In 2014, the Italian Government took on the task of reforming and restructuring the tax system within one year. Its main aims were to tackle tax evasion, and to address the urgent need from both individuals and businesses to simplify and rationalise the complex Italian tax system.
The final set of decrees, published on 7 October 2015, help realise these aims by streamlining and speeding up tax ruling procedures as well as introducing an effective cooperative compliance between tax authorities and large enterprises. The aim is for taxpayers to promise to notify the tax authority of any potential tax risks and to disclose all facts without reservation. In return for this voluntary disclosure, the tax authority undertakes to provide timely advice on significant positions, as well as taking into account commercial deadlines.
Reduction in the tax litigation process
As of 1 January 2016, it is possible to settle with the Revenue Agency even during litigation. In particular, it is also be possible to reach a settlement in court after the first hearing of the first-tier judgement. The benefits of a settlement are as follows:
- If the taxpayer withdraws from litigation after a partial cancellation of the claim by the Revenue Agency, penalties will be reduced to a third of the minimum on the outstanding amount.
- If a settlement has been reached during the first-tier judgement, penalties will be reduced to 40% of the minimum on the settled amounts, compared to the previous tax system where the reduction to 40% was based on the minimum of the charged penalties.
- If a settlement has been reached during the second-tier judgement, penalties will be reduced to 50% of the minimum on the settled amounts.
These changes also make it possible to apply for a suspension of collection, not only in first-tier judgement but also in later stages of litigation. This suspension process has now been set in law, when previously it was only based on case law.
Favourable refund process
Cases concerning disputed tax refunds are now considered more favourable towards taxpayers, as they are able to obtain payment of refunds even when the decision is still subject to appeal and on-going litigation. This means that if the court of first instance rules in favour of the taxpayer, the taxpayer is entitled to payment of the refund, even though the tax authorities can later choose to appeal the judgement in front of a higher degree court. Previously, refunds were only available after the final judgement and when the court ruled in favour of the taxpayer. The taxpayer must still file a guarantee to pay back the refund if the higher court decides in the final judgement that the refund is in fact not due.
Reductions of penalties in administrative procedures
Changes were also implemented on the following:
- Penalties for filing incorrect tax returns and VAT violations will decrease from 100%-200% to 90%-180% of the undeclared tax.
- If the taxpayer prepares appropriate transfer pricing documentation, an exemption is available for both penalties on any transfer pricing adjustments and withholding tax claims on any interest and royalties at arm’s length value.
These reductions are to take effect from 1 January 2017, however the draft Finance Bill 2016 allows for them to be enforced up to a year early (e.g. 1 January 2016).
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