Recent ruling on tax practice: no abuse of rights for bank loans executed abroad

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.

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