Tax settlement procedure: Italian Revenue Agency is bound by the minutes signed within a settlement agreement in compliance with the principle of protection of legitimate expectations

Prepared by Carlo Romano, Marco Longobardi and Giulia Faustini

On May 11th, 2021 Italian Supreme Court issued the ruling no. 12372/2021 concerning the binding effects of the minutes signed within a settlement agreement, highlighting some general criticalities and stating some fundamental principles with respect to the protection of legitimate expectations and to cooperation in good faith between taxpayers and the Italian Revenue Agency.

The case

The Italian Tax Police issued a Tax Audit Report against an Italian Company, challenging the failure to declare in relation to fiscal years 2003-2007, and then the Revenue Agency issued the deed of assessment regarding fiscal years 2003 and 2004 (notified to the Company and to its shareholders). Therefore, the Company submitted the request for the tax settlement procedure, which ended with the subscription of a minutes in 2008, followed by the payment of the amounts agreed. In 2010 the Italian Revenue Agency issued the same deed of assessment for VAT, CIT and Italian Regional Tax for Productive Activities in relation to fiscal year 2005 (along with the acts of application of penalties). The taxpayers filed an appeal before the Provincial Tax Court and, then, before the Regional Tax Court, which considered the amounts exceeding the quantum assessed for fiscal years 2003 and 2004 as not due.

The grounds of the appeal filed before the Supreme Court

The Italian Revenue Agency filed an appeal before the Supreme Court, complaining, inter alia, the breach of the fundamental principles of cooperation between Tax Authorities and taxpayers and stating that the minutes signed on November 2008 was insufficient to complete the settlement procedure, being the issue of single settlement act for each fiscal year necessary. According to the Revenue Agency, the minutes signed (regarding the further years) should be considered as void, being against the principle of unavailability of the tax obligation, because of the lack of a typical act for the stipulation of tax agreements. The Company and its shareholders filed a contrary appeal, highlighting that: i) the minutes was part of the settlement procedure engaged with the Revenue Agency; ii) the minutes should be considered as a “legal transaction” with binding effects between both the parties; iii) the violation of the agreement should be considered as an infringement of the principle of the protection of legitimate expectations.

The analysis developed by the Supreme Court

The judges focused on the following issues: 1) the nature and effectiveness of the minutes signed within a settlement agreement; 2) the requirements for the application of the principle of protection of legitimate expectations governed by art. 10 paragraph 1 of Law no. 212/2000 and the possible consequences deriving from its violation. Preliminarily, the Supreme Court retraced the details of the settlement procedure governed by the Legislative Decree no. 218/1997, highlighting its deflationary nature as well as the advantageous aspects both for the Tax Authorities (e.g. a quicker definition of the assessment and the security of the effectiveness of the definition) and for taxpayers (e.g. the reduction of the requested amounts and penalties and the non-modifiability of the assessment, with relevant consequences also from an accounting perspective). Then, the Supreme Court focused on the procedural rules underlying the institution of the settlement procedure, highlighting the difference between the initial request, which can be submitted both by taxpayers and Tax Authorities, and the final proposal, which, on the contrary, can be formulated only by the Tax Authorities, leaving to the taxpayer the possibility to accept it tout court or to reject it (in this way, the latter will be exposed to the original tax claim). The Supreme Court also focused on the following phases of the procedure at stake: the issuance of a final settlement agreement (with the same content of the initial agreement) which must be signed both by the head of the Tax Office (or by his delegate) and the taxpayer and the payment of the agreed amount, which can also be in instalments. The original deed of assessment loses its effectiveness from the payment of the agreed amount (e.g. the full payment or just the first instalment): in fact, according to the Supreme Court, in case of payment by instalments, the consequences of any omission or delay shall inevitably reflect on the new deed of assessment (so, the original one will be no longer susceptible of application). According to the Supreme Court, the minutes reached as an outcome of the settlement procedure cannot be considered as a legal transaction (governed by the civil law), representing, instead, a unilateral act of the Tax Authorities to whom the taxpayer can only subscribe. Moreover, the settlement agreement takes effect only whether signed by both parties and promptly fulfilled by the taxpayer. Therefore, the Revenue Agency cannot unjustifiably deviate from what is agreed during the settlement procedure: in this regard, the judges of the Supreme Court (in compliance with their own judgement no. 17576/2002) stated that the principle of the protection of the legitimate expectations of the taxpayer “has as its constitutional foundations the principle of equality before the law (according to art. 3 of the Constitution) and represents an essential element of the rule of law”, due to the fact that this principle is “immanent in all the relations governed by public law and tax law, finding its application in art. 10, first paragraph, of Law 212/2000”.

The grounds of the judgement issued by the Supreme Court

In conclusion, the Supreme Court qualified the article 10 of Law no. 212/2000 as general rule which finds different applications in coordination with the characteristics of the specific cases. In this regard, the Supreme Court analysed a series of cases concerning the application of the principle of protection of legitimate expectations and loyal collaboration between Tax Authorities and the taxpayer, stating that this principles permeate through the entire structure of the tax law without predefined schemes, with different application from time to time, based on the specific case under examination. Therefore, the Supreme Court asserted that “with respect to the settlement procedure governed by the Legislative Decree no. 218 of 1997, if the Tax Authorities issue an assessment agreement on the basis of the proposal accepted by the taxpayer in relation to some fiscal years, the deed of assessment issued for the remaining years (despite the timely and regular fulfilment of the deeds of assessment already issued) represents an infringement of the principle of collaboration and good faith, so that, according to the principle of the protection of the legitimate expectation on the regular definition of the settlement procedure, the difference between the amounts agreed during the procedure and those requested with the new deed of assessment is uncollectible”. The relevant consequence will be that taxpayers must pay maximum attention to the agreements reached during the meetings with the Revenue Agency, especially where there is reasonable prospect for the settlement of fiscal years other than those of the specific case, which, by virtue of the principle of protection of legitimate expectations, can be considered already “settled” on the basis of the aforementioned agreement.

Let’s Talk

For a deeper discussion, please contact:

Carlo Romano

PwC TLS Avvocati e Commercialisti


Marco Longobardi

PwC TLS Avvocati e Commercialisti