Two Supreme Court decisions find that the burden of proof lay with the tax authorities when challenging VAT recovery in a case of “subjective non-existent transactions”:
- Italian Supreme Court, judgement No. 7647 of 2 April 2020: The case involved tax assessment notice issued by the Italian Tax Authorities to an Italian established company, challenging the VAT deduction (on invoices issued by missing traders) on the basis of the remarks levied by tax audit report issued by the Italian Tax Police which qualified those transactions as subjectively non-existent (i.e. apparently between subjects other than the real ones). The Court held that – in contrast to cases of “totally non-existent transactions” (i.e. transactions never occurred) – in cases where there is no evidence that the company obtained an economic advantage, in order to challenge the VAT deduction the Italian Tax Authorities must first demonstrate that the company was actively part of the VAT fraud.
- Italian Supreme Court, decree No. 7693 of 6 April 2020: The Supreme Court affirmed that in such transactions the principle of the good faith of the taxpayer must first be applied. Thus, in order to support their VAT challenge concerning the deductibility of input VAT, the tax authorities must produce evidence about the company’s participation in the VAT fraud.
DLA Piper Comment: the principle that the burden of proof is on the tax authority when a VAT deduction is challenged in “subjective non-existent transactions” appears to be in line with the interpretation by the CJEU of the principles of fiscal neutrality, proportionality and the protection of legitimate expectations (among others see cases C-642/11, C-285/11, C-342/11, C-142/11). CJEU caselaw has held that the refusal of the right of VAT deduction in a situation where a taxable person who did not know, and could not have known, that the relevant transaction was connected with fraud committed by the supplier, is incompatible with the Principle VAT Directive.
Circular Letter No. 11/E of 6th May 2020 issued by the Italian Tax Authorities provides official guidelines to additional VAT measures set forth by the Italian Government against COVID-19. Among others, the following aspects have been tackled:
- the “March/April 2019 vs March/April 2020 turnover decrease test” to be performed in order to benefit from the VAT payment deferral related to some peculiar cases (i.e. brand new company or in case of merger);
- VAT payment deferral for VAT Group or VAT Liquidation Unit: if group of companies joining one of these optional regimes, on a standalone basis, satisfy the condition required for the VAT deferral, their relevant VAT debt can be carved out from the single VAT payment to be made on the account of VAT Group/VAT Liquidation Unit;
- the extension of the deadline for the submission of VAT returns has also been granted to foreign entities directly registered for VAT/having a VAT Representative: the postponement from 30th April 2020 to 30th June 2020 also applies to foreign established entities having a VAT registration/VAT representative in Italy, despite the wording of the law referring only to “Italian establishes entities” (i.e. a concept which includes only Italian-based established persons/companies and Italian permanent establishments of foreign companies).
DLA Comment: as a direct consequence of the confirmation of the postponement of the annual VAT return deadline, foreign entities registered for VAT in Italy (directly or via VAT representative) that have already submitted the Italian VAT return before 30th April 2020 are free to amend it by filing another VAT return before 30th June 2020.
Circular Letter No. 12/E of 12th May 2020 issued by the Italian Tax Authorities concerning the proof of intra-community supplies set forth by Regulation (EU) No. 1912/2018. More specific the document:
- includes explanatory details for the application of the provisions set forth by Article 45-bis of the Regulation (EU) No. n. 282/2011 (introduced by Regulation (EU) No. 1912/2018, entered in force since 1st January, 2020);
- recalls the Explanatory Notes by the European Commission published in December 2019 (i.e. “2020 Quick Fixes”).
DLA comment: it is important to mention that according to the Italian Tax Authorities (a) the above mentioned provisions apply also to supplies which occurred before 1st January 2020 and (b) it does not preclude Member States from applying more favorable conditions in their domestic law.