Prepared by Felice De Lillo, Davide Accorsi, Luca Ghelli and Beatrice Ottaviani
With the Ruling reply no. 440/2022 dated 29th August 2022, the Italian tax authorities provided clarifications with reference to a case submitted by a taxpayer related to the the possibility of recovering the VAT included in payback amount[1], according to the Law Decree no. 78/2015, on the procedures related to the years 2015 and 2020, for which, as a matter of prudence, the relevant VAT had not been deducted by the taxpayer.
The payback subject to the ruling is not among those expressly regulated by the Budget Law for the year 2018 (Law no. 205/2017), by the article 1, paragraph 394, letters a) and b)[2], but it is referred to the price reduction that pharmaceutical companies shall grant to the Regions in particular circumstances, in order to allow one of their pharmaceutical products not to be included in the C category, i.e. the category of products for which the National Health Service does not refund the expenditure incurred by the citizen. For this type of payback, the possibility of VAT recovery does not appear to be specifically regulated, either by positive law or by previous Italian tax authorities’ guidelines.
Given the lack of clarity on the VAT for this type of payback, the taxpayer prudently avoided deducting VAT on the amounts given back to the Regions and therefore did not issue any credit notes, nor did he include the relative amount of deductible VAT in any VAT return, waiting for clarification by the Italian tax authorities.
In this regard, the tax authorities have stated that it is not possible to extend, in a generalized manner, the provisions regulated by the Budget Law for 2018. Therefore, in order to define for the taxpayer any right to deduct, it is necessary to refer to the ordinary provisions related to the variation and deduction for VAT purposes, since the payback constitutes a kind of price revision provided for by the law and implemented through special determinations by AIFA (i.e., the Italian medicines agency).
In light of the above, the credit note shall be issued within the deadline for the submission the VAT return for the year in which the relevant conditions are met (i.e., “definitiveness” of the AIFA determination or settlement of the litigation), in accordance with the ordinary provisions set forth in article 26 of the Presidential Decree no. 633/1972 (hereinafter also “VAT Decree”). Instead, with reference to the right to deduct the VAT, on the basis of the principles provided by the practice (please see Circular letter no. 20/E, dated 29th December 2021), it may be exercised at the latest in the VAT return related to the year in which the credit note was issued. Indeed, further to the issuance requirement, for the purposes of the deduction/recovery of VAT, according to the tax authorities it is also necessary to take into account the time of the issuance of the credit note as a formal requirement for the exercise of the right (although, in the present case, as will be seen below, the credit note may not be sent to the counterparty).
Therefore, with reference to the case submitted by the taxpayer, the tax authorities exclude that “the taxpayer may issue, as of now, the credit notes related to the payments that refer to AIFA determinations, with the relevant publication on the Official Gazette of the Italian Republic, prior to 1st January 2022”.
However, it is clarified that in the event of a judgement declaring unlawful the content of the determination issued by AIFA (with the consequent redetermination of the taxable amount with respect to the original transactions), the deadline for issuing the credit note would start from that moment.
Moreover, the tax authorities clarify that, also in order not to burden taxpayers with fulfilments that are tricky to implement, the credit note may be carried out in line with the provisions of article 1, paragraph 396, of the Budget Law for 2018. Therefore, it can be carried out by issuing a proper accounting document to be posted in the VAT ledgers and to be kept pursuant to article 39 of the VAT Decree, in which the taxpayer indicates the details of the act by which AIFA has definitively determined the amounts to be paid, or of the judgement by which the competent courts have stated on the point (i.e., so-called “internal credit note”).
Lastly, the tax authorities point out that, in the case of payments referring to determination prior to 1st January 2022, it is not precluded from applying for the refund of VAT according to the article 30-ter of the VAT Decree. In such a case, the application shall be submitted within two years from the day on which the requirement for the refund occurred (i.e., the date of AIFA’s determination or the date of the judgments by which the amounts to be paid are redetermined). Such possibility seems to be allowed in the case at hand, given the uncertainty conditions that affected the matter prior to such clarification, which, according to the tax authorities, can “overcome” the initial inactivity of the applicant, also due to the pending administrative proceedings. Such clarification seems to have a particular relevance, given that the tax authorities has often pointed out that the procedure under article 30-ter has a special character and cannot (except in particular cases) replace the terms provided for by the above-mentioned article 26 (please see on this point, among others, the Ruling replies no. 432, dated 24th August 2022, no. 309, dated 27th May 2022, no. 858, dated 22nd December 2021, and no. 762 dated 4th November 2021).
[1] As clarified by the Italian tax authorities in the ruling reply at hand, “the so-called “pay-back” is one of the mechanisms used in our system for the regulation of the pharmaceutical expenditure […] aimed, together with others, at adjusting the expenditure for the supply of medicines by the National Health Service to the level of available financial resources. In its different aspects and articulations, in any case, this mechanism is characterized by the return by the companies of a part of the considerations received for the supplies carried out”.
[2] In particular, the paragraph at hand regulates the payback related to the exceeding of the territorial and hospital pharmaceutical expenditure ceiling, as well as that resulting from the 5% and 1.83% price reductions.
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