VAT recovery may not always be disallowed in Italy where a deed is declared null and void under civil law
In the case at hand, the Italian Tax Authority challenged the recoverability of input VAT on the purchase of a property on the grounds that the relevant deed had been declared null and void because it had been concluded in the presence of a notary who did not have the legal prerequisites to execute such deed transfer (ie he was related to one of the parties to that deed).
According to the VAT Directive, the right to recover input VAT arises when the tax becomes chargeable and, for supplies of goods, at the time of the transfer of ownership. Therefore, the right to recover input VAT is generally subject to evidence that the transfer of ownership has taken place (a valid deed is usually required).
The Italian Supreme Court, referring to a CJEU case law (see ECJ C-114/22), clarified that a taxpayer cannot be disallowed input VAT recovery solely on the grounds that the deed has been declared null and void under civil law, unless it is further demonstrated that there are elements for considering such a transaction to be fictitious or carried out for the purpose of tax evasion or abuse of the law (see ECJ C-255/02).
Key takeaway
Although some VAT provisions rely on civil law, the VAT system is based on distinct principles and where the VAT principles conflict with civil law, VAT principles prevail. Therefore, the right to recover input VAT cannot be disallowed solely because a deed has been declared null and void under civil law, unless there are, at least, elements of fraudulent behaviour.
