Decision 770/2024 of the Council of State concerns a very specific type of transactions called "triangular transactions." In triangular transactions, a product or service passes through three parties, specifically involving an intermediary company that acts between the buying company and the selling company.
What the decision essentially states is that there is no general rule that automatically prohibits the deduction of expenses in triangular transactions, but there must be a genuine economic activity behind them. Proving this activity is important to avoid tax issues.
Therefore:
- There is no automatic "red flag" for triangular transactions.
- The tax authority must prove "fictitiousness": The tax authority must be able to prove that the intermediary company does nothing more than issue invoices.
- The controlled company can prove the substantial contribution of the intermediary company: On the other hand, the controlled company can prove that the intermediary company plays a real economic role, such as negotiating prices or taking on other responsibilities.
What this means for businesses:
The decision provides a clearer and thus safer framework for businesses that use triangular transactions. In light of this, it is important for businesses to maintain detailed records to prove, if necessary, the nature of the transactions linking the involved parties.
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