Prepared by Davide Accorsi, Stefano Luigi Airaghi and Ludovica Copia
With the reply to ruling No. 283, dated April 4, 2023, the Italian tax authorities commented on the possibility or not to configure triangular exports exempt from VAT with right to deduct according to Article 8, paragraph 1, letter a), Presidential Decree No. 633/1972, in an articulated case presented by the applicant Alfa, a company incorporated under the Italian law mainly involved in the engineering of installations (or parts of installations) located in EU and non-EU countries.
The activities generally assigned to Alfa on the basis of international contracts subscribed with customers resident for tax purposes in non-EU countries relate to:
- the preparation of the drawing, of the project and/or the control activity of the same, the definition and/or verification of the technical aspects of the installation and of the necessary and/or most functional materials for its realization (so-called “engineering” activity);
- the identification and provision from third-party suppliers of materials and components with the characteristics described above, which are then resold to the customer without any handling and/or processing by the contractor (so-called “procurement” activity);
- the supervision on site to the monitoring and testing or erection or, in more marginal cases, the performance of the actual construction of the installation (so-called “construction” activities).
In particular, the contracts concluded by the applicant with the foreign customers may concern:
- only “engineering” and “procurement” activities (hereinafter “EP Contracts”’);
- the combination of the two activities of “engineering” and “procurement”[1]. This kind of contractual scheme consists in the establishment of a trilateral relationship in which a third party, usually a company controlled by the same applicant resident in the non-EU country, carries out the “construction” activity on site (hereinafter “EP+C Contracts”).
- “engineering”, “procurement” and “construction” activities (hereinafter “EPC Contracts”).
Within the scope of the procurement activities – subject to assignment in the various types of contractual schemes listed above (EP, EP+C, EPC contracts) – the applicant relies on a series of Italian suppliers from which the latter purchases the material goods that will be transported and shipped outside the territory of the European Union.
In particular, the contracts signed between the Italian suppliers and Alfa, therefore, relate to the supply of movable goods in favor of the applicant company itself, which, as domestic acquirer, resells the same goods to the final customer, a foreign purchaser resident in a non-EU country.
On the basis of a precise commercial logic aimed at cost savings and efficient logistics management, the applicant intends to enter into a supply contract scheme with its Italian suppliers whereby the goods purchased by Alfa, intended for resale to non-EU customers, are delivered by the Italian (first) sellers with delivery terms EXW (at the supplier’s/first seller’s premises) or FCA (at the premises of the carrier appointed by the national acquirer, i.e., Alfa).
Under the above clauses, the goods purchased in Italy by Alfa will be transported and/or shipped outside the territory of the EU by means of carriers appointed directly by the same applicant company (first Italian acquirer).
In such circumstances, the applicant would like to know if the supplies of goods carried out, under the terms above described, in favor of Alfa by Italian VAT taxable persons should constitute, for the purposes of the application of the regime of exemption with right to deduct, a “triangular” export supply, pursuant to Article 8, paragraph 1, letter a), Presidential Decree No. 633/1972, in the event that the above-mentioned goods are resold by Alfa under EP and EP+C contracts, as well as under EPC contracts.
Before answering the applicant’s questions, the Italian tax authorities recall the regulatory framework for export sales set forth by Article 8, paragraph 1, letter a), Presidential Decree No. 633/1972, which implemented in Italy the provisions of Article 146 of Directive 2006/112/EC. On this point, the Italian tax authorities underline how, in order to constitute an export supply exempt from VAT with right to deduct towards a person who is the final customer and the recipient of the goods outside the territory of the European Union, the following conditions must be met:
- transfer of ownership or other real right to use the goods;
- actual exit of the goods from the Community customs territory;
- execution of transport or shipment “by or in the name of the seller”.
If the above conditions are met, are considered exempt from VAT with right to deduct:
- either the supply of goods transported or dispatched directly to a non-EU country by a VAT taxable person established or identified in Italy (so-called “direct export”);
- either the supply by a taxable person established or identified in Italy (first supplier) to another domestic taxable person (acquirer initiating the triangulation) of goods destined for a foreign customer (so-called “triangular export”).
The provision contained in Article 8, paragraph 1, letter a), Presidential Decree No. 633/1972, has been subject to an authentic interpretation by the legislator through the introduction of Article 13, paragraph 1, Law No. 413/1991[2] .
With Resolution 51/E of 1995, the Italian tax authorities held that the breadth of this regulatory provision:
- allows the possibility for the invoice for transport/shipment to be issued to the resident acquirer acting as taxable person who actually pays for this service even though he has not directly commissioned it;
- does not allow the application of the regime of exemption with right to deduct in the event that, in the triangular transaction, the resident acquirer is involved, also for economic reasons, in the phase of the transport or dispatch of the goods abroad (e.g., direct conclusion of the contract or entrusting of the service).
The Supreme Court has also intervened on this point with several decisions[3], stating that:
- a triangular transaction does not necessarily require that the transport of the goods abroad is carried out “by or in the name of the seller”, as the purpose of the rule is more limitedly to avoid fraudulent transactions, which would occur if the domestic acquirer could autonomously – i.e., outside a prior contractual settlement with the seller – decide not to export the goods or to export them to another State. Article 13 of Law No. 413/1991, on the other hand, provides that forwarding agents or carriers may issue the invoice to “the supplier or other parties” and thus to the acquirer itself;
- it is not necessary that the dispatch or transport of the goods are carried out in performance of a contract concluded directly by or on behalf of the seller but, for the purposes of the configurability of a triangular export supply exempt from VAT with right to deduct, it is necessary that the transaction, from its origin and in its documentary representation, was intended as a domestic supply with a view to transport towards an acquirer resident abroad, in the sense that such destination is referred to the common intention of the original contracting parties.
In implementation of the aforementioned jurisprudential direction, with Resolution No. 35/E of 2010 the Italian tax authorities clarified – even if with reference to the distinct case ruled by Article 58, Law Decree No. 331/1993, related to domestic triangular transactions with EU destination – that if the goods materially transit from the first seller to the domestic acquirer and the latter acquires the availability of the goods in the territory of the Italian State, the domestic supply between two domestic operators could not benefit from the regime of exemption with right to deduct.
The aforementioned Resolution No. 35/E of 2010, in view of the (evolutive) interpretation developed in case law, also clarified that the triangular supply transaction may benefit from the regime of exemption with right to deduct also in the event that the acquirer enters into the contract for the transport of the goods by mandate and in the name of the supplier. In this case, the abovementioned acquirer would act as a mere intermediary of the supplier without ever acquiring the availability of the goods, in full compliance with the ratio of the rule.
In conclusion, the exemption from VAT with right to deduct of the triangular export transaction is always to be excluded when the domestic acquirer (promoter of the triangulation) acquires the availability of the goods in the Italian territory, a condition that is not fulfilled in the following cases examined in practice documents:
- in the event that the goods, before being shipped abroad, are subjected by the domestic acquirer to tests or inspections in order to verify the compliance of the goods (machinery produced) with the construction requirements. This circumstance does not constitute delivery in Italy, since these are mere technical facts aimed exclusively to ensure the quality and functioning of the goods prior to their shipment (see Resolution No. 72/E of 2000);
- when the first domestic seller sends the goods to its domestic acquirer-supplier (promoter of the triangulation) for assembling and certifying them before purchasing them for resale to the final non-EU customer (Reply to ruling No. 580/2020).
In the light of the above, the Italian tax authorities, in relation to the transaction described in the request of ruling under discussion[4], conclude that it cannot constitute a triangular or indirect export, according to Article 8, paragraph 1, letter a), Presidential Decree No. 633/1972, as the requirement of “transport by and in the name of the seller”, in the meaning identified by the legislation as interpreted by the reference practice, is not fulfilled.
As emerges from the contract attached to the request of ruling, in fact, the company Alfa (acquirer or promoter of the triangular transaction) agrees to deal directly, through carriers appointed in its name and on its behalf, with the transport and shipment of the goods purchased from Italian sellers, thus assuming all risks of any damage and/or loss of the goods that may occur during transport up to delivery in the territory of the non-EU country of destination.
Therefore, Alfa acquires the availability of the goods, previously purchased from Italian suppliers and destined for resale, in the territory of the Italian State and, consequently, in the EP and EP+C contractual schemes, the supply between Alfa and the first Italian supplier will be, for the purposes of VAT, a domestic supply of goods (between the domestic supplier and the applicant company) followed in chronological order by a direct export supply (between the applicant company and the foreign customer).
In the more complex EPC contractual scheme, on the other hand, it is necessary to evaluate whether the complex transaction carried out in execution of the aforesaid contractual scheme, based on the criteria developed by the Court of Justice concerning composite transactions, qualifies as a supply of services deriving from a contract for the construction of an installation. In the last hypothesis, the VAT treatment of the supply of services, which qualifies as a main (principal) transaction, will also extend to the ancillary transaction of supply of goods.
[1] The fiscal issue concerning the qualification, for VAT purposes, of the complex activities carried out by ALFA in execution of the two types of contractual schemes referred to in points i) and ii) was subject of examination in ruling No. 956 XXX/2021, submitted by the same applicant. The Italian tax authorities expressed the view that the “engineering” activity and the activity of supplying goods (“procurement” activity) – carried out by the applicant under the two contractual schemes referable to those identified under sub-paragraphs i) and ii) of the list – have a distinct economic utility, from which derives an autonomous relevance for VAT purposes. The activities in question, must be considered distinct and independent and each subject to its own VAT regime: the “engineering” activity as a supply of services not relevant for VAT purposes in the territory of the Italian State, subject to the provisions of Article 7-quater, paragraph 1, letter a) of Presidential Decree No. 633/1972; the activity of “procurement” as a supply of goods in principle classifiable, from a VAT point of view, as a supply of goods for export, which can be taken into consideration for the determination of the plafond of usual exporter that can be used for the purchase and/or import of goods and services without the application of VAT, provided that the requirements of Article 8, paragraph 1, letter a), Presidential Decree No. 633/1972, are met.
[2] Which provided that “for the purposes of the application of the provisions contained in subparagraph (a) of the first paragraph of Article 8 (…) the supplies provided for therein shall be deemed exempt from VAT with right to deduct (…) with no relevance, for the documentation of the export supply, that the documents referred to in Article 21 of the aforesaid decree No. 633 of 1972 are issued by the shippers or carriers to the sellers or other parties”.
[3] The Italian tax authorities, among numerous others, refer in particular to the Judgments of the Supreme Court No. 5065 of 1998, No. 4098 of 2000, No. 6114 of 2009, No. 6898 of 2011 and No. 13951 of 2011.
[4] Which has the following peculiarities:
- Alfa purchases the goods from Italian suppliers;
- the goods are collected at the Italian supplier’s establishment (EXW delivery terms) or alternatively the Italian supplier delivers the goods purchased by Alfa at the warehouse of the carrier appointed by the same applicant company (FCA delivery terms);
- Alfa through its own carriers takes care of the transport of the goods to the destination of arrival outside the EU;
- the foreign customer purchases the goods after Alfa performs the acceptance tests in the extra-EU territory.
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