Italian Supreme Court: A Genuine Portuguese Establishment Puts B2B Services Outside Italian VAT

Summary

Italy’s Supreme Court (Cassazione, Order No. 7694 of 30 March 2026) held that a Portuguese shipping company could not be treated as artificially established (esterovestita) merely because some management functions were carried out in Italy.

Since the 2010 place-of-supply reform, a B2B service is taxed where the customer is established (article 44 VAT Directive / article 7-ter of the Italian VAT Act), so a genuine foreign establishment excludes Italian VAT on the services supplied to it.

With a Portuguese registered office, Portuguese-flagged vessels, local staff and board meetings in Portugal, the company had real economic substance; outsourcing functions under a ship-management agreement did not make it a wholly artificial arrangement.

Extended article

The Italian Supreme Court (Corte Suprema di Cassazione) has held that a Portuguese shipping company could not be regarded as artificially established (esterovestita) in Portugal merely because some of its management functions and operational activities were carried out in Italy. The case arose from an Italian company that supplied ship-management services to the Portuguese company in the 2011 tax period; the Italian tax authorities argued the Portuguese company was in reality resident in Italy, so the services were subject to Italian VAT.

As a preliminary point, the Court observed that since 1 January 2010, article 44 of the VAT Directive (2006/112) and article 7-ter of the Italian VAT Act determine the place of supply of B2B services by reference to where the customer is established. Consequently, whether the Portuguese company was genuinely established abroad became decisive for the territorial scope of Italian VAT. Reaffirming Judgment No. 1544/2023 and citing Cadbury Schweppes (C-196/04), Planzer Luxembourg (C-73/06) and Edil Work 2 (C-276/22), the Court held that establishing a company in a more favourable jurisdiction is not, by itself, an abuse; artificial establishment requires proof of a wholly artificial arrangement lacking genuine economic substance.

The place of effective management must be assessed on both formal and substantive factors, and the mere fact that management instructions originate in Italy, or that part of the activity is carried out there, is not sufficient. Here, the Portuguese company maintained its registered office in Portugal (Madeira), operated Portuguese-flagged tugboats, employed its own personnel, and held board and shareholders’ meetings in Portugal. The outsourcing of functions under a ship-management agreement did not deprive it of economic substance. Accordingly, the company was a genuine taxable person established outside Italy, and the Italian company’s services were outside the scope of Italian VAT. The full text of Order No. 7694 of 30 March 2026 is available in Italian.

Sources: gm.tax – Cassazione Order No. 7694/2026 analysis; Fiscomania – Cass. 7694/2026 (esterovestizione).