Law Decree n. 119 October 23rd 2018: facilitated tax arrears definition and tax simplification provisions

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1 Tuesday, November 13th 2018 CIRCULAR Law Decree n. 119 October 23rd 2018: facilitated tax arrears definition and tax simplification provisions Summary Premise Settlement of the tax reports Settlement of tax audit reports and tax assessments Settlement of notice of payment issued by the Tax collector, Settlement of tax dispute pending before Tax Court Settlement of tax debts for ASD association Special integrative tax return Electronic invoicing provisions Simplification provisions on the issuance of invoices Simplification provisions regarding the registration of invoices issued Simplification provisions on the registration of purchases and VAT deductions Obligation to store and transmit daily compensations Premise The Law Decree n. 119 called Urgent in fiscal and financial measures was published in Official Gazette no. 247 of October 23 rd 2018 and is in force since October 24 th The Decree contains provisions for the pacificazione fiscale and tax simplification. In details: settlement of the tax reports and tax assessments issued by the Tax authority (Article 1 2); settlement of notice of payment issued by the Tax collector, for tax debts until December 31st, 2017 (Article 3-5);

2 remission of tax debts up to one thousand euro of Tax collector from fiscal year 2000 to fiscal year 2010 (Article 4); settlement of tax dispute pending before Tax Court (Article 6) settlement of tax debts for ASD association (Article 7); special integrative tax return (Article 9). The Law Decree introduces some provision about electronic invoices (art. 10), the issuing of invoices (Article 11), the bookkeeping of issued invoices (Article 12) and the bookkeeping of purchases and VAT deduction (Articles 13-14). Finally, the Law Decree n. 119/2018 contains provisions on the processo tributario telematico, excise duties, VAT group and compensations. Below some provisions are analyzed in detail: Settlement of the tax reports Article 1 of the Law Decree n. 119/2018 introduces the possibility to settle the whole tax reports notified within October 24 th The rule is that the taxpayer can resolve the tax report before formal notification of the tax assessment or the invitation as per article 5 c. 1 of Legislative Decree n. 218/1197. The taxpayer can settle the tax reports before the expiration of the assessment terms, as per article 43 Presidential Decree 600/1973 and as per article 57 of Presidential Decree 633/1972. To settle the tax report, the taxpayer must submit a supplementary tax return by May 31 st The proceeding will be established by the Tax Office with a special deed and the taxpayer must pay the whole taxes due, without the application of penalties and interests. The payment can be done in installments (20 quarterly installments). It should be noted that the rule states that the definizione agevolata must resolve the whole tax report (PVC). If the Tax Authority notifies the tax assessment by October 24 th 2018, the taxpayer can settle the tax report and submit the tax return by May 31 st 2019, according to the procedures that will be defined by the Tax Office. As per article 1 paragraph 9 Law Decree n. 119/2018 for tax report including remarks expiring within December 31 st 2018, the assessment terms are extended for two years (up to 2015). Settlement of tax audit reports and tax assessments Article 2 introduces a new resolution of tax audit reports and tax assessments. Tax assessments: all remarks contained in Tax Audit Reports filed by October 24 th, not yet contested and for which the contestation terms are not expired, can be regularized. These assessments can be resolved throughout the payment of the total amount of taxes due, without the application of penalties and interests. The resolution and the related payment must be done within 30 days following the Decree effective date (i.e. within November 23 rd 2018) or, if wider, within the terms of art. 15 of the Legislative Decree no. 218/1997 (i.e. within 60 days following the notice of assessment date). According to art. 2, the assessments imposing the payment of penalties only cannot be resolved. Invitations (so-called Inviti al contraddittorio ): the resolution is applicable only for the invitations notified within October 24 th The resolution is considered finalized after the payment of the whole taxes due, without the application of penalties and interests, which must be done within 30 days after the Decree effective date (i.e. within November 23 rd ). Tax settlement: the tax settlements undersigned within October 24 th 2018 can be resolved throughout the payment of the taxes due, without the application of penalties and interests, within 20 days after October 24 th (i.e. within November 13 th ). Art. 2 of the Decree introduces extraordinary possibilities to regularize tax breaches, reopening the resolution terms for the tax audit reports notified before October 24 th, giving to the taxpayers the opportunity to exercise the so-called pacificazione fiscale within 30 day after the publication in the Official Gazette.

3 Settlements of notice of payment issued by the Tax Collector Law Decree approved on October 23rd, 2018 sets three different provisions concerning the notice of payment issued by the Tax Collector: notice of payment issued up to (Article 3); remission of tax debts up to euro issued from fiscal year 2000 to fiscal year 2010 (Article 4); definition of debts for own resources of the European Union (Article 5). Tax bills scrapping: it is possible to settle the amounts due to the Tax Collector from January 1st 2000 up to December 31st 2017 with the benefit of the write off of penalties and interests. The application can be submitted until April 30th, 2019 using the form made available by the Tax Collector, who will inform the taxpayer about the amount due within June 30th, Afterwards, within July 31st, 2019, the taxpayer must pay the full amount or the first installment if he opts for the payment in installments. In fact, the extension in 2 installments per 5 years (respectively on July 31st and November 30th of each year) is allowed. The missing or delayed payment of one installment means the forfeiture of any benefit. Furthermore, it is not possible to deduct the amounts already paid before submitting the application. This measure is available also for taxpayers who acceded to previous editions of the "Tax bills scrapping": they must resolve the unpaid installments within December 7th, 2018 whereupon they will be able to make payments according to the new regulation, in 5 years. With the submission of the application the taxpayer won t be considered defaulting in front of the Tax Collector anymore, no enforceable procedure can be started and the ones already in progress won t be carried on. With the whole payment within the first deadline, any procedure is extinguished. Remission of tax debts up to euro 1.000: each debt, including those related to local taxes, whose residual amount as at October 24th, 2018 does not exceed euro (including tax, penalties, interest) issued to the Tax Collector from January 1st, 2000 up to December 31st, 2010, will be automatically canceled on December 31st, The amounts already paid before the Law Decree effective date won t be paid back, while the ones paid between its entrance in force and December 31st, 2018 can be offset with other debts or refunded. Article 4 of the Law Decree does not include debts related to traditional own resources, VAT, constitute state aid, amounts due to convictions by the Court of Auditors and criminal measures or sentences. Definition of debts for own resources of the European Union: Article 5 extends the settlement of taxes to duties, excise and VAT issued by December 31st, 2017, following the procedures and terms of Article 3 of the Law Decree. Taxpayer must pay taxes, interests and additional interests for late payment. Once the applications is received, the Tax Collector will inform the taxpayer of the total amount due, together with the installment plan, if requested, by July 31st, The payment of the first installment or whole amount is due within September 30th, The succeeding installments will follow the deadlines for the ordinary roles (July 31st and November 30th of each year). Settlement of the tax dispute pending before the Tax Court Accordingly to article 6 of the Law Decree n. 119/2018 there is a specific procedure to define tax litigation pending before Tax Court. The taxpayer can settle only the tax dispute pending before Tax Court, against the Tax Office, in every stage and instance. The litigation is pending when the tax appeal is notified to the Revenue Agency and before the final and enforceable decision by October 24 th, The tax payer can define the dispute paying an amount equal to the value of the dispute as per article 12 of the Legislative Decree n. 546/1992. The second paragraph of article 6 sets that the taxpayer can obtain a reduction of the amount if the Revenue Agency loses the trial and, more precisely:

4 the amount is reduced to one half if the Revenue Agency loses in first instance, the amount is reduced to one- fifth if the Revenue Agency loses the second instance. In the disputes related to penalties only, the taxpayer can define the dispute paying only the 15% of the value of the penalties if the Revenue Agency loses the trial or ho can pay the 40% of the penalties value in the other cases. When the penalties are related to the tax, the taxpayer can pay only the amount of the dispute that is equal to taxes. The tax litigation can be finalized with the submission of the application for the definizione agevolata and with the payment of the amount due (or with the payment of the first installment) not later than May 31 st, When there are more than one tax assessment, the taxpayer must submit a different application and arrange a different payment. Any amount already paid in the pending dispute can be deducted from the amounts due. In any case, the finalization does not give right to the refund of amounts already paid when the payment exceeds the amount due. The taxpayer can issue an instance within June 10 th, 2019 to the Tax Court and the Court can suspend the litigation until December 31 th, The appeal of tax disputes can be suspended for nine month if the decision can be appealed before the Regional Tax Court and before Supreme Court between the date of October 24 th, 2018 and July 31 st, If the Tax Office rejects the instance for the socalled definizione agevolata, the denial must be notified to the taxpayer within July 31 st, The taxpayer can appeal the denial before Tax Court within 60 day following the notice. The taxpayer must filed the instance to schedule the hearing within December 31 th, 2020to Tax Court, otherwise the Tax Court can decide to dismiss the dispute. Other instruction will be provided by the Director of Tax Office and by every single regional authority. Settlement of the tax debts for ASD association According to article 7 of the Law Decree n. 119/2018, ASD associations may submit a special integrative tax return in order to regularize remarks up to a threshold of Euro for each tax period. Furthermore, the above taxpayers are allowed: to settle tax assessments pursuant to Article 2 by paying an amount equal to 50% of the higher taxes assessed, except for the VAT that has to be entirely paid and 5% of penalties and interests; to settle tax litigation proceedings by paying the following amounts: i) 40% of the taxes claimed and 5% of penalties and interests for litigation pending before the Tax Court of first instance; ii) 10% of the taxes and 5% of penalties and interests if the decision made by the Tax Court filed within October 24 th 2018 is favorable to the taxpayer; iii) 50% of the taxes and 10% of penalties and interests if the decision made by the Tax Court it is unfavorable to the taxpayer and it is still pending. The settlement of the tax assessments and tax litigation proceedings is not allowed if the amount is higher than Euro for each tax period. In these cases, articles 2 and 6 of the Law Decree n. 119/2018 will be applicable. Special integrative tax return The Decree closes with a specific provision concerning a procedure to be adopted for the amendment of omissions or mistakes related to the tax returns submitted within October 31 st Amendments can be done for income taxes purposes, substitutive taxes, withholdings, regional taxes and VAT. The procedure gives to taxpayers the possibility to communicate an integrative taxable income with respect of a threshold of Euro for each year and anyway not higher than the 30% of the income already included in the original tax return. Nevertheless, in case of original tax returns showing a taxable income lower than Euro or in which no tax was arisen thanks to the losses brought forward, the integrative return can be

5 submitted only if the taxable income included is not higher than Euro If case of integrative submission, for every fiscal year must be applied with no application of interests and penalties: a substitutive tax defined by applying a tax rate equal to 20% to the higher taxable income for the imposition of income taxes, substitutive taxes, social contributions and regional tax; a substitutive tax with a rate equal to 20% to the higher withholding due; regarding the VAT, an average tax rate resulting by the ratio between the taxable transactions and the turnover declared. If it is not possible this average tax rate, the ordinary VAT rate is applicable. In order to communicate an integrative taxable income, the taxpayer has to submit the special amended tax return within May 31 st, 2019 and pay the total amount by July 31 st, 2019 or, in case of instalments 10 biannual instalments for the same amount, and pay the first instalment within September 30 th All the above stated can be done without any possibility to offset with other credits. This special procedure is completed by submitting the tax return by paying the total amount or the first instalment. In case of omitted payment of the amounts due, the special amended tax return is considered a valid enforcement order for collecting the tax due, the interests and the administrative penalty equal to 30% of the unpaid amounts. In case of payment within 30 days after the deadline, the penalty is reduced by half. Article 9 states that in the integrative tax return, any previous loss cannot be deducted from the higher taxable amounts declared. Furthermore, the return does not give the right for requesting the reimbursement of withholding taxes, installments and tax credits not before certified, neither for exemptions or advantages not previously requested. Paragraph 7 states that the special integrative tax return cannot be submitted by: taxpayers that haven t submitted the tax return for one fiscal year between 2013 and 2016; taxpayers that are acknowledged of accesses, inspections or verifications, invitations or questionnaires or if they re acknowledged of the starting of inspections activities, tax or penal settlements. Furthermore, basing on paragraph 8, the special integrative tax return cannot be submitted by taxpayers for financial and equity assets set up or held abroad, for incomes pursuant to art. 5 Tuir as well as by taxpayers who opted for tax transparency option, in relation to taxes due on the higher incomes arising from accesses, inspections or audits or any other settlement. Special integrative tax return does not exclude the incrimination in case of any offenses or in relation to money laundering. Penalties are provided in case of fraudulent use of the special integrative tax return. Electronic invoicing provisions Article. 10 of the D.L. n. 119/2018 regulates the sanctioning aspect related to the late issuance of the electronic invoice, in particular for the first half of the 2019 tax period the facilitation intervention will take two aspects: no penalty in the event that the electronic invoice is issued within the periodic liquidation deadline of the I.V.A. of the period relating to the time the transaction was carried out (Article 6 of the Legislative Decree No. 633/72), 20% penalty as provided for in the event that the electronic invoice is issued by the end of the periodic liquidation of the I.V.A. of the period subsequent to that of the transaction. Penalties - disapplied - referred to above are those provided for by Legislative Decree no. 471/1997 in case of violation of the obligations of documentation and registration of operations subject to VAT; in particular art. 6 paragraph 1 sets forth penalties in the measure included from the ninety to one hundred eighty percent of the tax related to the tax base not properly documented, and paragraph 8 of the same article establishes, in the hands of the transferee or client, a penalty in a measure equal to one hundred percent of the tax. For example, in the case of tax payer with monthly VAT liquidation, assuming an operation carried out (Article 6 of Presidential Decree No. 633/72) in

6 January 2019, no penalty will arise if the electronic invoice is issued by February 16, 2019, vice versa the penalty will be 20 % of the aforementioned measures if the invoice is issued between February 17 and March 16, As it appears from the reading of the explanatory report, the legislative action described aims the dual purpose of not further delaying the entry into force of electronic invoicing and also of reducing the negative effects of possible delays in the adaptation of IT systems by taxpayers. Simplification provisions on the issuance of invoices Article 11 of the D.L. n. 119/2018 is instead a general rule and concerns both the electronic invoice and the paper invoice and, without prejudice to the chargeability of the tax and the consequent liquidation, extends the deadline for issuing the invoice of 10 days from the time the transaction was carried out (Article 6 of Presidential Decree No. 633/72). The tax payer who intends to benefit of this deferment will have to report it in the invoice itself. In particular, art. 21 paragraph 2 of the D.P.R. n. 633/72 is integrated with the new letter g-bis), which includes among the mandatory data of the invoice, the date of execution of the transaction, when different from the date of issuance. For example, in the event that an operation is carried out on February 1, 2019 and the seller issues the invoice on February 7 of the same year, the invoice must also report the date of February 1, vice versa if the invoice is issued on February 1, no date other than the date of issuance must be indicated. It is specified that nothing changes for the already known procedure of issuing deferred invoices. The start of the new provision is set for July 1, Simplification provisions regarding the registration of invoices issued Article 12 of the D.L. n. 119/2018 intervenes with an amendment to art. 23 of the D.P.R. n. 633/72 setting the deadline for the registration into VAT book of the invoices issued at the day 15th of the month following the one in which the operations were carried out, and with reference to the same month as the execution of the operations. The modification of the registration terms of the invoices issued concerns: immediate invoices, deferred / summarized invoices (Article 21 paragraph 4 of the third sentence, letter a, of the Italian legislative decree No. 633/72), invoices issued for services rendered to EU entities (Article 21 paragraph 4, third sentence, letter c, D.P.R. No 633/72), invoices issued for the provision of services rendered to / received by non-eu subjects (Article 21 paragraph 4, third sentence, letter d, D.P.R. No 633/72). The exception to the transfer of goods carried out by the transferee to a third party through the transferor is still binding (Article 21 paragraph 4, third sentence, letter b, of Presidential Decree No. 633/72) providing that the invoices issued within the month following that of the delivery or shipment of the goods must be registered by the day 15th of the month following the month of issuance and with reference to the same month, thus allowing the postponement of the tax due. Simplification provisions on the registration of purchases and VAT deductions Art. 25 of the D.P.R. 633/72 concerning the VAT register for purchases is not free from changes, in particular art. 13 of the Decree which here is commented repeals the obligation of progressive numbering of purchase invoices. The fulfillment is automatically performed for electronic invoices sent by SdI (Interchange System). The current legislation provides that the VAT deduction may take place upon registration of the invoice by the transferee / purchaser in the periodic VAT liquidation relating to the month in which the invoice was received. Article. 14 of the D.L. n. 119/2018, in order to avoid that the transferee / purchaser suffers the financial loss deriving from the postponement of the deduction following the expansion of the terms described above, provides

7 for an amendment to art. 1 paragraph 1 of the D.P.R. n. 100 of March 23, In particular, the new law allows the exercise of the right of VAT deduction by the 16th day of each month for the purchase documents received and recorded by the 15th of the month following the one in which the transaction was carried out, with the only exception of the purchase documents relating to transactions carried out in the previous year. For example, in the case of a purchase made in September and the related invoice is received in October, the buyer can exercise the right to deduct VAT in the liquidation of September, provided that the invoice is received and recorded by October 15th. The rule suffers the limitation of the annuity, meaning that in the case of a purchase made in December 2019 with an invoice received on January 13, the right to deduct cannot be exercised in December 2019 but starting from January It should be noted that the standard concerns both electronic invoices and paper invoices. In the absence of an express start, the rules in question should observe the entry into force from October 24th, the day following the publication in the Official Gazette of the D.L. n. 119/2018. incurred for a maximum of 250 Euro is recognized in the case of purchase of a RT and 50 Euro if the current cash registers are adapted. For operators who sell medicines, it is possible to comply with the obligation set by the Law by means of the tools and telematic channels already in place for transmitting the data relevant for the Health Card System. Obligation to store and transmit daily compensations Article 17 of the D.L. n. 119/2018 introduces, instead of the current option, the obligation to store and electronically transmit daily compensations from July 1 st, 2019 for all those with a turnover greater than 400,000 Euro and from January 1 st, 2020 with a generalized extension to all the subjects. The telematic transmission of daily compensations will repeal the obligation to keep the relative register as per art. 24 of the D.P.R. 633/1972. The new fulfillment will take place by the so called Telematic Recorders (RT), defined and regulated by the provision of the Director of the Inland Revenue of October 28, A financial discount of 50% of the expenditure Professionals at Andersen Tax & Legal in Italy are at your complete disposal to provide you with the necessary clarifications in relation to the subject detailed in this circular. The information contained in this document/circular letter is provided as general information only, and does not refer to any particular individual or corporate situation. This document is not a legal or tax opinion. The contents hereof cannot replace an individual consultation with experts in specific concrete cases. It is strongly recommended not to act on the basis of this information without first consulting a professional and without an indepth analysis of the situation. Andersen Tax & Legal in Italy waives any and all liability for decisions made on the basis of the above-mentioned information.