The tax authorities had notified the companies GKN Driveline Firenze s.p.a. and GKN Italia s.p.a. of four notices of assessment, relating to the tax periods from 2002 to 2005, as well as 2011.
The assessments related to the signing of a leasing contract, concerning a real estate complex, between GKN Driveline Firenze s.p.a. and the company TA. p.a. and the company TAU s.r.l..
A property complex was owned by the company GKN-Birfield s.p.a. of Brunico and was leased on an ordinary lease basis by the company GKN Driveline Firenze s.p.a. Both companies belonged to a multinational group headed by the company GKN-PLC, the parent company of the finance company GKN Finance LTD and the Italian parent company GKN-Birfield s.p.a., which in turn controlled GKN Driveline Firenze s.p.a. and TAU s.r.l.
GKN Driveline Firenze s.p.a. expressed interest in acquiring ownership of the real estate complex; the real estate complex, however, was first sold to TAU s. s.r.l. and, on the same date, the latter granted it to the aforesaid company by means of a transfer lease. Further negotiated agreements were also entered into within the corporate group, as the purchase of the company TAU s.r.l. was financed by the company GKN Finance LTD, at the instruction of GKN- PLC, for an amount which, added to its own capital, corresponded to the purchase price of the property complex.
The choice of entering into the transferable leasing contract, instead of its immediate purchase, had led the tax authorities to suggest that this different negotiation had had, as its sole motivation, the aim of unduly obtaining the tax advantage of being able to deduct the lease payments for the nine years of the contract while, if the property complex had been purchased, the longer and more onerous deduction of the depreciation allowances would have been required.
The office had therefore suggested that the transaction had been carried out with abuse of law, given that the transfer leasing contract had to be considered simulated, with fictitious interposition of TAU s.r.l. in the actual sale and purchase that took place between GKN Driveline Firenze s.p.a. and GKN Birfield s.p.a.
The companies filed appeals against the aforesaid tax assessments, which, after being joined, had been accepted by the Provincial Tax Commission of Florence.
The tax authorities then appealed against the Provincial Tax Commission’s ruling.
The Regional Tax Commission of Tuscany upheld the appeal of the tax authorities, finding the grounds of appeal well-founded. The appeal judge pointed out that the principle of the prohibition of abuse of rights, applicable also beyond the specific hypotheses set forth in Art. 37bis, Presidential Decree no. 600/1973, presupposes the competition of three characterising elements, such as the distorted use of legal instruments, the absence of valid autonomous economic reasons and the undue tax advantage. In the case at hand, the distorted use of the negotiation acts was reflected in the fact that the leasing contract had been implemented in a parallel and coordinated manner with a plurality of functionally relevant negotiation acts in a context of group corporate connection in which each of these negotiation acts had contributed a concausal element for the purposes of obtaining the desired result. In this context, it was presumable that the company TAU s.r.l., which had been dormant for a long time and had largely insufficient capital, had been appropriately regenerated and purposely financed within the same group to an extent corresponding to the cost of the deal and that, therefore, the leasing contract had been made to allow GKN Driveline Firenze s.p.a. to obtain the resulting tax benefits. The appeal court nevertheless held that the penalties were not applicable.
GKN Driveline Firenze s.p.a. and GKN Italia s.p.a. filed an appeal with the Supreme Court.
Judgement of the Supreme Court
The Supreme Court set aside the decision of the Regional Tax Commission and refered the case back to the Regional Tax Commission, in a different composition.
Excerpts
“The judgment of the judge of appeal moves promiscuously along the lines of the relative simulation of the agreements entered into within the corporate group and the abuse of rights, with overlapping of factual and legal arguments, while it is up to the judge of merit to select the evidentiary material and from it to derive, with logically and legally correct motivation, the exact qualification of the tax case.
In the case in point, the trial judge reasoned in terms of abuse of rights, assuming that the leasing transaction was carried out in place of the less advantageous direct sale, in terms of depreciation charges, but, in this context, he also introduced the figure of relative simulation, which entails a different underlying assumption: that is, that the leasing transaction was not carried out, since the parties actually wanted to enter into a direct sale.
Also in this case, no specification is made, at the logical argumentative level, of the assumptions on the basis of which the above-mentioned relative simulation was deemed to have to be configured.
Having thus identified the legal terms of the question, the reasoning of the judgment does not fully develop any of the topics of investigation that are instead required for the purposes of ascertaining the abuse of rights, both from the point of view of the anomaly of the negotiating instruments implemented within the corporate group and of the undue tax advantage pursued, while, on the other hand, it appears to be affected by intrinsic contradiction, because it is based simultaneously on both categories, abuse of rights and relative simulation, so that it is not clear whether, in the view of the appeal court, the tax recovery is to be regarded as legitimate because the leasing transaction was aimed exclusively at the pursuit of a tax saving or because that undue tax advantage was achieved through the conclusion of a series of fictitious transactions, both in relation to the financing and to the aforementioned leasing transaction in the absence of any real transfer of immovable property.
In conclusion, the sixth plea in law of the main appeals must be upheld in relation to the various heads of complaint set out therein and to the reasons expressed in relation to the infringement of the law on the assessment of abuse of rights, the correct application of the rules on presumptive evidence and the appearance of reasons.”
“This Court has ruled on several occasions that the prohibition of abuse of rights constitutes a general and immanent principle of the legal system, so that it entails the unenforceability of the transaction against the tax authorities, for any undue tax advantage that the taxpayer claims to derive from the avoidance transaction, even if different from the typical ones that may be taken into account by specific anti-avoidance rules that came into force after the completion of the transaction.”
“As has already been pointed out, the prohibition against abuse of rights translates into a general anti-avoidance principle, according to which the tax authorities disallow and declare unenforceable transactions and acts, devoid of valid economic reasons, aimed solely at obtaining tax advantages, in relation to which the assessing bodies issue a notice of assessment, apply and register the penalties under Legislative Decree No 471/1997, Article 1(2), imposed by Legislative Decree No 471/1997, Article 1(2), and apply the penalties under Legislative Decree No 471/1997, Article 1(2), imposed by Legislative Decree No 471/1997, Article 1(2), and Article 1(2) of Legislative Decree No 471/1997, which are not enforceable. 1, paragraph 2, imposed by the law for the mere fact of having indicated in the tax return a taxable income lower than the assessed one, thus making clear how the legislator does not consider the elusive acts as a discriminating criterion for the application of the penalties, which, on the contrary, are imposed as a natural consequence of the outcome of the assessment aimed at countering the phenomenon of abuse of law (Cass. civ, 31 December 2019, no. 34750; Civil Cass., 10 August 2022, no. 24613; Civil Cass., 19 May 2022, no. 16120; Civil Cass., 31 March 2022, no. 10519; Civil Cass., 16 January 2023, no. 1166).
It is true that this Court, third criminal section, in its judgment No. 40272 of 7 October 2015, ruled out the possibility that elusive hypotheses may constitute criminally relevant conduct, since the new Article 10-bis, cited above, expressly excludes that transactions that are devoid of economic substance and realise undue tax advantages may give rise to acts punishable under criminal tax laws.
However, it has also been pointed out (Court of Cassation, 10 August 2022, No. 24613) that the legislator’s choice to decriminalise transactions constituting abuse of rights was not accompanied by the provision of the absolute lack of punishability of the aforesaid transactions, the application of administrative tax penalties having remained unaffected.
The ruling of the appeal court, therefore, does not comply with the aforementioned principles and is therefore vitiated by breach of law.”
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