This blog was last updated on March 1, 2024

The Italian government has introduced an ambitious new program for collecting VAT, under which the tax authorities will pre-populate VAT returns on behalf of taxpayers. This program is aimed at reducing the VAT gap in Italy, which reached 33.5 billion Euros in 2017 – in absolute terms, the largest loss of revenue in the European Union. While pre-populated VAT forms might simplify VAT collection for the tax authorities, businesses may be faced with new challenges, detailed below.

Background

Article 16 of recently enacted Decree n. 124/2019 provides that data gleaned from transactional information supplied from electronic invoices via SDI, cross-border transactions, as well as data collected on fees electronically, will be used by Italy to pre-populate a VAT return to be later submitted by the taxpayer. For now, this program applies only to businesses resident and established in Italy. A representative of the tax agency has stated that the pre-populated forms will be regarded as drafts, with taxpayers having an opportunity to amend incorrect data; however, it is not yet clear how much leeway will be given.

Why is this important?

The jump to pre-completed VAT returns in Italy is a full manifestation of what it means to transfer data to the government in real time – which all comes back to the VAT gap.  Italy is following in the footsteps of Chile and their recent success of minimizing the VAT gap with the help of pre-completed VAT returns.

It would be unwise for businesses to think of this new simplification as a diminution of responsibilities in producing a VAT return.  In fact, one could argue that this creates an equal responsibility for businesses to know the ins and outs of their data – as each business should be prepared with any information needed to challenge inaccurate data prepared by the Italian government.

Companies that don’t have a reliable automated solution for both electronic invoicing and Esterometro may struggle to reconcile their internal VAT figures with the figures presented to them by the government.  Therefore, having a dependable tax automation process is arguably more important in the new digital age; the more businesses automate, the more knowledge businesses will have about their own data which will allow them to question the government’s data.

Much is yet to be understood as to how this experiment will play out in Italy, but the Government is clearly expecting a positive outcome as the plan is to extend this regime to non-resident businesses as early as 2021.  We expect new information will be available in the upcoming months and will continue to monitor any additional tax changes.