Prepared by Alessia Angela Zanatto, Paolo Galfano and Caterina Arfilli
With Resolution no. 79/E of December 31, 2021, the Italian tax authorities, for the first time, have provided guidelines on the identification of the taxable amount for VAT purposes in relation to supplies involving the purchase of non-performing receivables (hereinafter also “NPLs”).
The clarifications previously published with reference to such transactions were quite old. In fact, the last public document regarding the sale of non-performing receivables was the Resolution no. 71/E of the 24th of May 2000.
In this resolution, without highlighting any particular difference with the assignment of performing receivables, the Italian tax authorities have stated that also the assignment of non-performing receivables constitutes a provision of services, rendered by the purchaser of the receivables, with a financial cause and relevant for VAT purposes, although under an exemption regime, in accordance with the combined provisions of art. 3, paragraph 2, no. 3) of Presidential Decree no. 633/1972 and the subsequent art. 10, paragraph 1, no. 1) of the same decree.
The clarifications provided in 2000, however, did not provide any comment on the determination of the taxable amount of the alleged financial transaction; this matter became recently of interest for certain operators in the NPL market who have opted for the so-called VAT Group (a regime according to which different legal entities are deemed to be a single taxable person for VAT purposes).
The subject matter back in the 2000’s resolution was, in fact, the applicability of registration tax to the transfer of receivables. Therefore, within the scope of this ruling, the Italian tax authorities had limited themselves to specifying that, insofar as, in their opinion, such transactions fell within the scope of VAT (although under an exemption regime), due to the principle of alternativity between VAT and the registration tax pursuant to art. 40, Presidential Decree no. 131/1986, it was correct to tax them, in case of use, to registration tax at a fixed rate.
For the sake of completeness, it should be noted that, following the Resolution no. 71/E of the 24th of May 2000, the Court of Justice of the European Union, with sentence no. C-93/10, GFKL Financial Services (hereinafter also “GFKL”) and the VAT Committee in response to Working Paper no. 917, provided their views on the VAT treatment of transactions involving the sale of non-performing receivables. In these documents, first the judges and then the VAT Committee highlighted that, in the case of non-performing receivables, it is not always the case that a service is relevant for VAT purposes, but that the pivotal element is whether or not there is a consideration or, in the case of a so-called “discounted” purchase, the presence of an additional discount between the economic value of the portfolio at the time of the purchase and the price paid to purchase the portfolio.
In particular, points 25 and 26 of the GFKL state that “the difference between the face value of the assigned debts and the purchase price of those debts constitutes not the consideration for such a service, but a reflection of the actual economic value of the debts at the time of their assignment, which results from the fact that they are doubtful and from the increased risk of default of the debtors” and that, therefore, “an operator who, at his own risk, purchases defaulted debts at a price below their face value does not affect a supply of services for consideration within the meaning of Article 2(1) and does not carry out an economic activity falling within the scope of that directive when the difference between the face value of those debts and their purchase price reflects the actual economic value of the debts at the time of their assignment”.
Moreover, with regard to the VAT treatment of the possible services provided by the purchaser of the NPLs, in the conclusions of sentence C-305/01, MGK, the Court of Justice classifies this activity as “‘recovery of receivables’ within the meaning of art. 13, part B, letter d), point 3, of the Sixth Directive 77/388/EEC and, therefore, […] excluded from the VAT exemption established by the same provision”. The Guidelines provided by the VAT Committee with reference to Working Paper no. 917 also consider that the purchase of NPL receivables, when carried out for consideration in the sense described above, is taxable for VAT purposes.
Divergences between the EU and the national interpretation regarding the VAT treatment (i.e. subject to VAT vs. VAT exemption) of any services rendered to the seller of the receivables by the purchaser aside, in light of the aforementioned European Union approach, we would have expected a revision of the position taken in Resolution no. 71/E of the 24th of May 2000, at least with reference to the conditions according to which there is or there is not a service relevant for VAT purposes rendered by the purchaser of the non-performing receivables.
On the other hand, with the resolution at hand, the Italian tax authorities continue to move their analysis starting from the assumption that in the so-called “discount” purchase of non-performing receivables there is an implicit component of remuneration (which would always be characterized by a financial cause).
Despite the fact that the Italian tax authorities’ position on the relevance and VAT treatment of the transactions in question is not free of doubt, Resolution no. 79/E does, however, have the merit of having ruled out the possibility that, in such a scenario, the taxable amount of the purchases of NPLs does have to be determined on the basis of the indications provided for the sales of performing receivables with a financial cause (i.e. the difference between the face value of the receivables and the purchase price paid for them).
In particular, as correctly pointed out by the Italian tax authorities, due to the structural differences between performing and non-performing loan portfolios, the reference to the face value is not suitable for “bringing out […] the real and effective economic advantage for the purchaser deriving, in terms of consideration, from the purchase of the NPLs”, underlining the need to “refer to a criterion based on the difference between the “economic value” of the loans at the time of the transfer and the price paid to the seller for the purchase of the latter”.
Specifically, the Italian tax authorities endorsed the possibility that this “economic value” could be identified by the purchaser in the expected cash flows that he expects from the management of the portfolio and that, therefore, the difference between the expected cash flows and the purchase price paid can be considered as the VAT taxable amount for the purchase of NPLs.
In addition to that, the circumstance that, for commercial reasons, the economic value determined in the above terms is not usually indicated in the transfer contracts was also analyzed.
In this regard, the fact that the determination of the taxable amount is anchored to a unilateral assessment has not been deemed by the Italian tax authorities to be not compliant either with EU principles on this point nor with the provisions of art. 13 of Presidential Decree no. 633/1972. Subject to the condition that such evaluations are properly documented and archived in official company documents and, therefore, verifiable by the Italian tax authorities.
Finally, the Italian tax authorities wanted to clarify that the taxable event for these supplies occurs when the purchase price of the NPL portfolio is paid, as “it is at that moment, in fact, that the collection of the discount component linked to the financial service is determined”. According to this approach, it will not be necessary to adjust the taxable amount in connection with the actual collection of the expected flows.
With reference to the criterion identified by the Italian tax authorities for determining the economic value of the portfolio, it might be questioned whether this value, considered the deterioration of the receivables, can be further reduced by taking into account the expected cost flows for managing the transaction and recovering the receivables. This aspect has not been examined in depth by the resolution under analysis.
This interpretative effort would find its justification not in the assumption that a consideration net of costs should be considered (which does not normally happen for VAT purposes), but in considering the recovery costs as an integral part, with a negative sign, of the determination of the effective economic value of the portfolio. Clarification on this point from the tax authorities would be welcomed.
 “[…] the transfer of an NPL at a price below face value, where the difference between the face value of the NPL and the actual price paid does not reflect the actual economic value of the debt at the time of its assignment but makes up consideration for the transferee, shall constitute a taxable supply of services by the transferee to the transferor consisting in assuming the risk of the debt not being paid.
The VAT Committee further almost unanimously confirms that such a supply may not be exempted in accordance with Article 135(1)(d) of the VAT Directive because of it being debt collection”.
 Divergence linked to the interpretation of the main reason underlying the transfer of receivables and on which, also with reference to performing receivables, the tax authorities have had the opportunity to underline their position with Res. no. 139/E/2004 and 32/E/2011.
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