Edited by Alessia Angela Zanatto, Anna Rossodivita, Federica Valastro
Introduction
According to the Supreme Court (Case Law no. 15679/2024), the VAT exemption regime provided for by art. 8, paragraph 1, letter c), Presidential Decree no. 633/1972, for the supply of motor vehicles[1] to “usual exporters” within the limits of the available plafond can be legitimately applied by the supplier only if the latter is able to prove the client’s right to fully deduct the input VAT.
The VAT exemption regime: national legislation, main Italian tax authorities’ guidelines and national case law
Before entering into detail of the case, it is appropriate to briefly recall the law, the guidelines, and some national rulings on the matter.
From a legislative point of view, art. 8, paragraph 1, letter c), Presidential Decree no. 633/1972, by way of derogation to the standard VAT regime, allows taxable persons who qualify as usual exporters to purchase goods or services under a VAT exemption regime (or more precisely, “VAT suspension”), subject to the electronic submission to the Italian tax authorities of the so-called “declaration of intent” and within the limits of the amounts related to exports and similar operations carried out and recorded in the calendar year or the previous 12 months (the so-called plafond”[2]). As also noted in the case at hand, the ratio of the special regime is to avoid that suppliers which mainly carry out exports, intraEU supplies and other similar supplies (exempt from VAT with right to deduction) are in a constant VAT credit position and, therefore, must manage significant reimbursement procedures for VAT credit[3].
With specific reference to the objective scope of application of art. 8, paragraph 1, letter c), Presidential Decree no. 633/1972, in cases VAT is not deductible, the Italian tax authorities have clarified with Circular no. 145/E/1998 that “it is not possible to purchase goods and services without applying VAT where for such goods and services input VAT is non-deductible pursuant to articles 19 and following of Presidential Decree no. 633 of 1972. The usual exporter, in the presence of a pro-rata of non-deductibility, has to reduce by the corresponding amount the part of the plafond that can be used”.
The above-mentioned limitation would be justified by the fact that the VAT exemption regime referred to in article 8, paragraph 1, letter c) under discussion – as an alternative method to exercise the right to VAT deduction – necessarily requires that the recipient of services/purchaser of goods can fully deduct the VAT that the supplier would have charged in the absence of a declaration of intent. Otherwise, it would prevent the application of VAT on transactions that would have entailed a VAT burden for the buyer, causing a loss for the Italian tax authorities.
In line with the above, the plafond can not be used for the purchase of goods and services for which VAT is non-deductible pursuant to articles 19 et seq., Presidential Decree no. 633/1972 (see, inter alia, Case law no. 23588/2012[4])[5].
From a legislative point of view, the supplier is authorized to issue an invoice under VAT exemption regime according to art. 8, paragraph 1, letter c), Presidential Decree no. 633/1972, for the supply of goods and services to clients which qualify as usual exporters only after verifying on the official website of the Italian tax authorities the submission of the declaration of intent by the purchasers before carrying out the supplies for which the non-application of the VAT is requested, ensuring that the invoiced amount does not exceed the amount indicated in the above-mentioned declaration.
If the provider does not observe the above-mentioned legislative provision, the latter is subject to application of administrative penalties, according to art. 7, paragraph 3, Legislative Decree no. 471/1997, which provides for a penalty ranging from 100% to 200% of the VAT (70% of the VAT starting from violations committed from September 1, 2024, following the publication of Legislative Decree no. 87/2024, reforming the tax penalty system); in any case VAT has to be paid. In cases where the declaration of intent was issued without the legal prerequisites, the said legislative provision clarifies that for the omitted payment of the VAT only the recipients of services, purchasers of goods, and importers who issued the declaration are liable.
According to national case law regarding supplier liability, if a declaration of intent issued by the recipient of services or purchasers of goods is ideologically false, the supplier must prove that they were not involved in the fraud in order to avoid paying challenged VAT and penalties. This means that the supplier must prove they were unaware of the absence of legal conditions for applying the VAT suspension regime and could not have realized it, despite having taken all reasonable measures available to them. (Case law no. 20884/2022; Case law no. 14979/2020; Case law no. 9586/2019)[6].
The decision of the Supreme Court and the legal principle established by national judges
Briefly describing the facts, the case examined concerns a company to which the Italian tax authorities had challenged the unlawful application of VAT exemption regime under art. 8 paragraph 1, letter c), Presidential Decree no. 633/1972, and the consequent recovery of the VAT not applied on the invoice, with regard to supplies under leasing contracts of motor vehicles carried out towards usual exporters who had submitted declarations of intent. Specifically, the Italian tax authorities had issued three assessment notices to the seller aimed at recovering the VAT not applied to such invoices and challenging the related penalties, as well as a partial denial of reimbursement due to the lower VAT credit determined by the above-mentioned notices.
This was because the supplier had not fulfilled the substantial control obligations, which involved investigating the activities carried out by the clients/recipients through the examination of the CCIAA registration or by requesting a self-certification.
Contrary to the judgments of the first and second instance, the Supreme Court ruled in favor of the Italian tax authorities, noting that, for the application of the VAT exemption regime, the responsibility assumed by the buyers through the declaration of intent is not sufficient. The supplier/service provider is, instead, required to prove that the factual conditions for the application of the VAT suspension regime are met.
Therefore, in this particular case, regarding sales based on leasing contracts of road vehicle, i.e. goods for which input VAT paid is not, fully deductible, the judges establish the necessity for the supplier to demonstrate the occurrence of exceptional chases (i.e., the types of buyers such as operators engaged in the sale of motor vehicles; agents or sales representatives; operators for whom the use of the vehicle could be considered objectively instrumental) in which the full deduction of VAT by the buyer of the vehicle would be allowed.
Some considerations from a VAT perspective
Without claiming to be exhaustive, first of all, the legal principle expressed by the supreme judges seems excessively strict where it is stated that the VAT suspension regime can be applied by the supplier only if the latter is able to verify and prove the usual exporter recipient’s right to fully deduct VAT on the purchase of the vehicle.
In this regard, although the Italian tax authorities have never yet expressed an opinion on the use of the plafond in cases of purchases for which a partial objective non-deductibility is provided (the Italian tax authorities Circular no. 145/E/1998 explicitly examines only the different case where the recipient/purchaser has a limited right to deduct due to the VAT pro-rata of non-deductibility),[7] it is considered that, in line with the above-mentioned ratio of the derogatory legislative under examination, it should be recognized the possibility of a “partial” use of the plafond for the deductible part of VAT (in this case, 40%).
Furthermore, in the field of vehicles, it is specified that it is not uncommon for an usual exporter recipient to be able to fully deduct VAT incurred on the purchase of the car (please consider, for example, cars provided for use by employees whom a taxable invoice is issued to according to the conditions established by VAT legislation).
In such circumstances, while the supplier is still obligated to verify that the usual exporting customer has submitted the declaration of intent to the Italian tax authorities, the verification activity required to the supplier, as outlined by the Supreme Court, appears particularly burdensome (it would involve, in fact, substantial checks that seem to be those of the Italian tax authorities).
In light of these considerations, it is hoped that the Italian tax authorities will provide clarifications aimed at, on one hand, better clarifying the outcome of the national case law, and on the other hand, offering clear and practical guidance on the procedures that suppliers of usual exporters should implement to avoid disputes in cases similar to the one under examination. It is noted that these procedures should not impose control burdens typical of the financial administration on the taxable person.
In the meantime, suppliers of usual exporter clients should assess their internal procedures as well as the controls currently in place, especially if the type of goods/services supplied fall into a category for which the VAT Law provides for objective non-deductibility, even if partial.
[1] For which VAT is generally not fully deductible according to art. 19-bis 1, paragraph 1, letters c) and d), Presidential Decree no. 633/1972. See further details below.
[2] It is distinguished, respectively, into “fixed or annual plafond” and “mobile or monthly plafond”.
[3] “The provision entails for the usual exporter, not a reduction of the VAT, but a simplification of their creditor relationship with the Italian tax authorities and the mitigation of their related financial exposure“; Case law no. 23588/2012).
[4] With the above-mentioned ruling, the Supreme Court recalled the following: “Under the provisions of Presidential Decree no. 633/1972,, art. 8, paragraph 1, letter c), economic operators who frequently conduct transactions with foreign countries (usual exporters) can, under prescribed conditions and within the limits of the “plafond” they have, purchase goods and services (excluding buildings, building plots, and goods/services for which VAT is non-deductible) without having to pay VAT to their suppliers (thus “VAT suspended”). The “plafond” is particularly funded, if properly documented, by “export sales” operations referred to in letters a) and b) of the same provision (which are not subject to VAT, based on the principle of taxing goods at the place of consumption).“.
[5] In terms of interest here, according to art. 19-bis1, paragraph 1 letters c) and d), Presidential Decree no. 633/1972, the VAT is deductible to the extent of 40% for the purchase or importation:
– of motor road vehicles (other than motorcycles with an engine capacity exceeding 350 cc) and their components and spare parts, if the vehicles are not used exclusively for business, artistic, or professional purposes;
– of fuels and lubricants intended for motor vehicles, as mentioned in the previous point, as well as the services indicated in art. 16 paragraph 3, Presidential Decree no. 633/1972, (e.g., rental and leasing) and the services of storage, maintenance, repair, and use, including road transit, of the mentioned goods.
The above-mentioned limit on VAT deduction does not apply to vehicles:
– used exclusively for business, artistic, or professional activities (e.g., vehicles intended for the maintenance of the transport network, see tax ruling by the Italian tax authorities no. 954-114/2017);
– or that are the subject of the company’s core business (e.g., taxis);
– or used by agents and sales representatives;
– assigned to their own employees for whom a fee is charged ad hoc and an invoice subject to VAT is issued according to the conditions provided by VAT regulations.
[6] Always on the subject of the liability of the provider, the decision of the Supreme Court no. 3306/2022 clarified that the provider can be legitimately required to pay the VAT not charged to the recipient/customer in cases where it “cannot demonstrate the absence of its own involvement in the fraudulent activity, that is, it was not aware of the absence of legal conditions for the application of the VAT exemption regime or could not have realized it despite having taken all reasonable measures within its power”.
During the Telefisco special on June 15, 2022, as reported by the specialized press, the Italian tax authorities clarified that, in cases where the seller/provider conducts an operation under VAT suspension without the legal prerequisites, since the related VAT is objectively non-deductible, the supplier is also responsible for the violation, as good faith cannot be invoked in this case (a position not yet published in the guidelines of the Italian tax authorities). However, nothing has been clarified about the quantum on which to apply the penalty (i.e. whether on the total of the undocumented VAT – in application of the ordinance in question – or only on the portion of non-deductible VAT).
[7] See note 6.
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