Italian courts consider costs deductibility for corporate income tax

Italian courts consider costs deductibility for corporate income tax

Costs paid for the purchase of goods are deductible for corporate income tax (CIT) purposes, even if the relating invoices are issued by entities different from the ones that had provided the products.

The principle has been reaffirmed by the Regional Tax Court of Puglia (Decision No. 464 of February 21 2020) which took the occasion to stress, once more, that the costs borne by a taxpayer are deductible whenever they are inherent to the activity carried on by the same taxpayer.

The case at stake concerns an Italian company (part of a multinational enterprise) which, in 2008, was physically supplied with goods by its Chinese related entity but was formally invoiced by its UK and Hong Kong SAR associated companies. Therefore, all commercial aspects of the business relation (for example, placement of ordered products, negotiation of terms and conditions for the supplies, shipment) were directly handled by the Italian and the Chinese companies, while those resident in the UK and Hong Kong SAR only intervened to issue the invoices relating to the goods supplied by the Chinese entity. 

At the end of the inspection, the Italian competent tax office challenged the deductibility of the costs paid by the Italian buyer to the associated entities in the UK and Hong Kong SAR. The tax office argued that the…

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