Country-specific updates: Italy

Italian Tax Authority, ruling no. 401 of 10 June 2021

With reference to the VAT regime applicable to the implementation of a settlement agreement, the obligation “not to do something” is considered taxable for VAT purposes.

In the context of a settlement agreement between the parties, the obligation “not to do something” (e.g. not to take legal action) for consideration shall constitute a VAT taxable provision of services pursuant to Article 3 of the Italian VAT Decree whenever there is “legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the value actually given in return for the service supplied to the recipient” (see, ECJ, case C-263/15 Lajvér Meliorációs Nonprofit Kft; case C-463/14 Asparuhovo Lake Investment Company). However, in the past the Italian Supreme Court (decision dated 5 September 2014, no. 18764), in a similar case, excluded the possible application of VAT to the undertaking to not take/continue legal action, lacking a quid pluris – a real consumption – that should characterize a VAT taxable supply of service. Probably, this is not the end game for the VAT treatment of the negative obligation to not start/continue a legal action undertaken in the context of a private settlement agreement.