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Italy: New Legislation on Cooperation Between Taxpayers and Tax Authorities

(Oct. 1, 2015) On September 2, 2015, new legislation on taxation entered into effect in Italy. (Legislative Decree No. 128 of August 5, 2015, Provisions on Legal Certainty in the Relationship Between the Treasury and the Taxpayer, Pursuant to Articles 5, 6 and 8, Paragraph 2, of Law No. 23 of March 11, 2014 [L. D. No. 128], NORMATTIVA (in Italian).)

Amendments to the Taxpayer’s Statute

The new legislation regulates abuse of rights by taxpayers and evasion. Specifically, it defines abuse of rights for tax purposes as gaining undue tax benefits through one or more “transactions that lack economic substance” despite formally complying with tax rules. (L.D. No. 128, art. 1(1)(1).) Tax authorities are authorized to evaluate claims and reject undue tax benefits. (Id.) The law defines “transactions that lack economic substance” as those unable to produce meaningful effects other than tax benefits. (Id. art. 1(1)(2)(a).) The standard is further defined in the Legislative Decree as transactions in which the lack of economic substance is indicated by:

  • individual activities that are not congruent with the legal foundation of the transaction as a whole or with normal market practices (id.); or
  • undue tax advantages and benefits that are obtained contrary to the purposes of the tax rules or principles (id. art. 1(1)(2)(b)).

Operations justified by substantive and compelling non-tax reasons related to the organization or management of a business are not considered abusive. (Id. art. 1(1)(3).) Taxpayers retain the right to elect lawful tax regimes in their transactions involving different tax burdens. (Id. art. 1(1)(4).) As a preventative measure, taxpayers may request a preliminary determination by the tax authorities of whether a particular arrangement would constitute an abuse. (Id. art. 1(1)(5).)

The taxpayer has a right to be notified of the tax authorities’ determination that a given operation is an abuse and also has a right to submit a request for clarification to the authorities. (Id. art. 1(1)(6).) Tax authorities have the burden to prove the existence of abusive conduct by the taxpayer. (Id. art. 1(1)(9).)

If the taxpayer’s request for clarification is rejected, the authorities assess the appropriate taxes plus interest and initiate collection proceedings against the taxpayer. (Id. art. 1(1)(10).)

Abusive operations as defined in this Legislative Decree generate only tax, not criminal, consequences, without prejudice to the administrative tax penalties that might arise. (Id. art. 1(1)(13).)

New Collaborative Performance Regime

The new legislation contains provisions on communication and cooperation between the financial authorities and taxpayers, in the interest of preventing and resolving tax disputes. (Id. art. 3(1).) The law creates a regime of collaborative actions (the “regime”) between the Revenue Agency and taxpayers, in order to detect, measure, manage, and control tax risks, that is, the potential for non-compliance with tax legislation. (Id.)

The Legislative Decree requires the Revenue Agency to adopt measures to provide a transparent and objective review of information provided by taxpayers. (Id. art. 5(1).) The Agency must also periodically publish information about its operations and enforcement plans. (Id. art. 5(1)(b).)

Taxpayers must, when appropriate, create and maintain internal structures and mechanisms aimed at facilitating the application of the regime during enforcement actions carried out by the authorities; by enrolling in the regime, taxpayers undertake to comply with a series of obligations aimed at diminishing the possibilities of tax avoidance. Taxpayers must put together mechanisms within their corporate structure that facilitate the tax authorities’ enforcement activities when the taxpayers are singled out for inspection (id. art. 5(2)(a)), and also must cooperate with the authorities. (Id. art. 5(2)(b).) Taxpayers who join the regime may avail themselves of an abbreviated procedure for the review of their claims by the Revenue Agency. (Id. art. 6(2).) In some cases, eventual administrative penalties will be halved and in any case penalties may not be applied in excess of the statutory minimum. (Id. art. 5(6)(3).)

During tax crime investigations performed by the prosecutorial authorities, the Revenue Agency may inform those authorities that the taxpayer involved is subject to the regime and provide all useful information relevant to the taxpayer’s compliance with tax obligations. (Id. art. 5(6)(4).) An additional benefit for taxpayers who sign up for the regime is that they are not required to provide any guarantees in order to receive tax refunds they claim. (Id. art. 5(6)(6).)