Italy: Foreign Services: The Italian Tax Agency

Last Updated: 30 October 2012
Article by Riccardo Saottini and Maria Grazia Marchi

1. INTRODUCTION

The so called "European Community Law 2010" has modified the criterion to identify the exact moment when VAT becomes due for services.

With a recent intervention the Italian Tax Agency has commented the new rules enforced on March 17th 2012.

2. THE NEW RULES

The Law 217/2011, also known as "European Community Law 2010", has introduced some modifications in the VAT rules with the aim of adapting both the European and domestic laws. In particular said law (even if with delays) has acknowledged the rules of the European Directive 2008/117/CE on VAT chargeability within services exchanges within the European community. The moment of "performance" of services, that is the moment when the tax becomes payable to the Tax Authority and invoice must be issued and processed in the accountings, is connected, as a general rule, with the payment of the amount agreed (under article 6, paragraph 3 of the Republic Presidential Decree nr. 633/1972) and, as a derogation, with the moment of invoice's issuing (under article 6, paragraph 4 of the same Decree).

Article 8, paragraph 2, letter a), nr. 2) of the Law 217/2011 has included in the former article 6 of the said Decree the new paragraph 6 that derogating the 3rd ad 4th paragraphs states:

  • services included in the article 7-ter of the Republic Presidential Decree nr. 633/1972 (know as "generic services", rendered by a VAT subject resident in another member State to a client resident in Italy;
  • services other than the ones mentioned by articles 7-quater and 7-quinques of the same Decree rendered by a resident VAT subject to a client resident outside of Italy;

are considered "performed" when the service is completed or, if they are periodical or recurring services, when amounts agreed mature.

The rule regards only the "generic" services rendered or received by VAT subjects resident outside of Italy (in the European Community or outside). In case the amount agreed is paid entirely or partially, the service is considered "performed" just for the part paid at the date of payment.

The rule specifies that if the same services are recurring for a period exceeding a year without any payment, they are considered in any case performed at the end of each calendar year until they are completed. The new rules have to be applied to "generic" services starting from March 17th 2012.

3. WAIVER TO THE GENERAL RULE

The performance of generic services is identified by the completion of the service or, for periodical and recurring services, when the amount due matures.

If before the performance is completed the amount due is entirely or partially paid the service is considered "performed" at the date of said payment.

Under the effects of modifications introduced by the European Community Law 2010 different rules are set according to the type of service considered.

Under article 7-ter of the Republic Presidential Decree nr. 633/1972, rendered to or received by VAT subjects resident outside of Italy the VAT relevant moment is connected to the completion if the service or to the payment of the amount due if preceding.

Therefore the invoiced issued before the completion of the service is no more relevant for VAT payment. Services included in articles 7-quater and 7-quinques as well as generic services delivered to foreign individuals or to VAT subjects resident in Italy continue to be considered "performed" at the date of payment of the amount due, if preceding, or at the date of issuing of the related invoice.

Type of service

Supplier

Customer

VAT relevant moment



Generic services

ITA

ITA

Payment or Invoice if preceding

ITA

EU o Extra EU

Completion or payment if preceding

EU or Extra EU

ITA

Generic Services (periodical or recurring)

ITA

EU or Extra EU

Payment's expiration or payment if preceding

EU o Extra EU

ITA


Generic Services (over one year)

ITA

EU o Extra EU

At the end of each calendar year until the service is completed

EU o Extra EU

ITA


Waiver Services

ITA

ITA

Payment or Invoice if preceding

ITA

EU o Extra EU

EU o Extra EU

ITA

4. FEW CLARIFICATIONS ON PERIODICAL AND RECURRING SERVICES

As said continuous or recurring "generic" services exchanged between VAT subject are considered "performed" at the date of fees' maturing.

The date of fees' maturing is the last day of the period when periodical payments are due.

Let's make an example: a continuative technical support agreement with payment every 2 months delayed at the 15th day of the following month.

For the period March-April the payment date is May 15 but the date of performance is in any case April 30 (that is the last day for agreed fees maturing).

Generic services lasting over 1 year without any payment during the same period are considered "performed" at the end of each calendar year until they are completed.

The Italian Tax Agency, with its circular Message nr. 37/E/2011 has clarified that in order to consider the received services as continuative and with a long lasting duration, over one year, it is needed to wait (also for those service lasting over one year since the beginning) until 12 months have expired since the beginning of their performance. In example an Italian customer supplied by a foreign provider with a maintaining service without prepayments starting on April 1st 2012 has to wait until December 31st 2013, an not April 1st 2013, before issuing a self-invoice related to services received in the 21 previous months. The taxable amount is calculated according to article 13, paragraph 2, letter c) of the RPD 633/1972 that is on the base of "expenses suffered by the provider to perform those services". On this topic the Circular Message has clarified that the taxable amount has to be calculated measuring the total amount agreed, to be paid at the end of the service, on the part of the service performed within each calendar year.

Example

Maintenance service for 4 year without prepayments. Value of the service € 45.000 starting from March 1st 2012. The service is considered over 1 year at March 1st 2013 and the customer will self-invoice the amount of € 20.632,50 on December 31st 2013 ( 22 months per the end of 2013 / 48 months total duration x 100 = 45,83%, € 45.000 x 45,83% = € 20.632,50). This amount has to be charged with VAT under article 13, paragraph 2, letter c) of the Republic Presidential Decree nr. 633/1972).

5. THE INTERPRETATION OF THE ITALIAN TAX AGENCY

With its Circular Message nr. 35/E/2012 the Italian Tax Agency has officially clarified that the issuing of the invoice by the European supplier has to be considered as proof of service's performance. Services' performance within the European Union can therefore be identified with the invoice receiving from the non resident supplier.

The Tax Agency unfortunately doesn't clarify if this rule can be extended also to Extra EU supplier or not (but this seems to be reasonable according to our opinion). But, since the anticipated issuing of the invoice before the completion of the performance doesn't configure the performance itself, it is in any case suggestible to require a certification to the foreign supplier confirming that the service has been performed.

6. TEMPORARY REGIMEN

As said the above mentioned new rules are applicable to services performed starting from March 17th 2012. With this regard the Tax Agency has clarified that:

  • the new rules are applicable to services completed or matured (if periodical or recurring) at the date of March 17th 2012;
  • the old rules are applicable to services completed or matured (if periodical or recurring) before March 17th 2012.

7. INTEGRATION OF THE INVOICE RECEIVED FROM THE EC SUPPLIER

Obligation related to invoicing and processing for services relevant for VAT in Italy, provided by a non resident to an Italian VAT subject are fulfilled by the Italian subject with the reverse-charge mechanism (that is issuing a self-invoice or integrating the foreign invoice). The issuing of a self-invoice or the integration of the received invoice is mandatory also if the foreign subject has a VAT identification in Italy (directly, under article 35-ter of the RPD 633/1972 or through a Fiscal Representative).

The Tax Agency Circular Message nr. 12/E/2010 containing the first clarifications on the new VAT rules enforced in 2010, conceded the chance to integrate invoices related to "generic services" received from EU suppliers instead of issuing a self-invoice. With the "EU Law 2010", that chance became mandatory, and it has to be fulfilled under provision of articles 46 and 47 of the Law Decree 331/1993.

In particular, following modifications introduced by article 17, paragraph 2 of the RPD 633/1972, by article 8 paragraph 2, letter g) of the Law 217/2011, starting from March 17th 2012, has been stated that obligations related to invoicing and processing of:

  • "generic" services performances under article 7-ter of the RPD 633/1972;
  • supplied by a VAT subject resident in another Member State;

have to be fulfilled by the customer (VAT subject) in Italy under articles 46 and 47 of the Law Decree nr. 331/1993 (that is as per EC exchanges of goods). Therefore, the Italian customer who receives a service from a VAT subject resident in another Member State has to invoice and process the same invoice through the integration of the received invoice.

He needs therefore to:

1. numerate and integrate the received invoice with the VAT rate and amount due and the applicable article of the Italian VAT Law. If amounts included in the invoice are indicated in foreign exchange, the customer has to convert and write the same in Euro;

2. within the month of receiving or in any case within 15 days from receiving, and with reference to the same month, file the integrated invoice in the register of sales invoices including the amount also in the foreign exchange;

3. file the same invoice also in the register of purchases in order to exercise the VAT deduction right.

The integration of the invoice according to articles 46 and 47 of the Law Decree nr. 331/1993 is mandatory only for "generic" services included in article 7-ter of the RPD 633/1993 delivered by a supplier resident within the European Union to an Italian resident VAT subject. While in all the other cases it is mandatory to issue a self-invoice under article 17, paragraph 2 of the RPD 633/1972.

Summarizing:

Service supplied

Supplier

Fulfilments for the Italian customer

Generic services under article 7-ter D.P.R. 633/72

EU

Integration of the purchase invoice

Extra EU

Self-invoice

Waiver services under articles 7-quater and 7-quinques D.P.R. 633/72 (relevant for VAT in Italy)

EU


Self-invoice

Extra EU

Generic services under article 7-ter D.P.R. 633/72 EU Integration of the purchase invoice Extra EU Self-invoice Waiver services under articles 7-quater and 7-quinques D.P.R. 633/72 (relevant for VAT in Italy) EU Self-invoice Extra EU

8. CLARIFICATIONS FROM THE ITALIAN TAX AGENCY

The Agency has clarified that if the Italian customer doesn't receive the foreign invoice within the month following the performance of the service, he is obliged to issue a self invoice within the following month (therefore within 2 months from the service's performance), including the VAT identification number of the foreign supplier (this invoice has to be filed both in sales and purchases registers within the same month). Has clarified by the Circular Message nr. 35/E/2012, the regularization of the exchange issuing a self-invoice is mandatory only when the customer is acknowledge of the completion of the service or when he has paid the amount agreed.

Is therefore appropriate require to the EU supplier to make a specific communication once the service has been completed.

At the same time, the customer who receives an invoice showing an amount lower that the actual one, is obliged to issue an integrative invoice (with a self-invoice) within the 15 day following the filing of the original invoice.

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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