With its Resolution No. 20/E of 28.03.2013, the Italian Revenue Agency has clarified that to be excluded from the scope of “abuse of rights” are the agreements relating to mid-to long-term bank financing transactions entered into abroad and designed to have legal effect in Italy. The reason is that, in the absence of any further clarifications, the place of execution of such agreements does not seem to fall within the definition of “abuse of rights” developed so far by case law, which means misuse of legal instruments to achieve tax saving. The standard practice document significantly specifies that another is the issue of the time of the contract “formation”, to determine whether this occurs in Italy or abroad.


The Italian Tax Authority, invoking the abuse of rights principle “worked out and established” by the Supreme Court, has recently challenged, by means of tax assessment notices, the practice of entering into certain deeds abroad, recognising a tax-avoidance purpose in such practice having regard to the principle of territoriality under the Consolidated Law on Registration Tax (which also applies for the purposes of substitute tax on loans), where the reason for the execution abroad is only the tax saving achieved as a result of the non-application of domestic tax.

A recent judgment of the Provincial Tax Court of Brescia (judgment No. 27 of 10 April 2012) has however deemed the non-application of substitute tax on loans due to entering into loans abroad as legal tax saving, endorsing the view that, in the absence of valid non-tax financial reasons, in order for tax avoidance to be present, tax saving is not per se sufficient, having to be “pathological” with respect to the applicable tax system.

In such a context, the Italian Revenue Agency issued Resolution No. 20/E on 28 March 2013, making significant clarifications on this subject.

Clarifications made by Resolution No. 20/E.

The Italian Revenue Agency has declared that there is no abuse of rights in the execution abroad of a mid- to long- term bank loans, with legal effect mainly in Italy.

In particular, in the case submitted, both parties reside in Italy and the loans are used in Italy, but the relevant agreements are, at least formally, formed by means of a public deed executed abroad, even if subject to Italian jurisdiction.

With respect to such transaction, the applicant asked whether there be abuse of rights, as the execution of the agreement outside the Italian territory could seem to have the sole purpose of obtaining an undue tax benefit.

The Tax Authority, endorsing the views of latest case law, has clarified that the place of the execution of the agreement does not seem to fall within the definition of abuse of rights developed so far by case law, as an appropriate quid pluris is required for a “misuse of legal instruments to achieve tax saving” to occur.

After clarifying this, the Agency however recalls that, according to Article 2 of Presidential Decree No. 131 of 26 April 1986, “a) the instruments listed in the tariff […] are subject to registration, if they have been drawn up in writing in the territory of the State” and that, according to Article 1326 of the Italian Civil Code, “the contract is concluded at the moment the party who made the proposal has the knowledge of the other party’s acceptance”.

Thus, in the Agency’s opinion, “it can be argued that a deed is formed when a contract is concluded according to the terms above (either by the parties executing it at the same time or at the time the party who made the proposal has the knowledge of the other party’s acceptance, if proposal and acceptance do not occur at the same time)”.

Furthermore, as concerns mid- to long-term bank loans, the Resolution specifies that, in order for a deed to be deemed “formed”, a public or certified private deed is not required, a simple private deed being sufficient.

Consequently, going back to the case under the application, if an agreement and its key elements have been set out in Italy, it matters little whether a public or private deed is subsequently entered into abroad: the contract is deemed to have been formed in Italy and, therefore, registration or substitute tax shall apply.

On the other hand, as concluded by the Agency, if a term-sheet or other documentation executed in Italy show that consensus has already built as to the key elements of the contract, the public or certified private deed entered into abroad constitutes, as a matter of fact, a mere reaffirmation of the agreement already reached in Italy and, therefore, such deed must be deemed “formed” in the Italian State territory.

Therefore, particularly significant is the time when consensus is built, as, under the Resolution, term-sheet negotiations between legal advisors for their respective clients, by means of notices exchanged in the Italian State territory, may allow one to conclude that the deed was formed in Italy.

Finally, it is worth specifying that, taking the occasion of Resolution 20/E, the Revenue Agency has recalled that the entities carrying out any transactions relevant for substitute tax purposes are required to notify the amounts on which the tax is to be calculated, in two steps: by filing a return for the first six months of the financial year within three months of the expiry of the six-month period and then another return for the second six months within three months of the end of the financial year (pursuant to the combined provisions of Article 20 of Presidential Decree No. 601/1973 and Article 8, paragraph 4 of Law Decree No. 90 of 27 April 1990, passed into Law No. 165 of 26 June1990)1