As from 26 May 2021, VAT downward variation notices are to be proposed as from the moment the supplier is subject to insolvency proceedings, no longer at their end.

In accordance with the VAT rules, when an invoice is issued, the tax must be paid. If the tax or the taxable amount subsequently varies, the taxpayer may use the instrument of variation notes, either upwards or downwards, to adjust the transaction.

According to the VAT Decree (Presidential Decree 633/1972), if a transaction for which an invoice has been issued is wholly or partly cancelled or the taxable amount is reduced after it has been entered in the sales register, the supplier of the goods or services is entitled to deduct the tax corresponding to the variation by means of the decreasing variation note. One of the cases provided for by law for the issuance of such notes is the non-payment, in whole or in part, by the assignee or the purchaser subject to insolvency proceedings or individual enforcement procedures which have remained unsuccessful. The latter, as expressly provided for in Article 26 of the VAT Decree, are deemed to be unsuccessful when the attachment report indicates that there are no assets and/or credits to be attached, that it is impossible to gain access to the debtor’s home or that he cannot be found, or when the execution procedure is discontinued due to excessive onerousness, the auction for the sale of the attached goods having failed three times.

With reference to bankruptcy proceedings, under the previous rules, which were applicable until 25 May 2021, the date of the issuance of the “Decreto Sostegni-bis”, it was necessary to wait for the end of the bankruptcy proceedings: once the bankruptcy proceedings were unsuccessful, the supplier of the goods or services would be entitled to deduct the tax corresponding to the change in taxable income. This, obviously implying a very long waiting time (according to ISTAT the average duration of a bankruptcy procedure in Italy is 8 years), was in contrast with the European principles developed on the matter, set out in Directive 2006/112/EC, and therefore put the domestic legislation in conflict with the EU legislation.

The European Court of Justice (ECJ) has ruled on this point, stating that the taxable amount must be the consideration actually received for the supply of goods or services, and therefore the tax authorities may not levy a higher tax than that collected by way of recourse by the taxable person. In full compliance with these principles, which constitute the underlying rationale of Article 90 of Directive 2006/112/EC, the ECJ, in its judgment C-246/16, ruled that “a Member State may not make the reduction of the taxable amount for value added tax conditional upon the failure of insolvency proceedings where such proceedings may last 10 years“. Already in 2020, the Court of Cassation, in its judgment No. 25896, aligned itself with these rulings and stated that the existence of a reasonable likelihood of the debtor’s default was sufficient.

Article 18 of the “Decreto Sostegni-bis”, modifying the provisions of Article 26 of the VAT Decree, provides that the VAT downward variation note may be issued, in case of non-payment of the purchaser, starting from the date on which the purchaser is subject to insolvency proceedings or from the date of the decree approving a debt restructuring agreement pursuant to Article 182-bis of the Italian Insolvency Law or from the date of publication in the Companies Register of a certified recovery plan pursuant to Article 63, paragraph 3, letter d) of the Italian Insolvency Law. The debtor is deemed to be subject to insolvency proceedings from the date of 1) the judgment declaring bankruptcy; 2) the order ordering compulsory administrative liquidation; 3) the decree of admission to the arrangement procedure; 4) the decree ordering the extraordinary administration procedure for large enterprises in crisis. The right to the issue of a VAT variation note does not depend on whether the creditor has filed an application for admission to the statement of liabilities in the debtor’s bankruptcy. Since Article 19 of the VAT Decree provides that the right to deduct may be exercised at the latest with the return for the year in which the right arose, the VAT must be recovered with the return for the tax period in which the insolvency proceedings are commenced.

However, it should be noted that the new rules introduced by the “Decreto Sostegni-bis” apply only when the transferee or principal has been subject to insolvency proceedings after 26 May 2021, the date on which the decree came into force. For all the insolvency proceedings opened previously, it will be necessary to apply the previous discipline and therefore to wait for the ascertainment of the unsuccessfulness of the insolvency procedure, since in these cases the regulatory contrast with the European discipline remains.