Italian Property Transfer Tax on Real Estate Contributions to EU-Based Companies

Giugno 28, 2024

The Italian Supreme Court (Corte di Cassazione) has recently issued an important ruling (Sentence No. 5096/2024) clarifying the application of Italian transfer tax (imposta di registro) on real estate contributions to companies based in EU member states.

Key Points:

  1. Italian law generally applies a fixed-rate transfer tax when real estate located in Italy is contributed to a company with its legal or administrative headquarters in another EU member state.
  2. This rule aims to facilitate cross-border business operations within the EU by offering a tax advantage compared to the standard proportional tax rate applied to domestic transactions.
  3. The case involved an Italian individual contributing Italian real estate to a UK-based company (at the time, the UK was still an EU member). The taxpayer applied the fixed-rate tax, but the Italian Tax Authority challenged this, claiming the company was effectively managed from Italy.
  4. The Tax Authority’s argument was based on several factors:
  •    The contributing shareholder, an Italian resident, was the sole director of the UK company.
  •    The capital increase was entirely through Italian real estate.
  •    The London office appeared to be only a secretarial service.
  1. The Court clarified that to benefit from the fixed-rate tax:
  •    The receiving company must be genuinely resident in an EU member state.
  •    The company bears the burden of proving its effective place of management is in the claimed EU state.
  •    The place of effective management is defined as where administrative and managerial activities actually occur and where shareholder meetings are held.
  1. In this case, the Court found the company failed to demonstrate effective management in the UK, thus disallowing the fixed-rate tax benefit.

Implications:

This ruling highlights the importance of substance over form in international tax matters. Companies seeking to benefit from favourable tax treatments in cross-border transactions within the EU must ensure they have genuine economic presence and management in the claimed country of residence.

For international investors or businesses considering Italian real estate transactions, this case underscores the need for careful structuring and documentation to support claimed tax positions, particularly regarding company residency and management.

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