Mortgage and cadastral taxes halved even to foreign-law open-ended real estate funds

This is, in essence, the takeaway from the twin rulings 28595 and 28610 published yesterday, October 3, 2022, by the Supreme Court.

Let's see how: Italian law has ensured since 2006 (with the so-called Bersani Decree) the halving of mortgage and cadastral taxes to "close-ended" real estate funds set up under Italian law that purchase instrumental properties, such as offices and logistics centers. Two German "open-ended" real estate funds had purchased just in 2006 instrumental real estate in Italy, yet discounted the deed taxes in full. So it was that the German funds, believing that they were in a perfectly comparable position to the Italian close-ended funds, asked for a refund of half of the taxes, which they were denied by the offices of the Internal Revenue Service.

The two funds then initiated litigation to recover the overpaid taxes and, after being unsuccessful in the lower courts, obtained from the Supreme Court in 2019 a referral of the case to the EU Court of Justice. In 2021, the Luxembourg Court found a violation of the free movement of capital, since German funds proved to be entirely comparable to domestic funds (the circumstance that the former were "open," while the latter were "closed," was not considered suitable to justify discriminatory treatment) but redirected the case to the Court of Cassation, asking it to verify whether there was a justification of general interest, such as tackling speculation on the real estate market, such that it could still allow a differential treatment.

At the end, the Supreme Court, having made the appropriate verifications, ruled out the non-existence of such justifications and - in yesterday's decision - therefore granted the two German open-end funds the right to a refund of the taxes overpaid in 2006, leveling the tax burden on par with what would have been due from Italian close-ended funds.

Beyond the purely technical and legal aspects, the Supreme Court's decision can only be warmly welcomed by all market players: the easing of the burden of transfer taxes even for EU real estate funds will in fact benefit competition and the attractiveness of the Italian market for large real estate investments.

ADVANT Nctm, with a team led by Paolo Rampulla, a partner in the tax department, and consisting most recently of Sante Ricci, Angelo Anglani, Daniele Griffini and Egidio Greco, has supported the two funds in this more than decade-long challenge.