Edited by Alessia Zanatto, Pierpaolo Maspes, Maria Chiara Turio Bohm, Federica Nozza
With ruling reply no. 231/2025, the Italian tax authorities addressed the exclusion of the supply of an instrumental property from the calculation of the VAT deduction pro-rata pursuant to Article 19-bis of Presidential Decree no. 633/1972.
Specifically, the case concerns a foundation (the “Applicant”) whose main commercial activity is operating a retirement home, exempt from VAT under Article 10, paragraph 1, no. 21), of Presidential Decree no. 633/1972, and secondarily, the real estate leasing activity of two properties, classified as instrumental by nature, subject to VAT. Therefore, the Applicant deducts the VAT incurred on purchases based on the pro-rata mechanism under Article 19, paragraph 5, of Presidential Decree no. 633/1972.
The Applicant states that, due to cash flow needs arising from renovation works on the retirement home, it decided to sell one of the two instrumental properties. In light of the new allocation and in accordance with accounting principle OIC 16, regarding the criteria for the detection, classification, and evaluation of tangible fixed assets, starting from the fiscal year 2022, the property in question was reclassified in the balance sheet under the item of current assets.
In 2024, the Applicant sold the property opting for VAT application.
The Applicant then asked the Italian tax authorities whether the sale of the property should be included in the calculation of the pro rata under Article 19-bis of Presidential Decree No. 633/1972, considering that paragraph 2 of this provision states that “for the calculation of the pro-rata under paragraph 1, sales of depreciable assets shall not be considered”.
According to the Applicant, the transaction should be included in the pro-rata calculation because, at the time of sale, the property could not be classified as a depreciable asset under Articles 102 and 103 of the Italian Income Tax Code (TUIR).
Based on previous clarifications from the Revenue Agency (see, among others, ruling replies no. 165/2020 and no. 413/2023), for the purposes of Article 19-bis, paragraph 2, mentioned, the identification of “depreciable assets” should refer to the criteria provided for income tax purposes.
Therefore, the fact that the property was previously classified as a depreciable asset before 2022 is irrelevant, as it lost that qualification once it was designated for sale and reclassified as current assets.
The Italian tax authorities reiterated its previous clarifications (ruling replies no. 165/2020 and no. 413/2023), confirming that:
- the exclusion of supply of depreciable assets from the pro-rata calculation is intended to prevent distortion of the deduction percentage, as such transfers typically do not reflect the taxpayer’s ordinary business activity (see ECJ judgment of 6 March 2008, C-98/07, paras. 22 and 24). According to the ECJ, the concept of “the supplies of capital goods used by the taxable person for the purposes of his business”, under Article 174(2)(a) of Directive 2006/112/EC “cannot include capital goods the sale of which is, for the taxable person concerned, in the nature of a normal business activity”;
- in the absence of a VAT-specific definition of “depreciable asset,” reference must be made to income tax criteria. “Assets used in the core business of the enterprise” are those whose use defines and realizes the economic activity (e.g., trading, processing, leasing, financial leasing), while “instrumental properties used in the business” are merely tools for conducting the activity and do not define its nature. The “core business” refers to the activity habitually and ordinarily carried out by the entrepreneur, not occasional or marginal activities[1];
- for the purposes of Article 19-bis, paragraph 2, the definition of “depreciable assets” relevant for income tax purposes applies. Therefore, supply of properties classified as depreciable for income tax purposes – excluding inventory assets under Article 92 and investment properties under Article 90 of the TUIR – do not contribute to the pro-rata calculation.
Given that the property was originally recorded as a tangible fixed asset and only reclassified as current assets in 2022 upon its disposal, the Italian tax authorities concluded that the sale was an extraordinary and occasional event within the Applicant’s ordinary business activity.
Based on these considerations, the Italian tax authorities determined that the sale of the instrumental property does not have to be included in the pro-rata under Article 19-bis, paragraph 2, of Presidential Decree no. 633/1972.
It is noteworthy that the ruling reply does not refer to the VAT-specific definition of “depreciable asset” as developed by the Italian Supreme Court in judgment no. 13162/2024 and subsequently adopted by the Italian tax authorities in resolution no. 20/2025, albeit in the context of VAT refunds under Article 30, paragraph 2(c), of Presidential Decree no. 633/1972[2].
In particular, judgment no. 13162/2024 by the Italian Supreme Court, drawing on the broad and economically oriented concept of investment goods developed by the ECJ under Article 174(2)(a) of Directive 2006/112/EC[3], held that the VAT-relevant concept of “depreciable asset” cannot be determined based on income tax rules (Articles 102 and 103 TUIR), nor on accounting rules under the Civil Code. Accordingly, under EU VAT law, the definition of depreciable assets includes goods that, although not strictly depreciable, are “intended for use in the business over a medium-to-long term, as capital investments.”
Subsequently, as expected, the Italian Supreme Court in judgment no. 16664/2025 confirmed that the interpretation of “depreciable asset” as “investment good” also applies to the exclusion of such transfers from the pro-rata calculation.
Despite referencing ECJ case law, ruling reply no. 231/2025 appears primarily based on the classification of the property for income tax purposes. Thus, its conclusion aligns with previous ruling replies no. 165/2020 and no. 413/2023 but diverges from the interpretations adopted by the ECJ and the Italian Supreme Court.
[1] On this point also C.M. 3 August 1979, no. 25.
[2] “The taxpayer can request in whole or in part the refund of the deductible surplus, if the amount exceeds five million lire, at the time of filing the declaration:
c) limited to the tax related to the purchase or importation of depreciable assets, as well as goods and services for studies and research”.
[3] In particular, according to Article 174, paragraph 2, letter a): “By way of derogation to paragraph 1, the following amounts shall be excluded from the calculation of the deductible proportion: a) the amount of turnover attributable to supplies of capital goods used by the taxable person for the purposes of his business”.
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