Italy’s Tax Code determines the tax residency of a company on the basis of one of three alternative tests: place of legal seat, place of management and principal place of business. As a result, an Italian or foreign company that is effectively managed from Italy is treated as an Italian company for Italian tax purposes and it is subject to tax in Italy on its worldwide income.

In order to prevent abusive practices consisting in putting an Italian company owned or controlled by Italian shareholders under the umbrella of a foreign holding company established in a tax favorable jurisdiction, Italy enacted special anti abuse provisions according to which a foreign company owning or controlling an Italian company is presumed to have its tax residency in Italy if one of two alternative tests are met: Italian shareholders control the foreign company, or the majority of the company’s board members are Italian nationals. Taxpayers can rebut the presumption by providing clear and convincing evidence that the foreign company is effectively managed outside of Italy.



The Italian association of certified public accountants filed a petition with the European Commission arguing that Italian anti inversion rules violate the basic principles of EU law on freedom of establishment and free movement of capital. While acknowledging that Italian provisions intend to prevent tax abusive practices, the Italian association argued that Italian law violates the proportionality principle in enforcing  far reaching provisions that extend also to bona fide cases.

The European Commission refused to take any action, taking the position that Italian law is designed to combat tax evasion and is narrowly drafted to target only clear abuses while it permits bona fide taxpayers to present their case and rebut the tax residency presumption.