ECtHR and tax audits: New perspectives on taxpayer protection and reform prospects

On 6 February 2025, the European Court of Human Rights (ECtHR) ruled on the case of Italgomme Pneumatici S.r.l. and Others v Italy (application no. 36617/18). The ECtHR found that the Italian tax audit framework violates Article 8 of the European Convention on Human Rights (ECHR), which protects the right to respect for private life and domicile. The concept of domicile under the ECHR extends to business and professional premises when they constitute the seat of a business activity.

According to the ECtHR, the Italian legal framework gives the Tax Administration investigatory powers whose breadth and pervasiveness are not counterbalanced by adequate judicial safeguards, neither ex ante (before the access) nor ex post (after the inspection has been carried out and, more generally, at the end of the audit process).

The ruling censured the de facto “automatic” nature of the authorisation process for tax inspections in cases where the Public Prosecutor isn’t involved, whereby access is granted without a genuine assessment of its necessity and proportionality. The court also noted the absence of immediate remedies to challenge the investigative actions of the Tax Administration, leaving taxpayers without an effective means to protect themselves from potential procedural abuses.

Key issues identified by the ECtHR

The ECtHR highlighted three key structural deficiencies in the Italian tax audit framework:

• Lack of prior judicial review for tax inspections
  Under current regulations, the Tax Administration can access business premises without prior judicial authorisation, unlike searches of private residences. The ECtHR stressed that this framework fails to ensure an adequate balance between the power of tax authorities and taxpayers' rights, as tax inspections are authorised through an administrative process that lacks an independent review of necessity and proportionality (paras. 121-122).
• Lack of effective ex post judicial review
  Taxpayers don’t have immediate legal remedies to challenge the legitimacy of tax inspections, other than appealing a subsequent tax assessment. The court found that the absence of immediate judicial protection exposes taxpayers to the risk of unlawful or disproportionate inspections without the possibility of obtaining an injunction against them (para. 137).
• Disproportionate and excessive scope of tax audits
  The ruling noted that tax audits in Italy may lead to the collection of vast amounts of data and documents without sufficient limitations on the scope of the investigation. The court held that a tax inspection can’t become an indiscriminate gathering of information but must be limited to what’s strictly necessary for the ongoing tax assessment. Otherwise, this would result in an unjustifiable restriction of the guarantees afforded to taxpayers, in violation of the principle of proportionality, which requires a proper balance between the need for tax enforcement and the protection of fundamental rights (para. 148).

Potential impact of the ruling on tax audits

• Legislative reform
  The Italian legislator may have to amend the current legal framework in order to comply with the ECtHR ruling, introducing stricter judicial oversight over tax inspections and enhancing taxpayer safeguards, aligning Italy’s system with that of other European jurisdictions. Potential reforms under discussion include prior judicial review for highly invasive tax inspections and the possibility for taxpayers to file immediate legal challenges against procedural irregularities in tax audits.
• Impact on the inadmissibility of evidence obtained in breach of procedural safeguards
  Despite the Court of Cassation’s strong emphasis on safeguarding the Tax Administration’s audit powers, the principles established by the ECtHR may be reflected in case law, particularly to strengthen procedural safeguards in tax assessments.
Article 7-quinquies of the Italian Taxpayer Bill of Rights (which provides for the inadmissibility of evidence gathered in breach of the law) could become a key reference point. Although its scope is still uncertain, the ECtHR ruling could provide a solid basis for a more taxpayer-friendly interpretation of Article 7-quinquies, extending its application to situations where evidence has been obtained without due regard for proportionality and other fundamental taxpayer protections.
This approach could have significant implications for ongoing tax disputes, where the ECtHR ruling could be invoked to challenge the admissibility of evidence obtained in violation of procedural guarantees. Companies and taxpayers involved in tax litigation should carefully assess how this decision might affect their defence strategies, particularly in contesting the use of evidence collected in breach of the ECtHR’s principles.
• Assessing potential compensation claims
  In cases where tax inspections have resulted in a concrete violation of taxpayer rights, it may be legally feasible to consider claims for compensation for damages. The viability of obtaining compensation must be assessed on a case-by-case basis, considering the specific unlawful actions of the Tax Administration and the demonstrable harm incurred. The ECtHR ruling could serve as a key precedent for developing claims, particularly where tax audits have had significant economic repercussions for the taxpayer.

Future perspectives

The ECtHR ruling could mark a turning point for the Italian tax audit system, urging the legislator to reform the framework to ensure a better balance between the investigative powers of the Tax Administration and taxpayers' fundamental rights.

At the same time, companies and taxpayers with ongoing tax disputes should carefully assess the impact of the ECtHR ruling on their cases, considering the possibility of challenging the admissibility of evidence collected in breach of procedural safeguards or revising their defence strategies in light of the court’s findings.

While waiting for potential legislative and judicial developments, it’s crucial for businesses and taxpayers to closely monitor the implications of the ruling and adopt a strategic approach to tax audits, both to anticipate risks and to protect their rights in legal proceedings.