Shell Companies and the Right to VAT Deduction: Commentary on Judgment No. 22249 of 2024
Judgment No. 22249 of August 6, 2024, by the Court of Cassation marks an important milestone in the legal debate concerning shell companies and the right to VAT deduction. Specifically, the Court has established that Article 30 of Law No. 724 of 1994, which excludes the right to VAT deduction for companies with revenue below a certain threshold, is in conflict with European regulations, particularly Articles 9, paragraph 1, and 167 of VAT Directive 2006/112/EC.
The Regulatory Context
Italian law, through Article 30 of Law No. 724 of 1994, introduced restrictive measures for shell companies, presuming them to be non-operational. This provision led to a generalized denial of the right to deduct input VAT, effectively penalizing businesses that, despite low revenue, conduct legitimate economic activities.
- Art. 30 of Law No. 724/1994: excludes the right to VAT deduction
- Art. 9, para. 1, of Directive 2006/112/EC: establishes the principle of VAT neutrality
- Art. 167 of Directive 2006/112/EC: confirms the right to deduction for all VAT-taxable transactions
The Court of Cassation's Judgment
In its ruling, the Court of Cassation referred to the principles expressed by the Court of Justice of the European Union in Judgment No. 341 of March 7, 2024, emphasizing that measures adopted by Member States to combat fraud and tax evasion must be proportionate and must not compromise the principle of VAT neutrality. This means that, while it is crucial to combat tax abuses, taxpayers' right to VAT deduction, which is an essential element of the VAT system itself, cannot be sacrificed.
Art. 30 of Law No. 724 of 1994 - Conflict with Arts. 9, para. 1, and 167 of the "VAT Directive" - Existence - Basis - Consequences - Disapplication. Regarding shell companies, Art. 30 of Law No. 724 of 1994, by excluding the right to deduct input VAT for companies whose revenue is below a certain threshold (presuming them to be non-operational), conflicts with Arts. 9, para. 1, and 167 of Directive 2006/112/EC and must, therefore, be disapplied by the national judge, in accordance with the principles expressed by the ECJ Judgment No. 341 of March 7, 2024, according to which measures adopted by Member States to combat fraud, tax evasion, and abuses must not exceed what is necessary to achieve that objective and must not be used in a way that calls into question the principle of VAT neutrality.
Conclusions
Judgment No. 22249 of 2024 marks a significant step for Italian taxpayers and an important affirmation of European law. It not only clarifies the conflict between Italian legislation and European directives but also reaffirms the principle of VAT neutrality, which is fundamental for the proper functioning of the market. Businesses, even small ones, must be able to exercise their right to VAT deduction without being penalized by national rules that limit their access. In this way, the Court of Cassation acts to protect taxpayers' rights, promoting a balance between combating tax evasion and safeguarding businesses' rights.
