (at the time) to transfers to Italian resident companies.
Alignment with the European Council directive
However, the question arises as to whether the domestic legislation providing for the proportional taxation of contributions of real estate assets to Italian resident companies complies with Council Directive 2008/7/EC of 12 February 2008 concerning indirect taxes on the raising of capital (the Directive).
This is the framework. Whereas No. 3 of the Directive clearly states that "it is in the interests of the internal market to harmonise the legislation on indirect taxes on the raising of capital in order to eliminate, as far as possible, factors which may distort conditions of competition or hinder the free movement of capital", No. 5 even more clearly suggests that "the best solution for attaining these objectives would be to abolish capital duty”. Article 5 of the Directive consistently prohibits member states from imposing “any form of indirect tax” on transactions, involving “the formation of a capital company” and an “increase in the assets of a capital company by contribution of assets of any kind”, and, therefore, real estate assets and going concerns.
Notwithstanding, bearing in mind the tax revenue needs of the member states, Article 6(1)(b) of the Directive allows "transfer duties, including land registration taxes, on the transfer, to a capital company, of businesses or immovable property situated within their territory", in so far as the taxes charged do "not exceed those of duties or taxes applicable to like transactions which take place within the Member State charging them". In other words, proportional capital duties or taxes exceeding the 1% limit set by Article 8 of the Directive are not regarded as unlawful, provided that they also apply to the same transactions carried out in that member state.
The regulatory framework (Council Directive 69/335/EEC of 17 July 1969, later recast in the Directive) was initially interpreted by the Court of Justice of the European Union (CJEU) (joined cases C-197/94 and C-252/94) and by the Italian Supreme Court (decision No. 18241/2007) as preventing the application of a proportional registration tax.
However, the same courts subsequently changed their minds; first, the CJEU, giving a prominent role to the derogation provided for by Article 12 of Directive 69/335 (Article 6 of the Directive), admitted the application of transaction taxes in relation to an Italian case and required the national court to “verify that the registration charge, the mortgage registration fee and the Land Register fee levied on the contribution of immovable property to a capital company do not exceed the charges and fees imposed on any other property transfer effected by private persons or by non-commercial companies” (Case C-42/96). Many judgments of the Italian Supreme Court confirmed the legitimacy of the application of transaction taxes (see decisions No. 20356/2021, No. 21548/2013, and No. 9301/2010).
Comment on the CJEU’s stance
In the authors’ view, the CJEU’s position is not fully convincing, especially regarding the Italian case, where the tax framework is really twisted and it is hard to understand its systematic purpose.
According to the Directive, business going concerns and immovable properties can be equally transferred and contributed to a company; nevertheless, under Italian law:
On the one hand, the taxation of contributions to companies varies depending on the nature of the asset contributed: a fixed €200.00 tax is levied in the case of going concerns; a proportional registration tax is levied on the value of contributed real estate assets (even if included in a going concern);
On the other hand, the sale and purchase of a going concern located in Italy is subject to a 3% registration tax.
In other words, there is an inconsistent implementation within the Italian tax framework of the principles inferred by the Directive that seem justifiable only with tax revenue needs.
In the authors’ view, to fully achieve the Directive’s purpose, all proportional taxes levied on deeds of contribution should be abolished.
