Italy: New Rules For Tax Credits Off-Set (Compensation) In Case Of Tax Delinquent Court-Ordered Debts - Clarifications From The Italian Tax Agency

Last Updated: 18 August 2011

SUMMARY

1 Introduction

2 Form F24 off-set forbiddance under tax delinquent court-ordered debts

2.1 Aim

2.2 Credits' off-set alternatives

2.3 Delinquent court-ordered tax debts blocking off-settings

2.4 Restriction to fiscal duties

2.5 1.500,00 Euro limit

2.5.1 Tax debt accessories

2.5.2 1.500,00 Euro limit calculation

2.6 Delinquent court-ordered tax debts' expiry

2.7 Collection's time-out

2.8 Collection's division into installments

2.9  Effective date

2.10 Off-set operational mode

2.11.1 Rules applicable from February 18th 2011

2.11.2 Temporary rules applicable from January 1st 2011 to February 17th 2011

3 Penalties

3.1 Penalties' maximum charge

3.2 Tax trial on delinquent court-ordered tax debts

3.3 Self and facilitated assessment

1 INTRODUCTION

Art. 31 of the Law Decree n. 78 date May 31st 2010 converted into Law no. 122 dated July 30th 2010 has foreseen, starting from January 1st 2011, tax credits' off-sets, in payment forms F24, under the presence of delinquent court-ordered tax debts exceeding the amount of Euro 1.500,00 if their payment deadline has expired.

The Ministry Decree dated February 10th 2011, published in the Official Gazette no. 40 dated February 18th 2011, has enforced the measure that allows to pay delinquent court-ordered tax debts with tax credits of the same nature.

With the Circular Message n.13 date March 11th 2011, the Italian Tax Agency has issued further clarifications.

Here below we analyze the new rules under the above mentioned enlightenments.

2 Form F24 off-set forbiddance under tax delinquent court-ordered debts

Art. 31 of the Law Decree no. 78/2010 has introduced the off-set's prohibition of:

  • Credits related to fiscal duties;
  • Under the presence of debts:
    • Court-ordered debts and related accessories (penalties and interests);
    • For the amount exceeding Euro 1.500,00;
    • For whom payment's deadline expired.

2.1 AIM

As highlighted by the side report to the Law Decree 78/2010, the measure have the intention to "forbid the immediate off-set, in F24 forms, (and therefore the missed payment of taxes due) to those tax payers who have, at the same time, delinquent debts toward the Italian Tax Authority".

2.2 "IN-LINE" AND "CROSSING" OFF-SETS

The Italian Tax Authority has confirmed that the new ban:

  • Is applicable just to "in-line" (or "external") off-sets, namely the ones related to tax credits and debts of a different nature (VAT credit with Income Tax debt, or Corporate Income Tax credit with Social Security Contributions) and that can be filed in the F24 form;
  • It is not applicable to "vertical" (or "internal") off-sets, namely the ones related to tax credits and debts of the same nature (VAT credit with VAT debt, corporate income tax yearly balance with next year prepayment) even if included in the F24 form.

VAT credits off-sets

Limitations to VAT credits off-sets (compensations) introduced in 2010, with relation to the "in-line" compensations, remain in any case applicable, therefore:

  • The off-set in F24 forms of VAT credits for amounts over 10,000.00 Euro per year can be started just from the 16th day after VAT annual return's submission to the Tax Agency;
  • The off-set in F24 forms of VAT credits for amounts over 15,000.00 Euro per year implies that the VAT annual return must include:
    • The VAT credit's certification by an Italian Chartered Accountant;

    Or

    • The VAT credit's certification by an Italian Registered Auditor.

The Italian Tax Agency has clarified that even if the tax payer has obtained the certification mentioned above, VAT credit's off-set is not allowed if some of the above mentioned limitations are applicable.

2.3  Delinquent court-ordered tax debts blocking off-settings

The Italian Tax Agency has clarified that this new rule hasn't made any difference on to the type of court-ordered debt; so it is applicable both to:

  • Ordinary and extraordinary delinquent court-ordered debt;
  • Definitive or temporary delinquent court-ordered debt.

Therefore the off-set prohibition is applicable even to those assessment still not definitive under still open tax audits.

2.4 Restriction to "fiscal duties"

The discipline under exam is applicable to credits and debts related just to Fiscal Duties (as Personal Income Tax – IRPEF – Corporate Income Tax – IRES – VAT, etc.)

The Tax Agency has clarified that in the same group are included:

  • Local Income Tax – IRAP;
  • Additional Payments to Direct Taxes.

In addition the Tax Agency has clarified that among delinquent tax debts that deny the off-setting in F24 forms are included:

  • Withholding taxes, being an anticipation of taxes that will be paid in the next future;
  • Other fiscal duties, as register tax, not compensable in F24 form.

Are therefore excluded all other duties that are not Fiscal Duties as:

  • Local taxes on real estates;
  • Social Security Contributions (INPS);
  • Social Insurance Contributions (INAIL)

Tax Credits from tax allowances

The Tax Agency has clarified that all tax credits deriving from tax allowances are not subject to the new off-set limitations even if included in the Fiscal Duties section of the F24 form.

2.5 the 1,500.00 euro limit

The discipline under consideration is applicable under the condition that the delinquent court-ordered debts for fiscal duties and related charges exceed the amount of Euro 1,500.00.

Therefore the set-off prohibition is not operating if court-ordered debts not paid, plus any additional duty charged by authorities, are equal or lower than Euro 1,500.00.

2.5.1 Tax debt accessories

The Italian Tax Agency has clarified that among "accessories" (or additional duties) of the tax debt are considered:

  • Penalties;
  • Interests;
  • Fees for the collection's Agent (Equitalia);
  • All other expenses connected to the court-order, as the ones for settlement's communication, or its enforcement.

Therefore, to exceed the "limit" is sufficient to have a not paid tax definitely lower than Euro 1,500.00.

The verification of the total amount of the existing debt is, therefore, more than important.

2.5.2 1.500,00 Euro limit calculation

In order to define the limit of 1,500.00 Euro, the Italian Tax Agency has clarified that:

  • The reference is made to expired debts existing at the time of payment (including, as above mentioned, all related charges);
  • In case of different settlement's notifications, with different amounts and deadlines, the total amount due and expired must be verified. In case of partial payments of the same debts, done before the date of set-off, the left amount must be taken under consideration for calculating the limit before submitting the F24 form.

Therefore the limit of Euro 1,500.00 is made by the total amount of delinquent debts still not paid even if deriving from settlements that individually considered do not exceed the above mentioned amount.

2.6  Delinquent court-ordered tax debts' expiry

In order to make the set-off prohibition applicable the deadline to pay the delinquent tax debt must be expired, that is the term of 60 days from settlement's notification to the tax payer must have gone-by.

Set-off is therefore allowed during this period.

2.7  Collection's time-out

The Tax Agency has confirmed that the discipline's application assumes that no collection's time-out (as the one during the summer period) has occurred.

In that case non-fulfillment of the tax payer can't be configured.

2.8  Collection's division into installments

In case of payment into installments, the Tax Agency has clarified that:

  • In case of approval, by the Tax Authority, of payment divided into installments and regular payment of the same, the discipline is not applicable (in this case the tax payer can't be considered a delinquent payer);
  • If the missed payment is related just to one installment (different from the first one), the installments' plan is still valid, and only the expired installment must be considered to reach the 1,500.00 Euro limit;
  • In case of first installment's missed payment, or subsequently of two installments, the debtor automatically lapses the right to pay into installments with following consequences:
    • The court-ordered debts becomes immediately payable;
    • The set-off limit is applied to the left debt still to be paid.

2.9  Effective date

The new set-off prohibition has become applicable starting from January 1st 2011.

However, until February 17th 2011, that is before the enforcement of the Ministry Decree date February 10th 2011, a particular temporary regimen has been applied.

The Tax Agency has clarified that the off-set prohibition operates even for court-ordered debts already expired at January 1st 2011.

Therefore it must be considered that the prohibition was already applicable to payments'

forms (F24) submitted from January 1st 2011, regardless of:

  • The year when the debt has been ordered by the court;
  • The year of order's issuing;
  • They year of settlement expiry.

In addition, not even the year of tax credit's maturing appears as relevant.

2.10  Off-set operational mode

2.10.1  Rules applicable from February 18th 2011

According to the Italian Tax Agency, the set-off in F24 form is always forbidden if the tax payer doesn't pay in advance the whole court-ordered debt, even if the tax credit exceeds the debt itself.

Therefore, for example, if we have:

  • A tax credit of 10,000.00 Euro off-settable and a court-ordered debt for a missed payment of 12,000.00 Euro the tax payer can't use the credit in the F24 form to set-off other tax debts (VAT, withholdings, social security contributions, etc.) if he doesn't provide for the payment of the expired court-ordered debt;
  • A tax credit of 10,000.00 Euro off-settable and a court-ordered debt for a missed payment of 4,000.00 Euro, if the tax payer doesn't pay first the expired debt, can't use the credit in the F24 form to set-off other tax debts (VAT, withholdings, social security contributions, etc.) not even for the remaining part of 6,000.00 Euro;

Under provisions of the Ministry Decree dated February 10th 2011, the payment of the court-ordered debts can be settled using tax credits.

With that set-off, the tax payer can reset to zero its court-ordered positions, in order to subsequently proceed with ordinary set-off.

2.10.2  Temporary rules applicable from January 1st 2011 to February 17th 2011

We'd like to remind that temporary, until the Ministry Decree dated February 10th 2011, the Tax Agency had clarified that were not to be punished off-sets:

  • Made in case of court-ordered debts exceeding Euro 1.500,00 already expired;
  • Under the condition that the off-set operation hasn't weakened the chance to compensate already existing court-ordered debts.

In other words, starting from January 1st 2011 and until February 17th 2011, it was allowed to use in F24 forms tax credits:

  • Exceeding court-ordered debts' amounts still not expired;
  • To off-set other tax debts (VAT, withholdings, Social Security contributions, etc.).

3 PENALTIES

In case of in-observance for off-setting prohibition a penalty becomes applicable. It is equal to the 50% "of the amount of the court-ordered fiscal debt, and related accessories, already expired within the amount unduly off-set" – art. 31 of the Law Decree 78/2010.

The Tax Agency, with its Circular Message no. 13 date March 11th 2011, has stated that:

  • The penalty is applied to every undue set-off in presence of expired and not paid ordered-debts over Euro 1.500,00;
  • The penalty is commensurate to the entire debt, but has a limit in the off-set amount;
  • In case the off-set amount is lower than the half of the debt, the penalty will be equal to the off-set amount.

Therefore, in example, has indicated by the above mentioned circular message:

  • Assuming a debt of Euro 25.000,00 and an off-set for the same amount, penalty will be Euro 12.500,00 (equal to the 50% of the entire debt);
  • Assuming a debt of Euro 25.000,00 and an off-set for Euro 18.000,00, penalty will always be Euro 12.500,00;
  • Assuming a debt of Euro 70.000,00 and an off-set for Euro 25.000,00, penalty will be Euro 25.000,00.

3.1  Penalties' maximum charge

We'd like to underline that the above mentioned statements from the Italian Tax Agency seem not to take under consideration provision of art.31, sin penalties "can't be in any case higher that the 50% of the off-set amount".

Under this assumption penalty should be equal to the minor between:

  • 50% of the court-ordered debt;
  • 50% of the undue off-setting.

3.2  Tax trial on delinquent court-ordered tax debts

Penalty can't be applied until a judicial or administrative trial is pending on the court-ordered debt. In that case, deadlines for penalty's application start from the day following the trial's conclusion.

Therefore, as confirmed by the Tax Agency, under the pending trial, credits can be off-set, but with the risk related to a losing trial.

In case of a winning trial, the off-set will be confirmed as fully valid.

3.3  Self and facilitated assessment

Without any specific limitation issued by the law,

  • Self-assessment and
  • Facilitated assessment

Must be considered as allowed.

The Tax Agency hasn't still clarified these aspects.

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.

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