New penalty regime for “non-existent transactions” subject to VAT reverse-charge mechanism pursuant to Italian Budget Law 2023

Article 1, par. 152 of Italian Budget Law 2023 introduces a new provision to Article 6, par. 9-bis 3, of Legislative Decree 471/1997 outlining that in case of non-existent and abstractly taxable transactions subject to reverse-charge, if the transferee is aware that the non-existent transaction carried out by the transferor is connected to VAT fraud, a penalty equal to 90% of the unduly recovered tax will be imposed.

However, in the event that the lack of knowledge regarding the existence of VAT fraud is proven by the transferee, the reduced penalty from 5% to 10% of the taxable amount (with a minimum of EUR 1,000) applies with, in addition, the possibility to recover VAT.

The introduction of such legislative provision was deemed necessary to clarify certain doubts concerning the correct interpretation of the former penalty provision.

Indeed, according to the Italian Supreme Court judgment no. 22727 of 20 July 2020, the lesser penalty regime (from 5% to 10%) as well as the VAT recoverability applied only when non-existent and exempt or non-taxable transactions subject to reverse-charge were involved.

The new rule introduced by the Italian Budget Law 2023 does not make any distinction as to whether the underlying transaction is taxable or not for VAT purposes but focuses solely on the transferee's knowledge of the existence of possible VAT fraud.

Key takeaway

The new legislative provision introduces a stricter sanction regime whether the transferee was aware of the existence of VAT fraud (90% of the unduly recovered VAT). Therefore, it is advisable to put in place more and more efficient control procedures to prevent possible involvement in VAT fraud.