A recent decision of the Italian Supreme Court focused on the VAT Carousel Fraud issue, providing important indications on the burden of proof of the subjects involved (i.e., taxpayers or tax administration) (decision n. 15741/2012, filed on 19 September 2012).
The Supreme Court concluded that, in case of carousel fraud as well as in case of issuance of invoices vis-à-vis a subject who is not the real recipient of goods or services (i.e., subjective fictitious interposition), the burden of proof relating to the good faith of the taxpayer who has been involved and would like to obtain the acknowledgment of the right to deduct VAT on purchases falls on the taxpayer itself.
Indeed, it is sufficient for the tax administration to ground the tax assessment on simple factual assumptions identified under the specific circumstances (e.g., purchase of goods to be resold at more convenient prices to alter the market in favour of the taxpayer, omitted payment of VAT by the seller of the goods, etc.) while any counter-proof and argument shall have to be identified by the taxpayer. In the case analysed by the Supreme Court, which referred to the purchase and resale of cars, the judges concluded that the taxpayer did not provide sufficient evidence of its good faith and, therefore, denied the deduction of VAT and condemned the same to the payment of legal expenses.
The Supreme Court based its conclusions on the past Supreme Court and Court of Justice of the European Union (CJEU) case law without, however, taking into account the more recent decisions of the CJEU which remarked the need for evidence of the involvement of the taxpayer to be given by the tax administration (see case C 80/11 and C142/11 of 21 June 2012).
Option for VAT Cash Accounting Scheme for small entrepreneurs
Like with other European countries, a measure to alleviate the financial burden of small entrepreneurs during the financial crisis has been introduced as of 1 December 2012 in line with the provision of Directive 2010/45/E.
In particular, small enterprises that encounter difficulties in paying VAT to the competent authority before they have received payment from their customers now have the option of accounting and paying VAT using a cash accounting scheme, which (1) allows them to pay VAT to the tax authorities when the payment for a supply is received, and (2) establishes their right of deduction when the payment for the supply is made.
The above represents an exception to the regular situation in Italy where VAT has to be paid to the tax authorities within the month following the issuance of the relevant invoice, irrespective of the actual payment of the same.
According to the new optional regime:
- output VAT related to the supply of goods and services is paid to the tax authorities with the monthly or quarterly liquidation made at the time of actual payment of the price from the customer/client or, in any event, after one year from the time of the conclusion of the transaction; and
- input VAT related to purchase of goods and services can be deducted with the monthly or quarterly liquidation made at the time of actual payment to the supplier.
As indicated above, the new regime may be opted for by taxpayers which have registered a turnover lower than EUR2 million in the preceding fiscal year. For new entrepreneurs, the regime is accessible if they forecast to register a turnover lower than EUR2 million.