Are an intercompany services agreement and duly recorded invoices sufficient to support a tax deduction? The recipient must be able to demonstrate which services were actually provided and how the charges were determined.
In Order No. 10456 of 21 April 2026, the Italian Supreme Court revisits the deductibility of consultancy fees charged by a parent company, calculated in this case at 1.75% of the taxable amount of monthly sales.
A percentage-based fee stipulated in a framework agreement and the subsidiary’s lack of qualified staff do not, in themselves, justify the deduction. Evidence is needed to link the amounts charged to the services actually performed during the relevant tax year.
The distinctive feature of the ruling lies in the link between the agreed fee formula and the services actually delivered: the agreed percentage is not prohibited, but it cannot replace evidence of the underlying activities. The Court therefore remitted the case for a fresh assessment of the facts, without reaching a final determination that the costs were non-deductible.
The Court nevertheless reiterates the fundamental principle that a cost’s business nexus depends on its connection with the company’s business activities, without requiring every expense to generate an economic benefit. A disproportionate expense may constitute an indicator, but does not, in itself, establish the absence of a business nexus.
In practice, companies should retain and cross-reference agreements, calculation methods, reports, emails, meeting minutes and work products. Even a broadly worded invoice may be supplemented by other supporting evidence.
