Clarification from the Revenue Agency regarding VAT: recent updates

published on 27 July 2021 | reading time approx. 3 minutes

The Italian Revenue Agency has clarified several questions concerning the VAT treatment of Variation Notices in debt restructuring agreements, the amounts agreed as part of an out-of-court settlement, and the points acquired as part of a loyalty program and errors associated with the application of reverse charges for VAT purposes.

VAT – Variation Notices in debt restructuring agreements

With its response to query no. 340 dated 13 May 2021, the Revenue Agency has clarified that, as part of the debt restructuring agreement, in the face of the downward revision note issued by the transferor/supplier, the transferee/purchaser is required to pay VAT to the tax authorities.

Unlike the provisions for bankruptcy and insolvency proceedings, where the transferee only should record the purchase invoices without paying VAT, under a debt restructuring agreement, the debtor is also required to remit the tax (Italian Revenue Agency Circular no. 12 dated 8 April 2016).

In support of this decision, the Revenue Agency notes that the debt restructuring agreement (and the certified recovery plan) does not fall within the scope of bankruptcy procedures.

It must be said, however, that looking at restructuring agreements, the jurisprudence of legitimacy has specified that such agreement is part of the “insolvency” category at par with the concordat (Cass. 12064/2019, 10106/2019, 9087/2018, 1182/2018 and 16347/2018).

Sums agreed as part of a settlement agreement – waiver by the recipient of further claims – treatment for VAT purposes.

In response to query no. 356 dated 19 May 2021, the Italian Revenue Agency issued a clarification regarding the treatment of the sum of money that an Italian company must receive from a company in the European Union, as part of a settlement agreement, to waive the exercise of any request and/or claim against the counterparty for VAT purposes.

The sum of money in question is the consideration for accepting an unfulfilled obligation by the Italian company. It is, therefore, a transaction to be qualified as a supply of services for VAT purposes (Article 3, Paragraph 1 of Presidential Decree 633/72).

This obligation can be classified as one of the “generic services” provided to a taxable entity residing in another European Union member state. Consequently, the transaction is not geographically relevant for VAT purposes in Italy (Article 7-ter of the Presidential Decree 633/72).

Loyalty program – allotment of points – VAT treatment Answer to query no. 392 dated 7 June 2021, from the Revenue Agency.

In response to query no. 392/2021, the Revenue Agency clarified that the transaction in which a retailer purchases points from a company that manages a customer loyalty program via an online application must be considered relevant for VAT purposes.

In this specific case, the retail enterprise:

purchases points from the company that manages the App and undertakes to assign to its customers one point for every Euro spent at its establishments;
possibly allows customers to use the points so accumulated to obtain discounts and then withdraws the customer's points by receiving from the company a refund of 50 per cent of the relative nominal value, generally by offsetting with the debit amounts.

According to the Agency, the purchase of these points, constituting part of the consideration due by the merchant for the affiliation to the App, must be subjected to VAT at the ordinary rate and the amount not reimbursed at the moment of the use of the accumulated points must be subjected to the same treatment, as it constitutes “an element of revenue” for the company. In the latter case, the invoice must be issued when the reciprocal debit/credit relationship between the parties is offset.

The reverse charge: rectifying the erroneous transaction

In the event of incorrect application of the reverse charge mechanism, as a remedy for the error, if the tax has been paid, albeit irregularly, by the transferee through the reverse charge mechanism, the transferor must pay only the penalty, since he/she does not have an obligation to pay the tax. The transferee, in turn, although jointly liable for the liability applicable to the violation, retains the right to deduct the tax.

The Revenue Agency has highlighted this, and it has also analyzed the collection of VAT credit for the non-residents. Italian Revenue Agency, response to query no. 393 dated 7 June 2021.