Tax treaty disputes in Italy

The structure of the law in action of Italy for solving tax treaty interpretation disputes exhibits several interesting features. First, while courts have remained dormant for several many decades in spite the growth of tax treaties entered into by Italy, in the last few years there has been a significant amount of judicial activism. The essential features of this process is that courts deliberately adopt the OECD interpretation, while in fact introduce a new, genuinely domestic, interpretive position by attributing to the treaty provisions a new meaning. So one can conclude that treaties are often construed by courts in the light of strategic considerations. Second, the settlement of disputes has dramatically increased under the EU-MAP procedure, incentivized by penalty protection for compliant taxpayers, and this could be a model for the future implementation of the OECD binding arbitration. Moreover international soft law been applied massively to govern tax treaty interpretation disputes. In particular OECD policies are often used and manipulated by courts to promote their interpretive strategies, with the result that international soft law has become a key element in the internalization process of OECD standards into the Italian tax system. This is not always a good thing because the principle of legality and certainty are systematically overlooked in favour of a vague “substance over form” approach.