Italian Supreme Court issues guidance on beneficial ownership conditions for pure holding companies

Prévost, Velcro and Cadbury Schweppes are being perceived as landmark cases in the context of beneficial ownership. A recent decision by the Italian Supreme Court, in which it clarifies that beneficial ownership conditions for holding companies should not be tested based on significant organizational presence, has the potential to be added to this list of “beneficial ownership landmark cases”. The Italian Supreme Court corrects a misinterpretation of the concepts of beneficial ownership and place of effective management, taken into account the nature of the activities carried out by a pure holding company. Subsequently the Italian Supreme Court emphasizes that the mere lack of operational substance of holding companies (in itself) should not be an indicator of the absence of beneficial ownership.


31 Mar. '17
Patrick T.F. Schrievers

Observing the overlap between the various provisions on treaty abuse and beneficial ownership, the actual substance of companies becomes increasingly important, especially in case of holding companies which have a limited substance due to the nature of their activities. The Italian case may provide international groups with holding companies that do not have any business activities or investments, no business premises, no personnel, and owning no shares beyond participation in the controlled subsidiary with an argument in beneficial ownership discussions with tax administrations. In this paper we have identified and clarified a number of additional considerations for international groups.

Some historical remarks

Originally, in the OECD-model tax convention of 1977, the concept of beneficial ownership was introduced as an anti-abuse provision. In recent versions of the OECD Model Tax Convention (“MTC”) and its corresponding commentary, the OECD has elaborated in more detail (article 10 OECD MTC and accompanying OECD commentary) on the concept of beneficial ownership for tax treaty purposes. The recipient of an item of income is regarded as the beneficial owner based on the power to use and enjoy any sums unconstrained by any contractual or legal obligation to pass on the payments to another person. In day-to-day practice we often see any or a combination of arguments raised in Prévost, Velcro, Indofood and the European Court of Justice (“ECJ”) cases Cadbury Schweppes (C-196/04), Weald Leasing (C-103/09), RBS Deutschland (C-277/09), Part Services (C-425/06) and SICES (C-155/13).


Patrick T.F. Schrievers

Patrick T.F. Schrievers is a tax lawyer and member of the Dutch Association of Tax Advisers (NOB) and the International Fiscal Association (IFA).

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