The European Court of Justice (ECJ) is examining a pending case raised by an Italian Tax Court regarding the Italian Regional Tax on Productive Activities (IRAP) compatibility with the Sixth VAT Directive (77/388/EEC).

The taxable base of IRAP corresponds to the net value of the production, equal to the difference between the revenues and costs concerning the operating activity of an enterprise, but excluding some costs, as for example labour costs.

In this regard, the Italian Tax Court raised a specific question to the ECJ because, in its opinion, IRAP might have some features similar to the VAT ones and therefore conflicting with the Sixth VAT Directive.

Indeed article 33 of the above Directive states the followings:

"Without prejudice to other Community provisions, the provisions of this Directive shall not prevent a Member State from maintaining or introducing taxes on insurance contracts, taxes on betting and gambling, excise duties, stamp duties and, more generally, any taxes, duties or charges which cannot be characterized as turnover taxes".

Article 33 seeks to protect the EU VAT system from a Member State's fiscal measures (comparable to VAT) that could adversely affect the movement of goods and services.

According to above, the ECJ was requested to answer the following question (Official Journal of the European Union - 24.1.2004 -) -:

"Must Article 33 of Directive 77/388/EEC (as amended by Directive 91/680/EEC) be interpreted as meaning that it prohibits a charge to IRAP of the net value of production deriving from the regular exercise of independent activity to produce or exchange goods or to provide services?"

It is worth pointing out that the Legal Service of the European Commission has already filed, with the ECJ, it’s own paper stating that IRAP must be deemed as a tax forbidden under art. 33 of the Directive; obviously, ECJ might not agree with the European Commission’s point of view.

Should the ECJ’ s decision be positive, Italian companies could be entitled to claim the refund of IRAP that was paid in violation of the Directive, provided that an application for the reimbursement be filed within the statute of limitation as provided for by Italian Law.

Under Italian Tax Law, the status of limitation applicable to the tax refund is four years starting from the date of each payment.

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