Effect of Ruling No. 288/2023 – Italian Anti-Hybrid Rules Attack the 2020 Swiss Corporate Tax Reform

Volume 10 No 3    /    Read Article

By Federico Di Cesare and Dimitra Michalopoulos (Guest Authors)

Sometimes, anti-abuse provisions are applied by tax authorities because of what happened in the past, not the present, much like a classic vendetta. This is what happened to an Italian subsidiary of a Swiss company that benefitted from the principal company regime in Switzerland. That regime presumed the existence of a deemed P.E. outside of Switzerland and the allocation of profit to the deemed P.E. The regime was repealed with effect as of January 1, 2020, and replaced by a relatively normal tax regime, with one specific transition rule. The Swiss parent was entitled to a tax-free step-up in the goodwill of the deemed P.E. which could be amortized over 10 years, allowing a tax benefit for the Swiss company. In April of this year, the Italian tax authorities issued tax ruling no. 288/2023 to an Italian subsidiary of a Swiss company that previously benefitted from the principal company regime. It now was taxed under Swiss law in a straightforward way, but with the amortization benefit. In the ruling, the Italian tax authorities determined that the amortization deduction constituted a hybrid mismatch because the goodwill was not purchased. The result is that the Italian subsidiary cannot reduce sales by the related cost of inventory purchased from its Swiss parent. Federico Di Cesare, a Partner of Macchi di Cellere Gangemi, and Dimitra Michalopoulos, an Associate in the tax practice of Macchi di Cellere Gangemi explain the basis of the ruling and strongly suggest that it is not grounded on the existing provisions of the Italian anti-hybrid rules. Sounds like classical vendetta in the context of the A.T.A.D.  See more →