Italy | Change in law for VAT split payments

Published on 10th May 2017

The Italian government intends to expand the scope of the split payment mechanism.

The effectiveness of the VAT split payment mechanism in combatting tax evasion invoicing transactions with the state and other public bodies has pushed the Italian government to expand the measure’s scope of application.

Under the split payment system, VAT payable by the customer is paid directly to the Tax Authorities rather than to the supplier.  It is estimated that €2.2 billion has been recovered annually as a result of the measure.

According to the Law Decree published on the Italian Official Gazette on 24 April 2017, the split payment mechanism would be extended to:

  • all services subject to withholding tax, including  services provided by self-employed individuals; and
  • transactions carried out with all Public Administrations (and not merely the state and public bodies alone), including their controlled companies and companies listed on the Italian stock exchange.

How could this affect your business?

The new provisions will apply to invoices issued from 1 July 2017. Businesses should consider the effects that regulatory changes will have on  them in the coming months.

A careful analysis of the types of suppliers and customers will be needed in order to identify the correct application of VAT on invoices and associated registration requirements to avoid the Tax Authority’s application of fines.

Within 30 days from the publication of the Law Decree in the Official Gazette (so by 24 May 2017), a Decree of the Ministry of Economy and Finance should be issued, providing clarification on application of the new rules.

In some cases, there may be significant financial effects, such as the periodic recognition of VAT credit balances. In such cases, it will be necessary to choose between the permitted alternatives such as set-off of credits by issuing specific certifications (“visti di conformità“) or VAT reimbursement.

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* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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