1. Seminário sobre Regulamentação da Norma Geral Antielisiva
Norma Geral Antielisiva e o tratamento da falta
de propósito negocial, da falta de substância e
do abuso de forma nos negócios jurídicos.
A Experiência Italiana
Marco Greggi
University of Ferrara and
European School of Advanced Tax Studies

2. Understanding the Environment
•Lack of business purpose, abuse of law
(avoidance, fraus legis, etc.) are faces of a same
dice;
•In order to understand the Italian experience two
key features must be considered:
• Cultural aspects of the Legal doctrine;
• Technical aspects concerning Taxation law;
• A judge­made GAAR, a number of targeted AAR.

3. Understanding Cultural Aspects:
the Law as One
•Use of Civil / Roman law concepts to clarify tax
law;
• What is avoidance ? What is abuse of law ?
• it’s the behaviour of “Qui salvis verbis legis, sententiam ejus
circumvenit” Dig. 1.3.29;
• In other words: “it’s the behaviour of the individual who without
infringing the words of the law, deceives the purport thereof”.

4. Continued: The Law as One
•Other axioms of Roman Civil law are
fundamental to understand what abuse or
avoidance are:
• “Fraus legis enim fit, ubi quod fieri noluit, fieri aurtem
non vetuit” Ulpianus, Dig. 1.3.30;
• Or, in other words “Fraus legis occurs when a certain
behaviour is not wanted, without being clearly vetoed
(by the legislator)
• A violation of a principle without a violation of a rule occurs.

5. Defining Principles and Rules
•The struggle against (Tax) avoidance / abuse of
law is therefore based both on:
• Rules (specific and tailor­made) and ...
• ... Principles (general and based not necessarily on the
law).
•The point becomes: is a principle­based
approach to the abuse of law legitimate in the
lack of rules ?

6. The last evidence from Roman Law
•During the classic stage of its development
the concept of abuse was absurd:
• A “digital” approach was adopted: Right vs No­
Right;
• It was not possible to abuse of a right, every ab­use
was as a matter of fact just an “use”. The master killing
a slave was not abusing of its power, but just exercising
a right;
Then something changed in the law: unreasonable killing of a slave was considered an abuse.

7. Moving back to Italy. Rules and
Principles today
•There’s no statutory GAAR ...
•... but there’ s a judge­made, principles­based
one;
•The principles used are Art. 53 (ability to pay
principle) and art. 3 (principle of solidarity) of the
Italian Constitution.

8. Understanding the reasoning
by the Supreme Court
•Every business operation, every economic
decision taken or entered into with the sole (or
just main) purpose of saving taxes is a violation
of the ability to pay principle an of the duty of
solidarity enshrined in the Constitution, requiring
everybody to pay (the right amount of) taxes.

9. PROs and CONs of this approach
• PROs:
1. A “catch all” clause;
2. Flexible approach, stronger position of the Tax Office;
• CONs:
1. Lack of uncertainty in the business relations;
2. Need for a more intensive use of Rulings and
Advanced Rulings;
3. Centrality of the executive power.

10. The paradox of tax avoidance
•In the paradox of Achilles and the Tortoise, Achilles is in a footrace with the
tortoise. Achilles allows the tortoise a head start of 100 metres. If we suppose
that each racer starts running at some constant speed (one very fast and one
very slow), then after some finite time, Achilles will have run 100 metres,
bringing him to the tortoise's starting point. During this time, the tortoise has
run a much shorter distance, say, 10 metres. It will then take Achilles some
further time to run that distance, by which time the tortoise will have advanced
farther; and then more time still to reach this third point, while the tortoise
moves ahead.
•Thus, whenever Achilles reaches somewhere the tortoise has been, he still
has farther to go. Therefore, because there are an infinite number of points
Achilles must reach where the tortoise has already been, he can never
overtake the tortoise.
•Aristotle, Physics.

11. From Theory to Practice
th
•Art. 37 bis, Decree 600 issued on September 29 1973 is
the statutory AAR which is currently the most similar to a
GAAR, covering Direct taxes:
• “Contracts operation, business combinations, deeds or even facts taken
individually or in conjunction are of no relevance for the tax
administration when the are deprived of any sound business purpose or
are aimed at: (1) circumventing obligations or prohibitions established
by the law or (2) obtaining tax reductions, holidays or reimbursement
that would be otherwise denied.”.
• Then follows a list of cases where this rule is applicable, making it a
NON general anti avoidance rule.

12. From Theory to Practice (Part 2)
th
•Art. 20, Act n. 131 issued on April 26 1986
concerning the Registration tax;
• Every contract, deed or act must be registered taking
into account the substance of it, considering neither
the form adopted by the parties nor the qualification of
the contract chosen by them.
• A clear example of “substance over form” principle and of the fact
that different taxes uses different anti avoidance rules.

13. The Dimension of the Phenomenon
•Supreme Court Decisions 12249/10; 12353/05,
13261/99, 30055/08, 30057/08, 12042/09, and
more ...
• All of them use either directly or indirectly the concept
of “abuse of law” as a sort of GAAR;
• In some cases they apply it to a single contract, in
some other to a business combination, or to a series of
contract taken as a whole ...

14. Example n°1: (Inheritance) Tax
Planning
•Under italian inheritance law, when somebody
dies all the properties and assets are transferred
to relatives (spouse, sons, daughters, ...)
according to the law and to the will/testament
• An inheritance tax is applied but a reduction to the
taxable base (a sort of tax holiday) is applied
according to the relation between the dead and the
beneficiary of the testament.

15. Example n° 1: continued
•In the case of parent­son relation the deduction
is € 500.000 (example), in the case of brother­
sister is 100.000;
• The acceptance of the will is not automatic, but id
depends on the consensus of the beneficiary, that
must be given in a number of months;
• If the beneficiary dies before he can express his consensus (or
refusal) this option passes to the heir ...

16. Example n° 1:
the circumstances of the Case

17. Defining the abuse
•Can sister n° 2 (in black) refuse the inheritance
on behalf of the (dead) sister in order to enjoy the
higher tax deduction ?
• In the Italian IRS (Ruling issued on 2009) point of view
this is a case of “Abuse of law” and the second sister
has to accept on behalf of the other.

18. Example n° 2: Supreme Court 4737/10
•A soccer player enter into a contract with an
Italian soccer club “I”;
•However, he attributes all the right concerning
the exploitation of his image to a company “A”
resident in a low tax jurisdiction;
• Subsequently, “A” sells the right to another company
of the group “I” belongs to.

19. Example n°2 :
the Decision of the Court
•For the Court, this is a clear example of “massive”
abuse of law, encompassing the use of:
• A step­stone company;
• A subjective simulation (actually, the concept of step­stone
company as it is sometimes qualified by Civil lawyers);
• An objective simulation, concerning the sale of rights to
company “A”, aimed at a tax deferral and to the
implementation of a tax­savings scheme.

20. Example n° 3:
Avoidance, Abuse and Real Estate
Tax
•Setting the scene:
• Italy has a Real Estate Tax (ICI) regulated by statute
504/92:
• It is applied to all the real estates (buildings, houses, flats, land,
...);
• Some exemptions occur, including: religious buildings, “first home”,
..., all the land which is in an “ancillary” relationship with another
real estate;
• In the latter case, the real estate pay ICI and the land does not.

21. Example n° 3: some more clarifications
•The case of an Hotel and a parking area around
it:
• The owner of both pays Real estate tax on the value of
the hotel. He doesn’t pay on the value of the parking
area since it is used for the Hotel (it’s “ancillary” to it).
• The “ancillarity” of something to something else is mainly decided
by the taxpayer, particularly in case of business activity.
• The entrepreneur knows what he needs for his business
(instruments, assets, goods) and must be left free to organize his
business accordingly.
• But ...

22. Example n°3:
business freedom and abuse
•A company owns two area suitable to be used
for building purposes
• On one of the two, it actually built a palace, paying ICI
(Real estate tax) on it;
• The other is left (temporarily) unbuilt and considered
“ancillary” to the first one: no tax is therefore paid on
that.

23. Example n° 3: Supreme Court
25127/09
•The taxpayer’s decision in this case is “abusive”;
•There’s no reason to consider the second area
(even if adjacent to the first one and left un­used,
or used as parking) as “ancillary”
• In deciding what is “ancillary” to a business activity the
entrepreneur is not entirely free, but must exercise his
freedom consistently with the principles of
reasonableness and fair use of law.

24. Example n°4:
on sale and lease back operations
F Trieste
Venice S
Ships sold under a
“sale and lease back scheme”

25. Example n° 4:
the circumstances of the case
•Companies “F” and “S” belong to the same
group;
•Company “F” enjoys a preferential tax regime;
•Company “S” is is active in the “on sea
transportation” business
• “S” sells the ships used to the controlling company
under a “sale and lease back scheme”.

26. Example n° 4: the characteristics of the
contract
•No Transfer Pricing issues;
• Reason 1: the TP rules are applicable to cross­border
operations only;
• Reason 2: the prices are at market’s value
•... but a significant tax saving via Trieste’s
special tax regime.

27. Example n° 4: Supreme Court
10082/02
•The “sale and lease back” operation in this case
has no economic purpose;
•There are no reasons for company “S” to sell
assets that it is currently using and buy back in
leasing;
• Freedom of business activity is protected by the
Constitution (art. 41) but in this case and abuse of this
freedom occurs.

28. Example n° 5:
the so called “Piaggio ­ Dahiatsu” case
•Supreme Court Decision 1465/09;
•The “abuse of law” doctrine / sound business
purpose doctrine find their limits (... by now);
• Important to emphasize an aspect that has been
underestimated: the procedure, the burden of proof
and the dialogue between taxpayer and IRS before the
reassessment.

29. Example n° 5:
the circumstances of the case
Dahiatsu
P&D Phase 1
Piaggio

30. Example n° 5: Phase 2
•P&D purchases machineries for the production of
minivan and lease them to Piaggio for free;
•Piaggio uses its workers and factories to produce
minivan and sells them to P&D;
•P&D applies on them the Dahiatsu trade mark (plus
some other minor customizations) and sells them back
to Piaggio and Dahiatsu;
•Piaggio and Dahiatsu sell the minivans on the
market.

31. Example n°5:
the quest for a business purpose
•IRS: no business purpose and abuse of
business freedom;
•IRS: P&D is not an active company, it cant
deduct interest, depreciation rates for the
machinery purchased, royalties paid to Dahiatsu
for the use of trade marks, know how and logos.

32. Example n° 5:
making sense of a Joint venture
•In the circumstances of the case the P&D joint venture
was incorporated in the framework of a sound business
purpose;
•It permitted to reach sensible costs cut for both Piaggio
and Dahiatsu;
•THe reduction of the tax burden is therefore a side effect
only of the overall operation;
•And more ...

33. Example n°5: conclusions
•The concept of “abuse of law” must be used taking into
account the overall business operation, and not (only) the
single step transactions;
•A single decision could be “abusive” if taken individually,
but reasonable if considered in a wider framework;
• It’s a IRS’s duty to consider this situation ...
• It’s a taxpayer’s duty to demonstrate that IRS is wrong and
the entire business was sound and reasonable.

34. Concluding Remarks