Judgment No. 22664 of 2024: The Importance of Cost Incurrence in Business Income

The recent order of the Court of Cassation No. 22664 of August 12, 2024, has reignited the debate on the incurrence of costs in the context of tax deductibility for businesses. The central issue concerns the definition of incurrence and its practical application, particularly during the start-up phases of a company. In this article, we will explore the meaning of this judgment, analyzing how it can influence entrepreneurial decisions and tax planning.

The Concept of Cost Incurrence

According to the Court, the requirement for deductible costs to be incurred must not be assessed solely based on revenue, but must be related to the business activity as a whole. This implies that it is not enough to demonstrate that a cost has been incurred; it must be effectively instrumental in generating income. In this specific case, the Court overturned the previous judgment that had excluded the deductibility of a cost related to the purchase of a factory, considering the time elapsed since the start-up to be a determining factor.

Business Income - Cost Incurrence - Definition - Relation to Operations Capable of Generating Income - Configurability - Reasons - Specific Case. Regarding business income, the requirement for deductible costs to be incurred pertains to their compatibility, coherence, and correlation not with revenues themselves, but with the conduct of business activity capable of generating income. (In this instance, the Supreme Court overturned the appealed judgment, which had deemed the purchase of a factory, subsequently leased to third parties during the start-up phase, as not incurred due to the time elapsed since the commencement of the activity, without assessing whether such cost was effectively instrumental to the exercise of the overall business activity or extraneous to it).

Practical Implications for Businesses

This judgment has significant implications for businesses, particularly for those in their initial phase. Companies must be aware that costs incurred during the initial periods can be considered deductible, provided they are clearly linked to the business activity. It is therefore essential for entrepreneurs to maintain accurate and detailed documentation of incurred costs to demonstrate their incurrence.

• Assess the coherence of costs with the business activity.
• Document every expense incurred, specifying its utility for the company.
• Consult tax experts to optimize tax planning.

Conclusions

In conclusion, order No. 22664 of 2024 represents a significant step in clarifying the concept of cost incurrence in business income. It emphasizes the need to consider the business context and not just immediate revenues when evaluating deductible costs. Companies, especially those in the start-up phase, should pay attention to these guidelines to ensure proper tax management and maximize deductibility opportunities.