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Where do you pay? A recent Italian Court of Cassation decision on taxation*

IBA Corporate Counsel Forum


Friday 10 December 2021


Maurizio Vasciminni
Pavia e Ansaldo Studio Legale, Rome

Silvia Bisceglia
Pavia e Ansaldo Studio Legale, Rome

Giovanni Gigliotti
Pavia e Ansaldo Studio Legale, Rome


According to a recent judgment of the Italian Court of Cassation,[1] a company resident abroad for tax purposes is subject to the Italian tax regime if the main decisions relating to its general management and business affairs are adopted in Italy.

Companies’ residence for tax purposes in the Italian legal system

The tax residence of a company is central in determining where it must pay taxes. Under the principle of worldwide taxation, tax residence identifies the country in which income is taxed – wherever it is produced – by a taxpayer in a given tax period.

In the Italian legal system, the tax residence of companies is determined according to the criteria set forth in Articles 5 and 73 of Presidential Decree No 917 of 22 December 1986 (Consolidated Text of the Laws on Income Tax or ‘TUIR’).

According to said articles, companies that ‘for the greater part of the tax period have their registered office or administrative seat or principal object in the territory of the State’ are deemed to be resident in Italy and are subject to the Italian tax regime.

Italian law provides for three alternative criteria to determine the tax residence of companies in Italy:

  • the registered office;
  • the administrative seat; and
  • the principal object of the company.

To subject the income produced by a company to taxation in Italy, under TUIR it is sufficient that the company has its principal object in Italy, has established its registered office in Italy or that the seat of its administration is in Italy.

The corporate tax inversion

A corporate tax inversion (esterovestizione) is a form of tax avoidance consisting in the fictitious location of a company’s tax in a country other than Italy, which is the country where the company actually resides.

In other words, an Italian company fictitiously establishes its registered office abroad (generally, in a so-called ‘tax haven’) while carrying on its business and pursuing its corporate object in Italy, with the aim of avoiding taxation under Italian law.

The tax inversion is linked to the Italian principle of territorial taxation, which applies to companies not resident in Italy as opposed to the principle of worldwide taxation. Indeed, in the case of non-resident companies, only the income produced in Italy is subject to the Italian tax regime; conversely, the income produced abroad by non-resident companies is not taxed in Italy.

The purpose of the tax inversion is to benefit from more attractive legislation – in particular, a more favourable tax regime than the one applicable in Italy. By fictitiously establishing its tax residence in a country with a lower tax burden or where particular tax benefits apply, the company would be able to obtain an undue tax advantage.

The criterion of the administrative seat under the case law of the Italian Court of Cassation

Article 73, paragraph 5-bis of the TUIR provides for relative presumptions of tax residence in Italy for foreign holding companies controlled or administered by Italian residents. This helps the Italian tax authorities detect cases of corporate tax inversion.

Notwithstanding the prevision of the so-called presumptions of corporate tax inversion, it is not easy for the Italian tax authorities to identify the actual tax residence of an offshore company, particularly where the administrative seat of a company is located. Italian case law has discussed the issue of the administrative seat for a long time.

According to the prevailing interpretation of Italian case law,[2] the administrative seat of the company coincides with the place of effective management under Italian civil law.

According to case law, the administrative seat is the place where the company carries out its administrative and management activities, and where meetings are convened. It coincides with the place permanently used by the bodies and offices of the company for the conduct of their business affairs, and for the taking of the main decisions relating to the direction and management of the company.

This interpretation of the concept of administrative seat is also consistent with the notion of business seat provided by the Court of Justice of the European Union,[3] meaning ‘the place where the essential decisions concerning the general management of that company are adopted and where the functions of its central administration are carried out’.

Judgment No 6476/2021 of the Italian Court of Cassation: the tax regime applicable to a foreign company (esterovestita) with its decision-making seat in Italy

In its recent decision, No 6476/2021, the Italian Court of Cassation has reaffirmed the direction that is well-established by case law regarding the concept of administrative seat.

According to the Italian Supreme Court, it is decisive to identify the administrative seat of a company –  ie, the place where the essential management decisions are taken – with the aim of determining the actual tax residence of such a company.

The Court of Cassation ruled that a company taking its main management decisions in Italy shall be subject to the Italian tax regime, even if it has established its tax residence abroad. It is irrelevant that the company has not carried out specific transactions or activities in Italy.

It is unnecessary to demonstrate that specific transactions have been carried out in Italy in order to ascertain a tax inversion. It is sufficient that the company, although formally resident abroad, has established its seat of decision making in Italy.


In judgment No 6476/2021, the Court of Cassation stated that the place where a company takes its essential management decisions is a decisive issue to identify tax inversion cases and to establish the actual tax residence of a company.

However, the Italian Supreme Court has not provided the criteria to ascertain whether the place of adoption of essential management decisions of a company is Italy.

For instance, it is not clear whether a resolution of the shareholders’ meeting held in Italy is sufficient to identify Italy as the place where the decision-making process was triggered.

According to the aforementioned judgment, the assessment of the seat of decision making of a company may not be easy, as there are no predefined parameters establishing when the decisions of the company can be considered as taken in Italy.

It is therefore advisable to prudently and cautiously manage decision-making processes carried out abroad, due to the adverse effects of a tax inversion assessment – not least due to its potential criminal implications.


[1] The Italian Court of Cassation, judgment No 6476/2021.

[2] Cfr. ex multis: Italian Court of Cassation, judgment No 6476/2021; Italian Court of Cassation, judgment No 16697/2019; Italian Court of Cassation, judgment No 15184/2019; Italian Court of Cassation, judgment No 33234/2018; Italian Court of Cassation, judgment No 2869/2013; Italian Court of Cassation, judgment No 3604/1984.

[3] Judgement of the CJEU (Fourth Chamber) of 28 June 2007, case C-73/06.


* This article was first published in the International Bar Association (IBA) Corporate Counsel Forum news on 10 December 2021


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