Commentary on Judgment No. 10305 of 2024: Abuse of Law and Shell Companies

The recent judgment No. 10305 of April 16, 2024, issued by the Court of Cassation, addresses a highly topical and relevant issue in the field of tax law: the abuse of law through the creation of shell companies. This ruling stands out for its incisiveness and the important perspectives it offers regarding the fight against tax avoidance practices.

The Concept of a Shell Company

The Court clearly defines a "shell company" as a construct of pure artifice, aimed at obtaining an undue tax benefit. Essentially, these structures consist of chains of companies lacking economic substance, as highlighted in the ruling's maxim:

Abuse of law - Shell companies - Construct of pure artifice - Lack of economic substance with evasive purposes - Non-genuine activity - "No genuine economic activity" indicators - Treaty provisions - National anti-avoidance provisions - Admissibility. In the context of abuse of law, a "shell company" is a construct of pure artifice, aimed, in the tax sector, at achieving a mere undue tax benefit, through the creation of chains of companies lacking economic substance or "no genuine economic activity" - inferable from the non-existence of an organized, professional, and economically relevant corporate complex, from the absence of engagement in a predominant economic activity within the State, from the existence of intra-group agreements that oblige the transfer of the income obtained to the parent company or other directly or indirectly controlled entities, from the performance of the controlled entity's predominant activity in a State other than the source State, from suspicious temporal coincidences between legal transactions carried out "intercompany," from the presence of an exclusive tax motive that induced the company to relocate in order to erode the taxable base - to which, while generally respecting the prevalence of treaty provisions, national provisions are also applicable, especially to prevent the former from being instrumentalized to favor evasive purposes.

Implications of the Judgment

This judgment not only clarifies the concept of a shell company but also offers a broader view on how to identify avoidance practices. It is crucial for businesses and professionals in the sector to be aware of these aspects, as the presence of "no genuine economic activity" indicators can lead to serious tax risks. Among these indicators, we can mention:

• Non-existence of an organized and professional corporate complex.
• Absence of predominant economic activity within the national territory.
• Suspicious intra-group agreements.
• Relocation motivated exclusively by tax reasons.

The Court emphasizes how the application of national anti-avoidance provisions is fundamental to counter such practices, stating that treaty provisions must prevail but cannot be used for evasive purposes.

Conclusions

Judgment No. 10305 of 2024 represents a significant step forward in the fight against abuse of law in the tax context. It calls for deep reflection on corporate structures and their real economic substance, emphasizing the importance of an ethical and transparent approach in tax management. For businesses, it is crucial to consider the regulatory implications and the risks associated with adopting corporate structures that may appear as fronts for evading tax regulations. Awareness of these dynamics not only protects companies but also contributes to a fairer and more equitable tax system.