On August 8 2019, the Italian tax administration published Circular Letter N19/E. In this document the tax authorities provided guidelines on prevention of tax evasion measures, focusing on large taxpayers, small and medium-sized enterprises and self-employed workers.
Two main directives can be identified: the strengthening of exchange of information procedures as a crucial tool to fight tax evasion and tax avoidance in a globalised business environment; and the circular letter defines objectives and operational activities to foster mechanisms of interaction between the tax authorities and taxpayers (cooperative compliance approach).
Below we will provide some highlights of the new guidelines addressing large and small/medium-sized taxpayers and international businesses.
Large taxpayers – turnover of more than €100 million euros ($109 million)
For large taxpayers, who fall under the territorial competency of the regional tax offices, the Central Revenue will reinforce support activities in favour of such regional offices. This 'mentoring activity' will be concentrated on those taxpayers with estimated relevant tax risk or on those who do not show collaborative and transparent conduct.
As for automated control, compliance activities should be encouraged to intercept aggressive domestic and international tax planning phenomena using databases and information already available to the Central Revenue.
With reference to inspection activities and potential tax litigation consequences, the intention is to give priority to positions involving tax periods for which the statute of limitation is going to expire on December 31 2019, and to improve reliability in terms of challenges raised against taxpayers and increase the technical components contained in those challenges.
Small and medium-sized enterprises
Small and medium-sized enterprises represent the cluster of taxpayers containing the most VAT number holders. In 2018, the Italian tax authorities sent letters to taxpayers with particular anomalies in their tax returns in order to encourage the voluntary fulfilment of tax obligations and the emersion of the taxable base.
In terms of progressing actions to tackle tax evasion, this year can be characterised by four important changes from a tax standpoint:
- The introduction of mandatory electronic invoicing;
- As of July 1 2019, the electronic transmission of daily fee data (trasmissione telematica) started for subjects who in the previous year achieved a turnover of more than €400,000;
- The expansion of the flat-rate scheme (regime forfettario); and
- The approval of 175 reliability synthetic standards for the 2018 tax period (in Italian referred to as ISA:
These standards measure data and information relating to several tax periods through a statistical-economic method. With ISA, the Central Revenue will verify the normality and consistency of taxpayers' professional or corporate management.
In terms of international business, in recent years, attention has turned towards the automatic exchange of information, relating, for example, to:
- Financial accounts in accordance with the common reporting standard (CRS);
- Advance agreements on international taxation topics;
- Country-by-country reporting (CbCR), exchanged under the bilateral and multilateral agreements; and
- In the European context, on the basis of Directive 2016/881/EU (DAC4), which was transposed within the EU, as the BEPS Action 13 of the OECD's Inclusive Framework.
Advance agreements are important in the tax compliance processes of companies that operate in an international environment. The discipline has recently evolved, moving from the international ruling governed by Article 8 of Law Decree 269 of September 30 2003, to preventive agreements for companies with international activities regulated by Article 31-ter of DPR 600 of 1973.
As a general takeaway on methods and approaches of the Central Revenue, this circular letter emphasises that administrative cooperation as regards taxes is one of the main resources used to fight tax evasion and tackle tax avoidance schemes, on at least two levels: the fulfilment of domestic compliance provisions (including adherence to optional regimes such as the transfer pricing documentation regime and the IP box regime), and the exchange of information with foreign tax authorities (including CbCR, CRS, EU directives and contemporaneous tax inspections).
In a similar landscape, the capacity of the Italian Central Revenue to process and organise all the information that is to be collected will be a crucial turning point in identifying: first, those taxpayers with high-risk tax profiles (both in relation to their size and their industry), and then the law provisions that need to be implemented to make the anti-tax avoidance tools more effective.
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