Italian government wins multibillion-pound tax ruling

The European Court of Justice has overturned two earlier advocate general
opinions to save the Italian government from a potential 120bn euro (£81bn) bill
in tax rebate payments.

A regional Italian tax known as IRAP was under scrutiny over whether it was a
turnover tax and therefore prohibited by the EU sixth directive, however, the
ECJ found the tax was compatible with EU law.

‘This is a real surprise and an unprecedented move; the Court’s final rulings
nearly always follow the earlier Advocate General’s Opinion,’ said Jonathan
Bridges, senior manager in the EU law group at KPMG.

‘The decision is based on a very narrow interpretation of the EU’s VAT rules.
It is open to speculation whether the court’s interpretation of the rules has
been influenced by the vast sums at stake and economic difficulties Italy would
have faced had the decision gone the other way.

‘All eyes will now be on the court to see if it is prepared to adopt a
similar approach when considering cases before it relying on the fundamental
freedoms enshrined in the EC Treaty.’

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