Tax assessment deed is illegitimate with contradictory reasons

by Francesco Daniele Di Donato

The Supreme Court, with the recent order n. 13620 filed on May 17, 2023 has returned to dealing with the contradictory reasoning of the notice of assessment. In this regard, he reiterated the principle according to which the notice of assessment cannot be supported by contradictory reasons, since in this case it does not allow the taxpayer to be certain of the elements underlying the reasons for the claim. Furthermore, this defect also arises where concurrent reasons are indicated but characterized by absolute heterogeneity and, as such, unsuitable to serve as the overall assumption of the tax claim.

The case

The company CASA GIRELLI Spa has received multiple tax assessment deeds for the years 2005-2009 with which the accounting of invoices for non-existent, non-related and non-objectively determinable operations was contested.

The following facts were placed at the basis of the dispute raised by the Financial Administration:

  • the company LA VIS soc Coop Agr. acquired a majority share in Casa Girelli Spa through its subsidiary;
  • the sister company has appointed two of its employees as directors of Casa Girelli, recognizing an annual fee for each director of Euro 345,000 to be paid directly to the parent company, therefore a total of 690,000 per year;
  • in four years the sister company has issued invoices for a total of Euro 2,760,000 for services connected with the administration of the company, considered by the subsidiary as tax deductible costs.

According to the Tax Auitorities, these costs would be connected to subjectively non-existent invoices as they relate to services rendered not by the sister company but by its employees, who had not benefited from any transfer of cash sums for the activity rendered. The Tax Autorities also noted the lack of a resolution pursuant to art. 2389 of the civil code in order to determine the remuneration established for the directors, which in any case appeared disproportionate to the performance actually remunerated.

The company challenged the tax deeds before the competent Provincial Tax Committee which, having gathered the appeals, partially accepted them, recalculating the total amount of the deductible fees in the amount of Euro 400,000. Among the reasons for the appeal proposed, the question was also raised about the contradictory nature of the motivation of the contested acts, a reason which however was not accepted by the court seised.

Both parties challenged the first instance decision and, at the end of the related proceeding, the Appellate Judge rejected the taxpayer's appeal, instead accepting the appeal of the Tax Autorities.

With reference to the question relating to the contradictory nature of the motivation, in the opinion of the Regional Tax Committee, the fact that the tax reasons were supported by multiple reasons, even apparently contradictory to each other, did not entail the nullity of the tax deeds. And this is both because no rule of law makes the nullity of administrative acts derive from a contradictory reasoning, and because in the present case there would have been - more than a contradictory reasoning - a "lack of motivational rigour".

On the merits, the Regional Tax Committee found that:

  • the fees recognized to the directors, in essence of the conferment of particular powers, appeared disproportionate to those of the remaining directors;
  • there was no proof of the effective payment of the fees to the two directors, who had declared that they had never received sums for this activity;
  • with the scheme concocted by the sister company, an advantage would have been achieved for the group, given that the fees for the administration activity - entirely deducted by the subsidiary - were taxed marginally by the parent company as it is a predominantly mutual agricultural cooperative company, therefore deeming the requirements of seriousness, precision and concordance suitable to consider the work of the Tax Autorities legitimate.

The taxpayer company filed an appeal in cassation entrusted to three grounds of appeal. With the first plea, as far as is relevant for the purposes of this comment, the company censured the appeal sentence for violation of articles 7 of Law no. 212/2000, 42 of Presidential Decree no. 600/1973 and 3 of the Law n. 241/1990 having excluded the nullity of the tax deeds due to contradictory reasons.

The Tax Autorities did not appear in the judgment of legitimacy.

The decision 

The Supreme Court, with the judgment in question, accepted the appeal in relation to the first reason, considering the remaining ones absorbed, also ordering the referral of the proceeding to the second level Provincial Tax Committee of Trento.

In particular, the Supreme Court deemed the two arguments put forward in support of the second degree verdict unacceptable, i.e. the absence of a specific rule which sanctions the nullity of the reasoning in the event of contradictory reasoning and the existence in this case of a judcment with "lack of motivational rigor".

In this regard, the Hight Court specified that "the motivation of the tax deed, like that of any administrative provision, is functional to safeguarding the guarantees of reasonableness, impartiality and proportionality that must characterize the action of the administration, to be attributed, in turn, to the needs of rationality and non-arbitrariness of the discretionary power, recognized by the Constitution, art. 97, paragraph 2". On the other hand, the motivation is also relevant in order to understand the decision-making process of the administrative authority in order to evaluate a possible appeal.

The motivation is therefore an essential element in order to review the legitimacy of the tax claim brought about, consequently in the event of multiple reasons used by the tax authorities, the functional constraint to which the obligation to give reasons must be respected must be respected.

The Supreme Court then recalled the principles according to which: "the assessment deed cannot be supported by contradictory reasons, since in this case it does not allow the taxpayer to be certain of the elements underlying the reasons for the claim" and "this defect is configured even where competing reasons are indicated but characterized by absolute heterogeneity and, as such, unsuitable to serve as the overall basis of the claim".

Again according to the Supreme Court, "tax assessment deed is affected by nullity where it is based on distinct and irreconcilable reasons for taxation, since, the motivation responding to the dual need to respect the principles of information and collaboration, already established by the art. 3 of Law no. 241/1990 and, specifically in tax matters, by art. 10 Law n. 212/2000, and to guarantee the full exercise of the right of defence, the intention of Tax Autorities to formulate a contradictory motivation with the function of "reserve" is not legitimate, both because the tax claim to be compliant with the law can be based on elements rivals, but not on conflicting factual assumptions, both because the alternation of the reasons justifying the claim, leaving the arbitral administration to choose during the litigation procedure, the one that best suits it according to the circumstances, exposes the counterparty to a difficult defensive exercise or sometimes impossible ”.

With reference to the present case, the appeal judgement, in the opinion of the Supreme Court, should have ascertained whether the multiple reasons used by the Tax Autorities had made the understanding of the tax claim uncertain, with particular regard to the possibility for the tax payer to fully exercise her right of defence.