These Italian Tax systems have however been open to abuse and to stop companies doing most of their trade in Italy and avoiding Italian income tax by having offshore foreign holding companies Italy enacted special Anti-Inversion Rules. According to paragraph 5 of Tax Code section 73, the place of management will be presumed to be in Italy if the holding company directly controls an Italian domestic company resident in Italy or the majority of the board of directors controlling directly or indirectly the company/holding company are residents of Italy. The concept of control in this scenario can be a difficult one to ascertain but is defined with reference to the definition of ‘controlled company’ as set out in the provision of Italian company law, article 2359(1) Italian Civil Code. Control is deemed to be so if ownership of a sufficient amount of votes at the shareholders ordinary meeting is present and a dominant influence can be exercised because of this majority voting power and/or because of specific contractual relationships or arrangements that might be in place. It is also worth noting that votes owned through fiduciary companies and conduits are also counted in this case.
With these Anti-Inversion Laws the emphasis to establish income tax residency in a foreign country rests on the tax payer. The tax payer is asked by the Italian tax authority to provide evidence to support that effective management is not located in Italy but abroad. In this proof a real link must be established between the company and the country of claimed business ‘residence’ for Italian tax purposes.
It has been argued that such requirements create obstacles which make it difficult for foreign companies to do business in Italy. Since uncertainty in definitions and requirements for companies to provide explicit documentation can be time consuming and also a long and drawn out process. With this in mind it is worth talking to an expert in Italian income tax law.
There have been claims that these rules violate, amongst others, the EU law of free movement of capital. The European Commission however does not agree, saying that Italian income tax laws are designed to combat clear cases of tax evasion whilst allowing authentic cases to defend the law’s residency presumption to the Italian Tax authorities.