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Italy: €10 million frozen in investigation into ‘Dutch sandwich’ tax evasion scheme

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On 11 January 2023, in an investigation into tax evasion carried out by the European Public Prosecutor’s Office (EPPO), the Italian Financial Police (Guardia di Finanza) executed a freezing order of assets for a value of over 10 million, issued by the pre-trial judge of Lecco, following a request by the European Delegated Prosecutors.

The investigation started in 2019, after a tax audit of a company located in the Lecco-Brianza area. This company was the tax representative for VAT purposes of a legal entity under Dutch law, with its registered office in Amsterdam.

The investigation showed that the real headquarters of the company – i.e., the so-called ‘place of effective management’ – were in fact in the Lecco area, and not in the Netherlands. The company is suspected of using an international tax evasion mechanism, also known as ‘tax inversion’.

According to the investigation, the Brianza-based company marketed its products – electrical components for automation – within the Italian territory, while fraudulently pretending that the goods were destined for other EU Member States, and therefore exempt of VAT, abusing the fictitious foreign seat of the company.

Furthermore, it is believed that the company ostensibly based in the Netherlands created a complex corporate system, by which it was controlled by a holding company registered in the Netherlands Antilles (under a preferential tax regime), and in turn by another company, also apparently based in the Netherlands –  a scheme known as a ‘Dutch sandwich’, a form of tax evasion technique that involves using parent companies in different countries to shift profits to tax havens.

The managers of the company, both of Italian nationality, are under investigation for VAT fraud from 2013 to 2018. The investigation established an effective turnover in Italy of approximately 50 million, and unpaid VAT of over 10 million.

The execution of the searches, seizure and freezing of assets is still ongoing.

All persons concerned are presumed to be innocent until proven guilty in the competent Italian courts of law.