Italy Slammed By EC For Infringement Of VAT Rules

by Ulrika Lomas, for LawAndTax-News.com, Brussels

11 July 2005

The European Commission announced last Thursday that it has decided to send a formal request to Italy to change its law that limits the right of traders to deduction of VAT in respect of mobile phone services. The request is in the form of a reasoned opinion, the second stage of the infringement procedure laid down in Article 226 of the EC Treaty.

In addition the Commission revealed that it has decided to refer Italy to the Court of Justice concerning the tax amnesty which it applies in the area of VAT.

In its 2003 Finance Act, the Italian Government approved tax measures (the “condono”) which allow taxpayers to regularise various unpaid taxes, including VAT. Under the act, the Italian administration waives the right to future controls on periods of non-payment of VAT and allows taxpayers to “wipe the slate clean” by paying the State a fixed sum, if no return was filed, or a percentage of the VAT initially declared on sales and purchases in the reference period if a return was filed.

The waiver of further controls on unpaid VAT applies even if it is proven that irregularities were committed. The Commission stated that it considers that the scheme is in breach of the 6th VAT Directive which requires all supplies of goods and services within the country to be taxed and obliges Member States to take the necessary steps to ensure that taxable persons fulfil their obligation to declare and pay VAT.

In the EC’s view, the Italian measures go beyond the margin of discretion that Member States enjoy for adjusting their controls on the basis of the human and technical resources available to them.

In a statement released last week, the EC argued that:

"Italy’s action appears more like a blank and indiscriminate renunciation of controls on and collection of VAT which contravenes the obligations it has assumed regarding the application of Community law."

It went on to reveal that it has not received a satisfactory answer from Italy to the reasoned opinion that it was sent in October 2004.

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