Italian VAT representatives only liable for transactions in which they actively participated

The Italian Supreme Court clarified where a VAT representative of non-resident taxable person could be held jointly and severally liable.

Referring to its own case law and that of the Court of Justice of the European Union, the Italian Supreme Court held that an Italian VAT representative's liability (involving VAT, interest and penalties) on transactions carried out by their non-resident principal is limited and applies only to transactions expressly assigned to that VAT representative under the agency agreement.

This means that a VAT representative is not automatically liable for all VAT failure that may arise with reference to the VAT obligations of their principal. The mere existence of an agency agreement does not automatically imply that the VAT representative is jointly and severally liable for all transactions carried out contra legem by the non-resident principal.

The liability of the Italian VAT representative arises only when he actively participates in irregular transactions for the benefit of their non-resident principal. Mere knowledge or awareness of such irregular transactions, without any direct involvement in the execution of the transactions, is not sufficient to establish their liability.

Key takeaway

The direct consequence of the strict interpretation provided by the Italian Supreme Court could be a significant reduction in tax revenue. However, this could be mitigated by the entry into force of a new VAT representative regulation, which – as part of the Italian Tax Reform – proposes to introduce stricter subjective and objective controls on the VAT representative’s activity.

Reference: Italian Supreme Court, Judgment No. 591 of 8 January