New terms for VAT deductions

On 24 April 2017 Law Decree n. 50/2017 concerning “Urgent financial provisions, initiatives in favour of territorial authorities, further interventions for the areas affected by seismic events and development measures” - so-called 2017 corrective measure - was published in the Italian Official Gazette.

The first articles include amended VAT provisions aimed at recovering tax revenues, as required by the European Commission and at cutting public spending; in particular:

• an extension of the split payment mechanism, with effect from 1 July 2017
• amendments to the terms within which the VAT deduction can be carried out
• a reduction of the threshold exceeding which the offsetting of tax credits can be carried out only with the application of a certification of conformity on the VAT return
• amendments to the increases in VAT rates (and excise tax), as regards the reduced and ordinary rates

Particularly interesting is the amendment to the norms regulating VAT deductions and the relevant amendment to the term to exercise the right to deduct VAT.

This new norm, which entered into force immediately, appears critical for the potential effects on the financial resources of companies, which may no longer be entitled to benefit from the deduction of VAT, thus resulting in possible issues in terms of compatibility with Community law.

In the short term, the new norm may imply a violation of the principle of tax neutrality underpinning the functioning of VAT. It would be desirable that, upon turning the Decree into law and in its interpretations, the necessary amendments are introduced to avoid penalising the companies that relied on the norms in force up to 23 April 2017 for VAT deduction purposes.

For further information, please contact Mario Spera.