Prepared by Lucia Pagliari, Amélie Mammone and Giulia Cannatelli
With the Answer to the Ruling no. 386 of last 20 July 2022, released after an year from the amendments of Article 26 of the Presidential Decree No. 633/1972 provided by the law decree 25 May 2021, No. 73 (so-called “Decreto Sostegni bis”) converted into the Law 23 July 2021, No. 106, the Italian Tax Authorities have analyzed again the principle regulating the credit notes issuance in relation to five cases of customer’s payment default in case of agreement providing continuous and periodic supplies of goods.
More in particular, the applicant is an operator supplying goods towards the relevant partners (that, individually, or through partnerships or joint-stock companies manage sales point) These supplies can be carried out under i) a written agreement including an express resolution clause (i.e. “clausola risolutiva espressa”) and ii) periodical “orders” of goods and subsequent supplier.
When the applicant has to recover unpaid amounts sends to the defaulting client a letter of first intervention including an intimation to accomplish the obligation. In the lack of feedback, an injunction procedure towards the defaulting client. In case of serious and huge breach, the supplier provides the termination of the agreement for default of the client also on the basis of the express resolution clause where the parties stipulated an agreement (case sub i) above-described).
The Italian Tax Authorities have been asked to rule on the following cases:
- unilateral termination of the agreement providing continuous and periodic supplies;
- judicial recovery attempts of sums in case of partnerships (i.e. società di persone);
- judicial recovery attempts of sums in case of joint-stock companies (i.e. società di capitali);
- bankruptcy of the company and partial payment of the guarantor;
- termination and recognition of the withdrawal following a settlement agreement.
With the first question, the Italian Tax Authorities have been asked if the operator can consider the termination of the agreement for client default as a condition for issuing the credit notes in relation to the supplies of goods intervening based on the ways above-described and, thus, in case of i) agreements (eventually) including an express resolution clause as well as in case of ii) periodical “orders” (case a)).
With the second, third and forth questions, the applicant asks clarification in relation to the VAT treatment of the sums recovered following the issuance of a credit note and, in particular:
- in case of partnership, if the enforcement procedure towards the company is unfruitful but the ancillary sums or capital are recovered by means of enforcement procedure towards the partners with unlimited liability (case b));
- in case of joint-stock companies, if the enforcement procedure towards the company is unfruitful but the ancillary sums or capital are recovered by means of enforcement procedure towards third parties acting as guarantor (case c));
- in case of bankrupted company, the ancillary sums and/or, eventually, the capital are recovered by means of enforcement procedure towards the guarantor that had guaranteed the debt (case d)).
The applicant asks the Italian Tax Authorities also to precise the documents to be eventually issued, the timing for the issuance and the subject towards such document must be addressed.
With the last question, the operator asks “ if it is possible and what is the deadline for issuing the credit note for the resolution of the continuous agreement (continuous and periodical orders) for the customer default included in a settlement act/deed not providing new provisions (i.e. non novativo), in wich the debtor confirm his breach and he undertakes to pay part of his debt (as a balance and cancellation) in return of the enforcement procedure interruption in any case unfruitful or in order to avoid any litigation procedure and the starting of enforcement procedure” (case e)).
First of all, the Italian Tax Authorities have recalled he principles regulating the issuance of the credit notes under Article 26, paragraphs 2, 3 and 3-bis of the Presidential Decree no. 633/1972.
In this respect, by re-calling the jurisprudence of the last instance on the issuance of the credit notes in case of termination of agreements (as in the past), they confirmed that there is “no need for a formal act of ascertainment (either negotiated or judicial) of the occurrence of the aforementioned cause of termination” for the purpose of the issuance of said credit note (see judgements of Italian Supreme Court No. 5568 of June 17, 1996, and No. 15696 of November 8, 2002, ),.
In this regard, it has been pointed out again that it is not relevant that the termination of the agreement for default is a “termination by right” as long as the dissolution of the agreement occurs in the light of events provided for by the Law. Indeed by way of example, the event provided in an express termination clause added to the agreement, as clarified by previous practice on the subject, (see principle of law of the Italian Tax Authorities No. 11 of August 6, 2021), can also constitute a condition for the issuance of a credit note.
Following this general overview, in order to answer to the first question asked by the claimant (lett. a) and related to the unilateral termination of the agreement providing continuous and periodic supplies, the Italian Tax Authorities analyzed also the rules provided in the following paragraph 9 of the same Article 26.
Based on this last provision (which is in line with Article 1548 of the Italian Civil Code), in case of termination of an agreement providing continuous or periodical supplies due to the breach/default of customer, the possibility of issuance credit notes note “does not cover those supplies and services where either the supplier or customer have correctly fulfilled their respective obligations”. In fact, the right to issue the credit note exists only with reference to those transactions, already carried out and invoiced, for which the counterparty is insolvent, leaving, on the other hand, unaffected those for which the full satisfaction of the mutual credit reasons of the parties has been realized in the implementation of the “synallagma”. Consequently, assuming that the case examined in the Answer to the Ruling can be considered as falling within the scheme of an agreement for periodic supplies of goods according to Article 1559 of the Italian Civil Code, the Italian Tax Authorities, following and in line with previous tax practice document and case law on the matter, pointed out that the condition provided in the express termination clause, such as the omitted payment of the consideration or the expiration of the deadline provided by written notice to the defaulting counterparty, implies, with ex tunc effects, the contractual termination and it constitutes the condition for the issuance of the credit note starting from the first invoice remained unpaid ( by re-calling the answer to the Ruling No. 261 of 11 August 2020).
After the occurrence of the condition for the issuance of the credit note, which is, therefore, the formal condition for the actual exercise of the right of VAT deduction, such a right remains subject to the rules set for by Article 19 of the Presidential Decree no. 633/1972.
In answering to the second, third and fourth questions (letters b), c) and d) regarding above-described) related to the judicial debt recovery attempts and to the hypothesis of bankruptcy of the company with partial payment by the guarantor, the Italian Tax Authorities pointed out that, following the debtor’s default, the possibility of considering the termination of the agreement due to breach of contract as a condition for issuing the credit note constitutes an option for the creditor who, alternatively, can waive to this faculty by starting an insolvency or enforcement proceedings, choosing, as a result, to issue the credit note under the conditions provided for in paragraph 3-bis of Article 26 of the Presidential Decree no. 633/1972.
Based on this past provision, the credit note can be issued from: i) the date in which the debtor is subjected to an insolvency proceeding – regardless of its conclusion and even if a claim in the procedure has not been lodged, as clarified in Circular letter no. 20/E of December 29, 2021 or ii) following the unsuccessful conclusion of individual enforcement proceedings.
According to the new paragraph 5-bis of Article 26 of the Presidential Decree No. 633/1972 if, following the issuance of the credit note, in case of starting of an enforcement procedure towards the unlimited partners of the partnership or the guarantor of the debt of companies, the creditor collects the amounts due (indiscriminately attributable to the legal expenses for the procedures/actions carried out, interests and ancillary sums for the residual capital, these amounts, are considered by the Italian Tax Authorities as being attributable in nature to the consideration not received and, as such, they will be autonomously invoiced towards the original debtor at the time of collection, with the indication of the taxable base and VAT.
In the view of the Italian Tax Authorities, this obligation should exist also in case of issuance of the credit note immediately by considering, as a condition for the relevant issuance, the “resolution by right”, if, following and at the end of the collective enforcement procedure, the consideration is recovered, fully or in part. Last, with regard to the last question (letter e) regarding the termination and recognition of default following a settlement agreement, the Italian Tax Authorities have included this scenario, which occurred based on “a subsequent agreement between the parties”, among the cases provided in paragraph 3 of Article 26 of the Presidential Decree no. 633/1972, allowing the issuance of a credit note within one year from the tax point of the taxable operation. Furthermore, in this case, the amount of the credit note will be equal to the amount subject to waiver of collection as a result of the settlement agreement, split between taxable base and VAT.
In light of the above, notwithstanding the peculiarities of the cases analyzed by the Italian Tax Authorities, the Answer to the Ruling under exam provides some interesting clarifications.
Firstly, the Answer to the Ruling under exam clarified the alternativity that exists between the termination of an agreement for default/breach of the customer and the starting enforcement procedures for the purpose of credit note issuance.
In the view of the Italian Tax Authorities, indeed, they should be two alternative ways considering that, the issuance of a credit note on the basis of the termination of the agreement for default/breach of the costumer is a faculty provided in the hands of the creditor who considers unprofitable an enforcement procedure and the starting of such an enforcement procedure entails, for the creditor, the waive to consider the termination of the agreement as a condition for the issuance of the credit note.
The Italian Tax Authorities should have argued more in details the conclusion based on which the sums recovered after the issuance of the credit note for unfruitful procedures towards companies have to be subjected to VAT. This also with regard to the sums for which a credit note has been issued, immediately, on the basis of a “resolution of right” if such sums are recovered following a collective enforcement procedure. In addition, another interesting clarification is provided with regard to the waiver of collection of the supplier following a settlement agreement with the counterparty. In this case, it has been expressly admitted that the issuance of the credit note being even if within the stricter deadline limit of one year from the original transaction tax point.
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