VAT registration: 2023 Italian Budget law’s double-checking to curb tax frauds

VAT registration in Italy is mandatory in circumstances when a non-resident taxable person is willing to sell vatable goods or services to individual customers in Italy who are not involved in business, arts, or professional activities or have no residence or permanent establishment in Italy. As an alternative, a foreign operator with no PE in Italy may register directly using the form ANR/3. After obtaining the issuance of an Italian VAT code, the foreign operator might sale in Italy taxable services and goods.

The foreign trader will then have to conform to all the legal requirements for trading, and VAT compliance, to submit regular monthly/yearly and quarterly VAT returns in Italy.

In this context, the new Italian bill (Article 1 Par. 148 Budget Law 2023) introduces specific rules to curb the economic phenomena of “open and close VAT numbers”, i.e., those practices of Italian VAT registration opening and closing without paying contributions and taxes.

According to the bill, the Italian Tax Office may request, identify, and preliminary audit elements of “risk” connected to the issue of the VAT number, also using tax inspections carried out at the place where the activity is namely performed. The elements to be scrutinized are mainly the identity and availability of the legal representative of the companies, the registered office, and the activity of the foreign trader.  If the elements provided are incomplete or distrustful, the Italian Tax Office can terminate the VAT number and a penalty of € 3.000,00 can be also inflicted on the taxpayer.

The VAT number can be opened again, but only by providing a three-year insurance or bank suretyship for an amount of no less than € 50.000,00.

In this way, checks could concern mainly extra-UE companies with an Italian VAT number that do not carry out any relevant activity in the territory or do so occasionally, to obtain the refund of input Italian VAT (Article 38ter of Presidential Decree 633/72). It is not excluded that the Tax Office may refuse the refund, and proceed to cancel the Italian VAT number should it be assessed that the company does not carry out any kind of activity.

In addition, such activities could also raise PE objections in Italy for non-resident companies by the competent Italian tax offices: it is worth mentioning that a VAT permanent establishment usually requires the presence of human resources in the territory, unlike income tax where it is generally not necessary to have a material fixed place of business, and where only a significant economic presence could be sufficient.

The new bill requires implementation by specific regulations: the validity will in any case take effect on 1 January 2023.