VOLUME 14, NUMBER 4 >>> APRIL 2016

Reproduced with permission from Tax Planning

International Indirect Taxes, 14 IDTX, 4/30/16. Copyright 姝
2016 by The Bureau of National Affairs, Inc.
(800-372-1033) http://www.bna.com
2016 Stability Law: Payable VAT Ahead of
Insolvency Proceedings
One of the most important changes introduced in Ita-
ly’s 2016 Stability Law relates to the amendment to Ar-
ticle 26 of Presidential Decree 633/1972 (‘‘the
Decree’’), concerning the issue of credit notes adjust-
ing payable VAT, following the transferor or lender be-
coming subject to insolvency proceedings.
Article 90 and Article 185 paragraph 2 of Council
Directive 2006/112/EC allow the VAT taxable amount
to be reduced in the event of total or partial non-
payment of the consideration for the transaction, with
the possibility for individual countries to derogate
from that principle in accordance with their own local
provisions.
Italian legislation, with Article 26 of the Decree, rec-
ognizes the VAT recovery when the non-payment is
connected with insolvency proceedings or is a result
of enforcement procedures that have generally been
unsuccessful.
The Ministry of Finance circular (CIR) No. 77/E of
17 April 2000 (‘‘circular 77/2000’’) on the subject of
VAT recovery in insolvency or enforcement proceed-
ings specifies that ‘‘the satisfaction of the creditor
through the collective enforcement on the entrepre-
neur’s assets ceases to exist, in whole or in part, due to
the lack of available sums, once the asset allocation
has been completed’’.
The change in the provision under consideration
contained in the 2016 Stability Law lies in the timing
aspect; namely, the moment in which the right arises
for the transferor/lender to issue the said credit note
pursuant to Article 26 of the Decree.
The current rules provide that, for the purposes of
recovery of the tax due in relation to a sales invoice
that has become non-collectable following a customer
becoming subject to insolvency proceedings, the right
relating to the issue of the credit note, i.e. the occur-
rence of the non-collectability of credit, takes place at
the time of the conclusion of the procedure. In this
context, circular 77/2000 identified, for each single
procedure, the exact moment in which to consider the
same non-collectable and hence issue the credit note.
The amendment made to Article 26 of the Decree
provides instead that the issue of the credit note, in
cases of non-payment from the principal/transferee,
may be carried out starting from the date on which
the company becomes subject to insolvency proceed-
ings, cases identified as follows:
s bankruptcy proceedings, from the date of the judg-
ment declaring the bankruptcy;
s compulsory administrative liquidation proceed-
ings, from the date of the order;
s arrangement with creditors, from the date of the
decree for admission to proceedings;
s extraordinary administration of large companies in
crisis, from the date of the decree ordering the pro-
ceedings.
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The new framework, which also expressly sets out
to govern the accounting procedure of the transferee/
principal in ordinary cases of receipt of a credit note
(henceforward to be recorded in the VAT sales register
or in the purchases register with a minus sign), regu-
lates cases of insolvency proceedings by prohibiting
the registration of the adjustment in the presence of
the above-mentioned procedures.
As a result of the obligation not to record the adjust-
ment in the VAT purchases register, the transferee/
principal subject to the proceedings will not have an
increase in the VAT payable due to the effect of the
lower deduction of credit note on the purchases, while
the transferor/lender will benefit from the lower tax
debt, thus forcing the treasury to bear the burden of
the omitted tax in place of the company subject to the
proceedings. This means that the liquidator or com-
missioner, on receiving the credit note, will have the
obligation to ignore it and not to register it.
It must be pointed out that this option does not
apply to the debt restructuring procedure pursuant to
Article 182-bis of the Bankruptcy Law, as well as the
certified reorganization plan, Article 67 paragraph 3d,
where the credit note may only be issued from the
date of the approved decree, which is not classified as
insolvency proceedings.
In debt restructuring procedures, insofar as these
are not classified as insolvency proceedings, the com-
pany management cannot make use of the option pro-
vided for by the new paragraph of Article 26 (thereby
avoiding the need to record the credit note), but is in-
stead obliged to follow the normal accounting
method. As a result of the approval of the debt reduc-
tion accepted by the suppliers, the company will re-
ceive a credit note for the corresponding lower
amount, which will reduce the deductible tax and con-
sequently increase the debt.
Such a procedure, in the assessment of the sustain-
ability of the restructuring plan, thus always consid-
ers the burden of the acceptance thereof for the
corresponding effect on the VAT position of the sub-
ject; for example, an agreed reduction in the total debt
equal to 30% will result in the payment of the relevant
tax, insofar as, following the official approval, the
company will receive from its suppliers the credit
notes for the agreed amount which, with the decreas-
ing deductible VAT, will translate into a higher VAT
amount due.
The Stability Law also defines the entry into effect
of the updated provisions by providing that the
amendments relating to the issue of the credit note in
insolvency proceedings will apply in cases where such
proceedings start from January 1, 2017. The remain-
ing changes, aimed at clarifying the application of the
provisions contained in Article 26 of the Decree, have
an interpretative nature and therefore will also have
effect with respect to transactions carried out prior to
January 1, 2017.
Roberto Mariani, Chartered Accountant, TMF Milan, Italy
Email: Roberto.Mariani@tmf-group.com
姝 2016 by The Bureau of National Affairs, Inc. IDTX