Italy: New rules for recovery of VAT with credit notes

New rules for value added tax “bad debt” relief in relation to insolvency proceedings

New rules for value added tax “bad debt” relief in relation to insolvency proceedings

Guidance from the Italian tax authority provides new rules for value added tax (VAT) “bad debt” relief in relation to insolvency proceedings.

The guidance—Circular no. 20/2021 (29 December 2021)—also reflects a change from prior guidelines concerning how to recover VAT (if charged in past invoices) by means of credit notes.

Under the prior rules, if a credit note had been issued by the deadline for filing the VAT return for the year when the right to adjust the output VAT was triggered, that output VAT variation could be included in the annual VAT return for that year.

Under the new rules (as provided by Circular no. 20/2021), VAT can be recovered only between the date of issuance of the credit note and the deadline for filing the VAT return for the year in which the credit note is issued.  For example, if the right to adjust output VAT is triggered in FY 2021, and the credit note is issued between 1 January and 30 April 2022 (but still before the deadline for filing the VAT return for FY 2021), the subject VAT would no longer be recovered via the VAT return for FY 2021 but, instead (through an output VAT variation) would be claimed in the VAT return for FY 2022 (which is due by 30 April 2023).

KPMG observation

Tax professionals expect that the new rules will not apply retroactively, and that taxpayers that followed the previous guidelines would not be challenged.

Read a March 2022 report [PDF 234 KB] prepared by the KPMG member firm in Italy

 

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