One of the most important changes introduced in Italy's 2016 Stability Law is related to the amendment to Art. 26 of Presidential Decree 633/1972, concerning the issue of debit notes adjusting payable VAT, following the transferor or lender becoming subject to insolvency proceedings.
Art. 90 and Art. 185 par. 2 of the Community Directive 2006/112/EC allows the VAT taxable amount to be reduced in the event of total or partial non-payment of the consideration for the transaction, with the possibility for the individual countries to derogate from that principle in accordance with their own local principles.
Italian legislation, with Art. 26 of Presidential Decree 633/1972, recognises the VAT recovery when the non-payment is connected with insolvency proceedings or is a result of enforcement procedures that have generally been unsuccessful.
The Ministry of Finance circular (CIR) No. 77/E of 17 April 2000 reference document on the subject of VAT recovery in insolvency or enforcement proceedings, specifies that "the satisfaction of the creditor through the collective enforcement on the entrepreneur's assets ceases to exist, in whole or in part, due to the lack of available sums, once the asset allocation has been completed".
The novelty of the provision under examination contained in the 2016 Stability Law, lies in the timing aspect; namely the moment in which the right arises for the transferor/lender to issue the said credit note pursuant to Art. 26 of Presidential Decree 633/72.
The current rules provide that, for the purposes of recovery of the tax due in relation to a sales invoice that has become non-collectable following a customer becoming subject to insolvency proceedings, the right relating to the issue of the credit note, i.e. the occurrence of the non-collectability of credit, takes place at the time of the conclusion of the procedure. In this context, the aforesaid circular 77/2000 identified, for each single procedure, the exact moment in which to consider the same non-collectable and hence issue the credit note.
The amendment made to Art. 26 of the VAT Decree provides instead that the issue of the credit note, in cases of non-payment from the principal/transferee, may be carried out starting from the date on which the company becomes subject to the insolvency proceedings; cases therefore identified as follows:
- bankruptcy proceedings, with the date of the judgment declaring the bankruptcy
- compulsory administrative liquidation proceedings, with the date of the order
- arrangement with creditors, with the date of the decree for admission to proceedings
- extraordinary administration of large companies in crisis, with the date of the decree ordering the proceedings.
The new framework which also expressly sets out to govern the accounting behaviour of the transferee/principal in ordinary cases of receipt of a credit note, hence to be recorded in the VAT sales register or in the purchases register with a minus sign, regulates the dynamics thereof in cases of insolvency proceedings by prohibiting the registration of the adjustment in the presence of the above-mentioned procedures.
Precisely as a result of the obligation not to record the adjustment in the VAT purchases register, the transferee/principal subject to the proceedings will not have an increase in the VAT tax payable due to the effect of the lower deduction of credit note on the purchases, while the transferor/lender will benefit from the lower tax debt, thus forcing the Treasury to bear the burden of the omitted tax in place of the company subject to the proceedings. This means that the liquidator or commissioner, in receiving the credit note, will have the obligation to ignore it and not register it.
It must be pointed out that this option does not apply to the debt restructuring procedure pursuant to Art. 182- bis of the Bankruptcy Law, as well as the certified reorganisation plan, Art. 67 par. 3 lett. d), where the credit note may only be issued from the date of the homologation decree, which is not classified as insolvency proceedings.
In debt restructuring procedures, insofar as these are not classified among insolvency proceedings, the management body cannot make use of the option provided for by the new paragraph of Art. 26, thereby avoiding the need to record the credit note, but is instead obliged to follow the ordinary accounting method. As a result of the approval of the debt reduction accepted by the suppliers, the company will receive the credit note for the corresponding lower amount, which will reduce the deductible tax and consequently increase the debt.
Such a procedure, in the assessment of the sustainability of the restructuring plan, thus always considers the burden of the acceptance thereof precisely for the corresponding effect on the VAT position of the subject in which, for example, an agreed reduction in the total debt equal to 30% will result in the payment of the relevant tax, insofar as, following the homologation, the company will receive from its suppliers the credit notes for the agreed amount which, with the decreasing deductible VAT, will translate into a higher VAT tax due.
The Stability Law also defines the entry into effect of the updated provisions, by providing that the amendments relating to the issue of the credit note, in the case of insolvency proceedings will apply in cases of placement under these procedures starting from 1 January 2017. The remaining novelties, being aimed at clarifying the application of the provisions contained in Art. 26 of Presidential Decree No. 633/1972, have an interpretative nature and, therefore, will also have an effect with respect to the transactions carried out prior to 1 January 2017.
Talk to us
TMF is able to assist clients in both contexts: whether it be to optimise the VAT due at settlement in case of credit insolvency due to receivables related to customers subject to a formal proceeding; or to effectively manage the clients' tax position and cost. We can coordinate the timing, issuing and approval of all documents requested by law for companies involved in such proceedings.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.