In recent years, Italy has taken significant steps towards promoting transparency, risk management, and collaborative relationships between taxpayers and the tax administration. Central to this evolution are two key concepts:
The tax control framework (TCF); and
Cooperative compliance.
The TCF explained
The TCF refers to the set of internal processes, procedures, and organisational structures that a company adopts to identify, assess, manage, and monitor tax risks. It is part of a broader internal control system and aims to ensure that tax positions are taken in compliance with current legislation and aligned with the company’s risk appetite.
The TCF system must be capable of ensuring:
A clear allocation of roles and responsibilities across the various sectors of the taxpayer’s organisation in relation to tax risks;
Effective procedures for the identification, assessment, management, and control of tax risks, with compliance ensured at all corporate levels;
Effective procedures to address any deficiencies identified in the system’s functioning and to implement the necessary corrective actions; and
A mapping of tax risks related to business processes.
In Italy, the development of a TCF has become a prerequisite for accessing the cooperative compliance regime, introduced by Legislative Decree No. 128/2015.
The regime represents a significant shift in the relationship between large taxpayers and the Italian tax authority, encouraging a proactive and transparent cooperation.
The cooperative compliance regime is reserved for taxpayers with a turnover or revenues of not less than:
€750 million starting from 2024;
€500 million starting from 2026;
€100 million starting from 2028.
Dimensional requirements are assessed by taking as a reference parameter the highest value between the revenues reported, in accordance with proper accounting principles, in the financial statements for the fiscal year preceding the one current at the date of submission of the application and the two preceding fiscal years, and the turnover reported in the VAT returns for the previous calendar year and the two preceding calendar years.
Analysis of the optional TCF
In order to broaden the range of entities that can adopt a TCF – regardless of their size – the Ministerial Decree of July 9 2025 implements the rules governing the optional regime for the adoption of a tax risk control system (a so-called optional TCF).
The measure is aimed at medium-sized taxpayers that, although not meeting the requirements to access the cooperative compliance regime, may still obtain the same penalty relief benefits by voluntarily adopting a system for identification, assessment, management, and control of tax risk.
Implementing an optional TCF demonstrates a company's commitment to responsible tax governance, enhances trust with stakeholders, and may offer benefits such as reduced penalties in the event of disputes, faster resolution of tax issues, and improved relationships with tax administrations.
The voluntary adoption of a TCF enables smaller entities to:
Improve internal control over tax-related activities;
Anticipate and manage potential tax risks before they result in disputes or penalties;
Foster a culture of tax compliance aligned with corporate governance best practices; and
Build a constructive relationship with the tax authorities based on trust and cooperation.
The option must be exercised by submitting a communication to the Italian Revenue Agency, using the specific form provided and including the documentation described in the decree.
The beneficial effects of the penalty exemptions apply from the beginning of the tax period in which the communication is submitted to the Revenue Agency.
In the event the option is exercised, no administrative penalties and no application of the criminal provisions relating to false tax returns under Article 4 of Legislative Decree No. 74/2000 shall apply for violations related to tax risks that were previously disclosed through a ruling request, provided such violations do not involve fraudulent or simulated conduct.
The option is considered validly exercised only if the communication is accompanied by the documentation specified in the decree. This includes:
A description of the business activity carried out by the company;
A tax strategy formally approved by the management bodies prior to the exercise of the option;
Documentation describing the adopted tax risk control system and how it operates;
A map of business processes;
A map of tax risks, including those arising from accounting principles, as identified by the tax risk control system from the time of its implementation, along with the related controls; and
Certification of the TCF by an independent professional who meets the required standards of integrity and professional qualifications.
The optional TCF does not include certain benefits provided under the ordinary cooperative compliance regime, such as:
The reduction of assessment time limits;
An exemption from providing guarantees for VAT refunds;
Access to the fast-track ruling procedure; and
The enhanced adversarial procedure.
These exclusions, although consistent with the lower organisational requirements of the optional regime, may nonetheless limit the incentive effect of the TCF for SMEs.
