Italian Supreme Court upholds denial of VAT deduction even in case of supplier’s failure to remit VAT

According to the Italian Supreme Court, although purchasers are generally not required to verify whether the VAT charged by the supplier has been properly paid to the authorities, this protection applies only where there is a complete absence of any personal, familiar or corporate relationship between the parties.

In the case at hand, given the close family ties between the recipient and the supplier’s shareholders, the Court denied the right to deduct VAT, finding that the purchaser knew or ought to have known that the supplier was insolvent and therefore would not remit VAT to the Treasury.

However, this approach diverges from the interpretative framework developed by the ECJ:

• which requires objective indicators of VAT fraud, abuse, or evasion to deny the right to recover VAT. A supplier’s temporary liquidity crisis does not qualify as a VAT evasion (see, eg case C-227/21);
• and where a mere family relationship between the parties cannot constitute serious, precise, and consistent evidence of knowledge or constructive knowledge

Key takeaway

By virtue of the approach endorsed by the Italian Supreme Court, businesses should revisit and reinforce supplier due diligence processes, especially where personal, family, or corporate ties exist with their suppliers. As Italy applies a more demanding standard than most jurisdictions, failure to document adequate supplier risk assessments may result in denial of input VAT deduction – even in the absence of fraud – and expose to challenges more aggressive than those consistent with the ECJ’s approach.

Reference

Italian Supreme Court Judgment No. 9919 of 16 April 09919/2025