Deductibility of Costs with Tax Haven Countries: Ruling 17455 of 2025

The Court of Cassation, with ruling no. 17455 of June 29, 2025 (President L. Napolitano, Rapporteur D. Chieca), has provided important clarifications on the deductibility of costs from transactions with entities resident in tax haven countries. This decision, which saw the General State Advocate's Office (A.) and the taxpayer (E.) on opposing sides, is crucial for international businesses, defining the conditions for overcoming the legal presumption of non-deductibility and providing operational guidance.

Regulatory Context: Article 110, Paragraph 11, TUIR

Article 110, paragraph 11, of Presidential Decree no. 917 of 1986 (TUIR), in the version in force ratione temporis, establishes a presumption of non-deductibility for costs incurred in transactions with entities resident in tax haven countries. This provision aims to combat tax evasion. However, the law allows this presumption to be overcome by demonstrating the actual economic nature of the transaction. It is on this aspect that the Court of Cassation intervenes, outlining stricter evidentiary requirements.

The Ruling's Headnote and Criteria for Deductibility

The Supreme Court, with ruling no. 17455/2025, clarified the alternative paths available to the taxpayer to overcome the presumption. The headnote states:

In matters of transactions with subjects resident in tax haven countries, the legal presumption of non-deductibility of costs can be overcome, pursuant to Article 110, paragraph 11, of Presidential Decree no. 917 of 1986, in force ratione temporis, by the taxpayer who demonstrates, alternatively, either the carrying out of actual commercial activity by the foreign company with which the transaction was concluded, or the existence of a genuine economic interest underlying the commercial transaction, to be identified not in the mere convenience of the supply price of the goods, but in a specific interest to purchase (or otherwise to conclude the transaction) in that particular country due to the occurrence of peculiar factors (linked, for example, to local production), which must be highlighted and proven by the taxpayer.

This passage is decisive. The Court of Cassation requires concrete and documented proof, offering two alternative avenues:

• Actual commercial activity of the foreign company: Demonstrating that the counterparty in a tax haven country is not a mere shell entity, but carries out real economic activity, with its own operational structure and resources.
• Genuine economic interest in the transaction: Proving that the transaction is not dictated solely by price convenience, but by a specific interest justified by peculiar factors related to the country or market (e.g., local production, access to unique technologies, strategic positioning). These factors must be specifically highlighted and proven by the taxpayer.

The burden of proof is high and falls entirely on the taxpayer, who must go beyond a mere assertion of economic convenience.

Conclusions: Transparency and Documentation are Essential

Ruling no. 17455/2025 reinforces the principle of substance over form in international transactions. For businesses, this means adopting a proactive approach in planning and documenting transactions with entities in tax haven countries. It is essential to build a solid evidentiary framework that attests to the genuineness and economic purpose of the transaction. Transparency and accurate documentation, supported by specialist advice, are indispensable tools for operating safely and in compliance within the complex international tax landscape.