- Introduction
May 31, 2019 is the current deadline to elect for Italian tax controversy amnesty. The expiring amnesty will allow settling any qualifying on-going tax controversy pending before any Italian tax court, including Supreme court or following stages after its remittance to Regional courts for re-assessment of facts. Depending on the current stage of the controversy and the interim outcome of cases before tax courts, controversies may be settled by paying different levels of discounts.
Review of any pending tax case in Italy by any multinational is recommended to eliminate worst case risk and possibly release any tax risk provision if booked in the accounts either at local level or parent company.
Tax amnesty payments may either be made lump-sum by May 31, 2019 or in quarterly installments diluted up to 5 years (20 quarterly installments). Interest at 0.8% from June 1, 2019 will apply if installment payment is elected for.
All pending cases on tax claims against Italian Revenue Service appealed as of October 24, 2018 may be settled. Income and regional taxes (IRAP), transfer tax, and any further tax, including abolished levies, and VAT are within the scope of the tax amnesty program, with the exception of custom duties and VAT on importation.
- Tax amnesty costs vs benefits
The tax amnesty is based on the payment of a percentage of tax initially claimed by the tax authorities as follows:
- 5% if case was already appealed before Supreme court on December 19, 2018 after favorable rulings by both Provincial and Regional tax courts;
- 15% if case was ruled favorably to taxpayer at the Regional tax court level (second degree) as of October 24, 2018;
- 40% if case was ruled favorably to taxpayer at the Provincial tax court level (first degree) as of October 24, 2018;
- 90% if case was pending before the Provincial tax court (first degree) as of October 24, 2018;
- 90% if case was pending before the Regional court after remittance ruled by Supreme court;
- 100% if case was ruled favorable to Italian Revenue Service by any tax court as of October 24, 2018;
- 100% if taxpayer had notified appeal to Italian Revenue Service as of October 24, 2018 but file had not yet been deposited to the Provincial tax court.
Tax penalties in Italy are material by default, usually ranging between 90% and 180% of tax. Lower but also higher penalties may apply in specific cases (e.g., PE claims).
If tax amnesty is elected for, penalties will wholly be forfeited if charged together with tax claims (which is ordinarily the case) or partially as follows if charged with no corresponding tax claim (e.g., penalties for late payment of taxes):
- 15% of penalty if case on penalties was ruled favorably to taxpayer by Provincial or Regional tax court as of October 24, 2018;
- 40% in all other cases, i.e., if penalty case was ruled favorably to Italian Revenue Service as of October 24, 2018 or no court ruling issued yet as of same date.
Besides, interest on tax claims is usually around 4% (subject to changes throughout the years). Collection fees are material as well: in the past, they have been charged up to 8% to 9% of any payment due subject to controversy.
Because of the average timeframe of tax controversy, which may last more than a decade, interest and collection fees on tax claims may be material.
As a result, the actual ratio of tax amnesty cost vs. tax controversy risk is ordinarily significantly lower (and more generous) than it may prima facie looks like.
- Interim tax controversy payments
Unless tax courts or tax authorities exceptionally suspend interim tax payments, taxpayers are ordinarily required to pay pro-rata of tax claims by Italian Revenue Service as follows:
- 1/3 of tax claim (with interest) as per notice of assessment within the deadline for tax appeal to Provincial tax court;
- 2/3 of tax claim (with interest) and 2/3 of penalties as ruled about by the Provincial tax court;
- Total liability, including all interest and penalties, as ruled about by the Regional tax court even if appeal to Supreme court is made.
Any interim payment pending tax controversy may be applied against the amount due under the tax amnesty program, i.e., only the balance will be due. Italian Revenue has also admitted as a credit any voluntary settlement payment by taxpayers before notice of assessment.
A controversial rule, however, does not allow taxpayers to credit back any interim payment in excess of the tax amnesty program liability. As a result, tax amnesty will not be beneficial to taxpayers that have paid whole tax claim or a material amount in excess of tax amnesty program.
Such a restriction may infringe equal treatment principle under Italian Constitution. The discrimination may be challenged in court cases if not addressed by amendments of tax amnesty rules.
- Actions before deadline of May 31, 2019
Although the May 31, 2019 tax controversy amnesty deadline may be re-opened after its expiry, it may be useful finalizing the review of any pending tax controversy in Italy to assess if tax amnesty cost is a favorable compromise taking into account worst case scenarios and risks of tax cases being eventually decided in favor of Italian Revenue Service by Supreme court or Regional court after remittance to the latter by the former.
Success before Provincial or Regional tax courts is not a guarantee of confirmation before Supreme court ruling.
Besides, recent developments in the case law may jeopardize the final outcome of favorable tax controversies that may be perceived as settled under former jurisprudence, e.g., beneficial ownership cases after the so-called 2019 ECJ Danish cases or abuse of law doctrine or new BEPS policies.
Tax amnesty program may be beneficial particularly on successful cases before Provincial and even more Regional tax courts as tax amnesty cost may de facto respectively be in the range 20-25% and 2-3% of total tax exposure if final tax court rulings are against taxpayers, if one takes into account penalty, collection fee and interest costs.
If tax controversy amnesty election is worthwhile, submission of electronic tax amnesty returns and payment of at least first installment is mandatory within May 31, 2019. Complexities of each case and filing constraints suggest immediate action if not yet undertaken.