Prepared by Alessia Zanatto and Stefania Lolli
Last August 3, 2021, the Italian Tax Authorities with the publication of the guidelines no. 51, provided clarifications with reference to the application of the article 6, paragraph 6, of the Legislative Decree no. 471/1997, pursuant to which “the person who unduly deducts the tax paid, due or recharged to him, shall be punished with an administrative penalty equal to 90% of the amount of the deduction carried out. In the case of application of the tax at a higher rate than the effective rate, wrongly paid by the supplier, without prejudice to the right of the customer to deduct pursuant to articles 19 et seq. of the Presidential Decree no. 633/1972, the aforementioned customer shall be punished with an administrative penalty of an amount between € 250 and € 10,000. The refund of the tax is excluded if the payment was made in the framework of tax fraud”.
In brief, according to the Italian Tax Authorities, the supplier is not entitled to deduct VAT wrongly paid when the transaction is exempt from VAT. The right to deduct VAT is recognised if the mistake relates to the application of a higher VAT rate than that due.
In this respect, the Italian Tax Authorities refers to the position taken by the Supreme Court with the decision no. 24289/2020 (cfr. Supreme Court’s decision no. 10439/2021) regarding the VAT deduction and relevant penalties.
First of all, the Supreme Court recalls the principle stated by the Court of Justice according to which “the exercise of the right of deduction is limited only to the taxes due, i.e. the taxes relating to a transaction subject to VAT or paid as due” (see ECJ decisions. Cases C-342/87; C-454/98; C-78/02; Joined Cases C-78/02, 79/02 and 80/02; C-35/05).
On the basis of this principle, the Supreme Court, in relation to the application of the above-mentioned provision, stated that “as it is clear from the wording of the legislative provision“, the latter “applies only in relation to taxable transactions, when VAT has been paid at a higher rate than that actually due and not also with reference to cases (…) of exempt from VAT with right to deduction transactions“.
In the light of this case law, the Italian Tax Authorities identifies two different cases with two different penalty regimes:
a) fixed penalty (between € 250,00 and € 10,000) for the customer in case of application of VAT exceeding the right amount, wrongly paid by the supplier, without prejudice to the right of the supplier to deduct input VAT;
b) a penalty equal to 90% of the amount of the deduction unduly performed by the customer in other cases in which the VAT has been paid, due or recharged to him.
In the light of the above, where the customer has paid to the supplier – and therefore deducted – the VAT charged to him incorrectly on the invoice, even though the transactions in question were exempt from VAT with or without right to deduction, the proportional penalty equal to the 90% of the unduly deducted VAT must be applied.
For the sake of completeness, on this point, the Court of Justice, in its decision no. C-935/19 dated April 15, 2021, deemed unlawful the application of proportional penalties to the customer who deducts the VAT wrongly applied to an exempt transaction in the absence of fraud and of loss of tax revenue. In particular, according to the Court of Justice, article 273 of the VAT Directive 2006/112/EC and the principles of neutrality and proportionality preclude a national rule which imposes on a taxable person, as a consequence of a VAT deduction applied in error to an exempt transaction, a penalty equal to 20% of the amount (i.e., a proportional penalty), “in so far as this penalty applies without distinction to a situation in which the irregularity results from an error of assessment made by the parties involved in the transaction as to the taxable nature of the latter, that is characterized by the absence of elements of fraud and loss of tax revenue for the Tax Authorities, and to a situation in which there are no such special conditions“.
The above-mentioned decision of the Court of Justice was mentioned by the Lombardy Regional Tax Commission (CTR) in its decision no. 2270 dated June 15, 2021: in the case of a transaction considered, according to the Italian Tax Authorities and the judges, as erroneously taxable rather than VAT exempt, the judges guaranteed the right of VAT deduction for the customer and applied the penalties in the fixed amount pursuant to the article 6, paragraph 6, second period, of Legislative Decree no. 471/1997.
Alessia Angela ZanattoPwC TLS Avvocati e Commercialisti