On January 21 2011 the Supreme Court released a judgment incorporating significant views on tax abuse in cross-border corporate restructurings. The court rejected the tax authorities' claim in relation to the existence of an allegedly abusive scheme.


The tax authorities challenged a transaction which had implemented an international corporate restructuring in Italy. The restructuring may be summarised as follows:  

  • Biochem Group acquired control of two Italian companies, IFCI CloneSystem SpA and Chemila SpA, which carried out business activities in Italy that were similar to those of Biochem Group.  
  • In 1994 Biochem Group acquired the Serono Group, a Swiss pharmaceuticals group, and its subsidiaries in Italy - Ares Serono Diagnostics SpA and Biodata SpA. 
  • The latter transaction was carried out by acquiring the Dutch sub-holding company, Ares Diagnostic Holding BV.  
  • Subsequently, control of both IFCI CloneSystem and Chemila was transferred to Ares Diagnostic Holding.  
  • In order to consolidate similar industrial activities, in 1995 Chemila acquired Biodata's shares. The transfer was entirely financed by loans made to Chemila by entities outside the Biochem Group.  
  • In 1995 Chemila merged for incorporation its subsidiary Biodata.  
  • In 1997 IFCI CloneSystem merged for incorporation both Chemila and Ares Serono Diagnostics.  

The tax authorities issued a tax assessment to IFCI CloneSystem to recapture all interest expenses related to the loans that Chemila had acquired from third parties in order to finance the acquisition of Biodata's shares.

The authorities maintained that Chemila's acquisition of Biodata's shares constituted tax abuse:

there were no valid business reasons for the transaction, as the same economic result (ie, the consolidation of similar industrial activities) could have been achieved by a merger of the two companies, rather than a transfer of shares followed by a merger through absorption. In a direct merger there would have been no need for financing and therefore no deduction of interest expenses.

Tax authorities' objections  

The authorities considered the transaction to be an abusive practice because:  

  • the Biodata share transfer was exclusively aimed at reducing Chemila's overall taxable income by increasing the financial costs of the transaction (ie, interest expenses); and  
  • an equivalent economic effect could have been achieved by a different legal structure (ie, direct merger) subject to a less favourable tax regime.  

Change of approach  

As a general rule, transactions may be deemed abusive - and thus be disregarded by the Italian tax authorities - if in spite of their formal compliance with legal provisions, their aim is to obtain a tax benefit in conflict with the purposes of the law and for no valid business reason. Judges may apply the tax abuse principle in tax disputes even if the authorities make no challenge in this respect.  

However, in this case the court stated that the principle should be carefully applied in corporate restructurings involving companies (or other entities) belonging to international groups. Among other things, it considered that:  

  • Cross-border business restructurings differ from the purely financial transactions that were the subject of the court's previous judgments on tax abuse (eg, dividend stripping and dividend washing).  
  • The exercise of free enterprise, along with all other fundamental rights (eg, freedom of establishment) set forth in the Constitution and the EU Treaty, may not be restricted for tax reasons.  
  • The tax authorities had not properly explained their arguments in objecting to the transaction, but had merely stated that an equivalent economic result could have been achieved by merging Biodata into Chemila, rather than transferring Biodata's shares.  
  • The tax authorities may not challenge a particular corporate structure merely because it was adopted by a taxpayer exclusively for tax reasons (ie, because a corporate structure other than that adopted would have been subject to more onerous tax treatment).


The Supreme Court judgment is a significant change of course from its consolidated case law on tax abuse. As a result of the judgment, the tax authorities will be required to give closer attention to the business reasons for a restructuring.