Esterovestizione: il parere della Cassazione.

Foreign tax residence: the Italian Supreme Court confirms that it cannot be challenged when the foreign activity is genuine

With the judgment no. 23842 of 25 August 2025 (Pres. Perrino, Justice La Rocca), the Italian Supreme Court reaffirmed a fundamental principle in matters of foreign tax residence ("esterovestizione"): a company cannot be deemed fictitiously resident abroad if it carries out a real and stable economic activity in another country, even if that country offers a more favorable tax regime.

The case concerned a company based in Madeira (Portugal), operating in the field of maritime towing and offshore platform assistance. The Italian Revenue Agency had challenged the company’s residence, claiming that its management and direction were actually exercised from Italy.

The Court, however, upheld the lower court’s decisions, finding that the company had a genuine organizational presence in Portugal: operational headquarters, employees, its own assets, and board meetings actually held abroad.

According to the Supreme Court, the tax authorities must prove the artificial nature of the foreign establishment. The mere existence of managerial or personal links with Italy is not sufficient. The choice of a Member State with a more favorable tax regime does not, by itself, constitute an abuse of the freedom of establishment protected by Article 49 of the TFEU, provided that the foreign activity is genuine.

The ruling aligns with both EU (e.g. ECJ cases C-196/04, C-6/16, C-419/14) and Italian case law (Cass. nos. 33234/2018, 15424/2021, 1544/2023), confirming that tax residence abroad can be challenged only in the presence of wholly artificial arrangements lacking real economic substance and aimed solely at obtaining undue tax advantages.

In essence, the Supreme Court reaffirms the primacy of the principle of ‘economic reality': the burden of proof lies with the tax administration, and tax residence must be linked to the place where the company’s management, operational, and decision-making activities are effectively carried out.