Italy May Have To Pay EUR120 Billion In Business Tax Refunds

by Ulrika Lomas, Tax-News.com, Brussels

30 March 2005

The Italian government is facing the very real possibility of reimbursing taxpayers to the tune of EUR120 billion after the publication of a legal opinion by the advocate general of the European Court of Justice concerning the legality of a business levy.

The issue concerns a tax used to fund regional governments, known as Irap, which is levied mainly on small and medium-sized businesses. Advocate general Francis Jacobs has argued that it is too similar to the existing value added tax system, in contravention of the EU’s sixth directive.

Whilst a ruling by the ECJ may not materialise for several months, the Luxembourg-based court follows the opinions of advocates-general in nine out of ten cases.

According to some tax experts, the Italian government is likely to face considerable difficulties in meeting the claims of taxpayers seeking a refund, given its weak fiscal position, and may well place a time limit on claims.

“If the ECJ does rule it is illegal, from a fiscal perspective I cannot see the Italian Government having the cash to pay. They might have to give an IOU,” noted Kendra Hann, a tax partner at accounting firm Deloitte, according to The Times.

The paper also reported that Germany, France, Hungary and Lithuania – countries with similar taxes - could also be affected by an ECJ ruling against Italy.

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