Analytical-inductive tax assessment and mark-up percentages: limits to the taxpayer’s burden of proof

By judgment No. 31784 of 5 December 2025, the Italian Court of Cassation once again addressed the limits of the burden of proof borne by a taxpayer who challenges the mark-up percentages applied by the Tax Authorities in the context of an analytical-inductive tax assessment pursuant to Article 39, paragraph 1, letter d), of Presidential Decree No. 600/1973.

In the case examined, the Office had reconstructed the company’s revenues by applying a mark-up percentage of 83.79% to the cost of goods. The lower courts had held that, in challenging that percentage, the taxpayer was required not only to prove the incorrectness of the criterion adopted by the Tax Authorities, but also to quantify in concrete terms the impact of the different percentage on the assessed taxable income.

The Supreme Court criticised this approach, reiterating that the use of mark-up percentages constitutes an inductive reconstruction method based on presumptive elements. In this context, pursuant to the principle of proximity of evidence, the taxpayer is required to allege specific circumstances — such as market changes or peculiar features of its business activity — capable of justifying margins different from those applied by the Tax Authorities.

However, the taxpayer cannot be required to prove mathematically what the correct taxable income would have been in the absence of the alleged error. It is sufficient for the taxpayer to provide specific and detailed elements capable of showing the inconsistency or illogicality of the criterion used by the Office.

The ruling forms part of a line of authority aimed at strictly defining the scope of the burden of proof in tax assessment procedures based on presumptions, avoiding undue extensions to the detriment of the taxpayer.