VAT Litigation: Defence Against Assessments and Recovery
VAT is the most harmonised tax at European level and, at the same time, the tax that accounts for the largest number of challenges by the Italian Revenue Agency (Agenzia delle Entrate). The Firm Marzo Associati assists businesses and professionals in defending against VAT assessments, recovery of tax credits, allegations of fictitious transactions and carousel fraud, and refusals of refunds, with specific references to the case law of the CJEU and the Italian Supreme Court (Corte di Cassazione).
In Brief
VAT litigation concerns the recovery of tax on disputed deductions, transactions that are fictitious as to the parties involved or entirely fictitious, carousel fraud, incorrect application of schemes (reverse charge, split payment), and refusals of refunds. An appeal must be brought within 60 days before the Tax Court (Corte di Giustizia Tributaria). The defence relies on CJEU case law (the principles of neutrality and proportionality), the case law of the Italian Supreme Court (Corte di Cassazione) and documentary evidence that the transactions actually took place.
Main Types of VAT Litigation
VAT litigation involves greater technical complexity than litigation concerning most other taxes, both because of the layers of domestic legislation (DPR 633/1972 and subsequent amendments) and because of the ongoing interaction with EU law (Direttiva 2006/112/CE) and the case law of the Court of Justice of the European Union, which establishes principles binding on national courts. The recurring issues are as follows.
Transactions That Are Fictitious as to the Parties or Entirely Fictitious
Challenges in which the Italian Revenue Agency (Agenzia delle Entrate) classifies one or more transactions as fictitious (entirely fictitious: the transaction did not take place; fictitious as to the parties: it took place but with a different party). The defence involves proving that the transaction was actually carried out, that the business operator exercised due diligence and — according to CJEU case law — that they were unaware of fraud committed by others.
Carousel Fraud and Intra-Community Transactions
MTIC (Missing Trader Intra-Community) fraud involves intra-Community supply chains with shell companies that do not pay VAT. CJEU case law (the Optigen, Kittel and Italmoda judgments) requires evidence of bad faith or a lack of due diligence on the part of the trader before a deduction can be refused.
Detrazione IVA: requisiti formali e sostanziali
CJEU case law has reduced the significance of formal defects in invoices: substance prevails over form, and a deduction cannot be refused if the transaction is genuine and the VAT has been paid. Any defence must be able to navigate this distinction.
Reverse charge, split payment e regimi speciali
Incorrect application of the reverse charge (domestic or cross-border), split payment (public authorities), the margin scheme, agricultural schemes or certain special schemes (publishing, travel agencies): the Italian Revenue Agency (Agenzia delle Entrate) recovers tax that has not been paid or charged, but the penalties are often disproportionate and open to challenge in light of the principle of neutrality.
Refusal of a VAT Refund
For those with a structural VAT credit position (regular exporters and those whose transactions are predominantly subject to a reduced rate), refunds are a critical element of cash flow. A refusal can be challenged on its merits by establishing the actual entitlement to the credit.
Import VAT and Customs Litigation
Recovery of import VAT due to errors in customs classification, customs value or origin: litigation at the intersection of tax and customs law, with specific procedural features (including appeals before the Court of Rome for purely customs matters).
Decisive Case Law Principles in VAT Defence
An effective defence in VAT litigation must draw on the principles established by the Court of Justice of the European Union, which national courts are required to apply directly where they conflict with domestic legislation.
The <strong>principle of neutrality</strong> (CJEU judgments in Faxworld, Halifax, Gabalfrisa and numerous subsequent cases) requires that business operators be able to deduct in full the VAT on purchases relating to their economic activity, subject only to specific, exhaustively defined exceptions. Refusing a deduction for purely formal defects, where transactions are genuine, breaches this principle.
The <strong>principle of proportionality</strong> (CJEU, Profaktor, Direct Parcel, Ecotrade) limits Member States' power to impose penalties: penalties that go beyond what is necessary to achieve the objective (proper collection of VAT, prevention of fraud) are incompatible with EU law and may be disapplied by national courts.
The principle of the <strong>right to be heard during the administrative procedure</strong> (CJEU, Kamino, Sopropé), incorporated into Italian law by art. 12 dello Statuto del Contribuente for assessments following on-site visits, inspections or audits, requires the authorities to allow taxpayers to present their defence before issuing the measure. A breach renders the measure void.
Structuring the Defence in VAT Litigation
The technical analysis of a tax assessment notice or recovery notice begins with a check of the <strong>statutory time limits</strong>: art. 57 del DPR 633/1972 provides for 5 years from the tax return (7 where no return has been filed, doubled where there are indications of a tax crime). A challenge raised out of time cannot be relied upon.
This is followed by a review of the <strong>statement of reasons for the notice</strong>: art. 7 dello Statuto del Contribuente requires a comprehensive statement setting out the factual basis and legal grounds. Subsequent supplementation during litigation is inadmissible (Cass. 18.12.2009 n. 26683 e ss.). An inadequate statement of reasons makes the notice liable to be set aside, irrespective of whether it is well founded on the merits.
The substantive defence must be built on documentary evidence: contracts, orders, delivery notes, bank confirmations, commercial correspondence and warehouse declarations. Where fictitious transactions are alleged, evidence that the transaction actually took place and that the business operator exercised due diligence (selection of the supplier, checks on the supplier's status and compliance) is central to the defence strategy.
As regards penalties, consideration should always be given to the application of art. 6 D.Lgs. 472/1997 (error without fault, objective uncertainty in the legislation) and art. 12 (multiple and continuing infringements), which may significantly reduce overall exposure.
Judicial Settlement, Tax Settlement Procedure (Accertamento con Adesione) and Preferential Settlement Schemes
In VAT litigation too, mechanisms for avoiding or resolving litigation should be considered before and during proceedings. The <strong>tax settlement procedure (accertamento con adesione)</strong> (D.Lgs. 218/1997) allows the dispute to be settled with penalties reduced to 1/3 of the statutory minimum and suspends the time limit for appealing for 90 days. It is often advantageous where defects in the notice are limited and total exposure remains significant.
<strong>Judicial settlement</strong> (art. 48 D.Lgs. 546/1992), as reformed by D.Lgs. 220/2023, allows the parties to reach an agreement during proceedings, with penalties reduced by between 30% and 50% depending on the instance at which settlement is reached. It is particularly appropriate where the evidential stage reveals strengths and weaknesses in the defence that make a compromise reasonable.
The periodic <strong>preferential settlement schemes for pending disputes</strong> introduced by the legislature should be assessed on a case-by-case basis: they are advantageous where the grounds of defence are weak and overall exposure is high.
Frequently Asked Questions
Have You Received a Tax Notice?
The time limits are short. Contact us for a confidential review of your notice.