Order No. 8739 of 2024: Deductibility of Costs and Relevance to Business Activity

Order No. 8739 of April 3, 2024, issued by the Court of Cassation, offers an important reflection on the deductibility of costs in the context of determining business income. The ruling focuses on the relevance of expenses and their necessity to be connected to business activity in order to be considered deductible for tax purposes. This principle is of fundamental importance for all those who manage a business activity and wish to optimize their tax position.

The Concept of Relevance in Cost Deductibility

The Court clarified that the relevance of expenses should not be assessed solely based on the presence of an activity provided for in the company's articles of association. In fact, it is sufficient for expenses to be intended, at least potentially, to generate profits. This more flexible approach allows for the deductibility of costs that, although not directly related to the business activity, may still prove useful for the business project as a whole.

Business income - Deductible costs - Relevance to business activity - Content - Case law. Regarding the determination of business income, the relevance of individual expenses and costs incurred, which is essential for their deduction pursuant to art. 109 of TUIR, is found not only if the activity carried out falls within those provided for in the company's articles of association, a circumstance that has a merely indicative value, but also when it is intended, at least potentially, to produce profits. Expenses that, despite having a weak relationship between cost and business activity, concretely prove to be instrumental to the business project can be valued. (In this case, the Supreme Court quashed the appealed judgment which had recognized the deductibility of costs for building interventions carried out on a building intended for family housing based on mere ownership of the property, registered to the taxpayer's construction company).

Practical Implications of the Ruling

This ruling has important implications for taxpayers, particularly for companies operating in sectors where costs may not appear directly related to the main activity. Below are some practical considerations:

• It is essential to document and justify incurred expenses, highlighting their potential contribution to profit generation.
• Companies should consider the possibility of deducting costs that, while not strictly necessary for the main activity, may prove strategic for the success of the enterprise.
• The ruling calls for a re-evaluation of accounting and tax practices, as a broader understanding of relevance could lead to significant advantages in terms of tax deductions.

Conclusions

In conclusion, Order No. 8739 of 2024 represents an important evolution in the jurisprudence concerning the deductibility of expenses in business income. Companies must pay attention to how they classify and document their expenses, as this could significantly impact their tax position. A broader interpretation of relevance could open up new opportunities for optimizing the tax burden and ensuring more efficient management of company resources.