Italy: VAT exemption for services supplied by cost-sharing group to VAT group

Italy: VAT exemption for services supplied

Recent changes to Italian tax law clarify that services supplied by a cost-sharing group to a value added tax (VAT) group are eligible for an exemption provided by the EU VAT Directive.

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Article 72-bis of Law Decree no. 104/2020 (as amended by Law no. 126 of 13 October 2020) clarifies that the VAT exemption provided by article 132(1)(f) of the VAT Directive (as transposed and enacted in Italy by article 10(2) of Presidential Decree no. 633/72) is also applicable with respect to services supplied by a cost-sharing group to a VAT group. 

VAT exemption requirements

The services supplied by a cost-sharing group (such as a consortium) to a VAT group are VAT-exempt when the following conditions are all met:

  • The cost-sharing group is not a member of the VAT group.
  • At least one member of the cost-sharing group is also a member of the VAT group.
  • The VAT group as a single taxable person meets the requirements set out in article 10(2) of Presidential Decree no. 633/72—in particular (among other requirements), the recipient of the services must not have a deductible percentage of input VAT that is greater than 10% (the “pro-rata rule”) in the previous three years.

This last condition must be verified:

  • In the case of the single entity (that is a member of both the consortium and the VAT group), for each of the years preceding the setup of the VAT group and included in the three-year reference period
  • In the case of the VAT group, for each of the years following the setup of the VAT group and included in the three-year reference period

Tax

Under these conditions, if a company that is a member of a VAT group and a cost-sharing consortium receives services from the consortium, those services will still be exempt from VAT and will be considered as supplied to the VAT group itself. The rules apply retroactively with respect to how the cost-sharing group exemption interacts with a VAT group, or when one of the members of the cost-sharing group is also a member of the VAT group. However, the rules do not cover instances when the cost-sharing group itself is a member of a VAT group.

Cost-sharing exemption and CJEU judgments

The cost-sharing exemption rules currently in effect in Italy are also applicable to financial services (exempt under article 135 of the VAT Directive). These rules may be modified in the future, to take into account the judgments of the Court of Justice of the European Union (CJEU) in Cases C-326/15, C-605/15 and C-616/15—all of which restricted the use of the cost-sharing exemption to entities operating in sectors whose activities are exempt under article 132 of the VAT Directive (healthcare), thus excluding from the exemption those activities falling under article 135 (financial services, insurance, real estate, gaming, etc.).


Read an October 2020 report [PDF 154 KB] prepared by the KPMG member firm in Italy

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