ITALY Law and Practice Contributed by: Giuliano Foglia, Foglia & Partners
as reflected in the device’s location (determined by IP address or other geolocation tools). The taxable base consists of taxable revenues net of VAT and other indirect taxes, excluding revenue from intra-group transactions. The applicable tax rate is 3%. As clarified by the Italian Revenue Agency in the Cir - cular Letter No 3/2021, the DST qualifies as an indirect tax and, as a consequence, falls outside the scope of DTCs. 5. Anti-Avoidance and Anti-Evasion Measures 5.1 Definition and Identification of Tax Fraud, Evasion, Tax Avoidance and Abusive Schemes Tax evasion consists of an unlawful and illegitimate conduct which directly violates specific tax provisions. If tax evasion is carried out through artificial conduct apt to create a false representation of reality, it could amount to tax fraud (see Article 1 (1)(g-ter) of Legisla - tive Decree No 74/2000). Contrary to tax evasion, tax avoidance does not involve any violation of tax provisions; rather, it is a lawful conduct aimed at circumventing the rationale or the application of specific tax provisions or prin - ciples of the tax system. The Italian tax system has several provisions addressing both general tax avoid - ance (ie, the general anti-avoidance rule, or “GAAR”) and specific abusive results arising from particular transactions or income items (so-called specific anti- avoidance rules, or “SAARs”). Contrary to tax evasion and tax fraud, tax avoidance does not trigger criminal liability (see Article 10-bis(13) of Law No 212/2000). 5.2 Anti-Avoidance Mechanisms The main anti-avoidance mechanism is the Italian GAAR, which applies where no specific SAARs could apply.
Under the Italian GAAR, abuse of law exists if a trans - action lacks economic substance and, although for - mally consistent with tax law, is intended to obtain undue tax benefits. In particular, a transaction con - stitutes abuse of law if the following conditions are cumulatively met: • the transaction has no economic substance (ie, those unsuitable to realise significant effects other than tax benefits); • the transaction gives rise to undue tax benefits (ie, a tax saving obtained contrary to the purposes of the relevant tax law provisions and/or of the princi - ples of the tax law system); and • the realisation of the undue tax benefits is the essential effect of the transaction. As pointed out in the recent guidelines issued by the Italian Ministry of Economy and Finance on the appli - cation of the Italian GAAR dated 27 February 2025, in the scrutiny on the existence of an abuse, primary importance should be given to the assessment of the existence of an undue tax benefit, so that its non- existence excludes per se the abusive nature of the conduct, without need to assess the occurrence of the other qualifying conditions. In any case, a transaction should not constitute an abuse of law if it is justified by valid economic reasons (which are more than marginal), including managerial and organisational needs apt to structurally and func - tionally improve the taxpayer’s business. The existence of valid non-marginal economic rea - sons must be assessed by verifying whether the trans - action would have been carried out in the absence of those reasons. The burden of proving them is on the taxpayer. In the event of a challenge under the Italian GAAR, the Italian Revenue Agency should comply with specific procedural requirements that allow the taxpayer to demonstrate that no abuse occurred.
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