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Either he pays or you will

Inland Revenue


Something is moving in Europe as far as joint efforts in fighting VAT fraud and evasion. Meanwhile, in Italy, thanks to the Ministerial Decree dated October 31, 2012 on the matter of joint liability between vendors and purchasers on VAT payment for the tire industry, if the seller fails to pay, the Inland Revenue can recoup the loss from the buyer.

Carlo Ferro

As is well known, those of us born and raised in Italy will have to go back several years with their memory to recall times of prosperity, growth and well-being (with due caution, of course). However, the last decade has been as deeply marked by words such as austerity, spending review, fiscal compact and fiscal pressure as never before. And as public spending continues to grow, and public debt with it (with a new all-time record of 2,252.2 billion Euro last July), severe cuts have been planned in several areas, which should be considered vital for a country: health, welfare and education . Europe asks for it, has often been said. True, Europe asks for it. But Europe has also been asking to put an end, once and for all, to the devastating haemorrhage of wealth that, each year, takes away billions and billions of Euro from State coffers in the form of tax evasion. The eternal “black hole” that every one promises to eliminate, but without any noticeable success. Also because tax evaders are not just many, they are also voters, so it is far better to focus on public-service absenteeism or on TV licensing, and anything else can be “managed” later.



So great is the problem that recently the phenomenon of VAT fraud and evasion has taken centre stage in Europe’s political debate, and tackling this malpractice (in which we still top the charts) is becoming a priority at continental level. How is it possible, in fact, to increase the VAT rate to comply with fiscal compact parameters if then we have tens of billions of Euro disappearing as tax evasion? In the long run this will stifle if not kill a country’s economy. It is clear that given the current speed in data circulation, those who tackle the market by eluding VAT charges can rely on margins that are impossible to match by the healthier part of the economy. The estimated VAT evasion in Italy amounts to over 35 billion Euro, close to two financial plans or, if you prefer, six times the cost of the “Variante di Valico”. However, it should also be said that, thanks to a number of specific measures introduced also following the input of AIRP and Federpneus’ activities for the tire industry, the situation is slightly improving: in 2014 the estimated evasion was 38 billion while in 2011 was 41 billion. At EU level, VAT evasion in community countries was calculated by the European Commission at 152 billion. Against this backdrop, the good news is that also the European Union has decided to reform the rules on intra-Community VAT payment, dating back to 1993. The European Commissioner for Economic Affairs Pierre Moscovici has recently stated that a proposal will soon be available for discussion which, according to the Commissioner's forecast, should "cut transactional fraud by 80% and re coup large amounts of money for each country’s coffers.”



Several actions have already allowed us to strike important sources of evasion, such as the so-called Split Payment or Reverse Charge on computers and consoles. We previously mentioned AIRP and Federpneus, because even in the tire industry, standards have been introduced which, although still unresolved, have greatly contrasted and reduced the phenomenon. Among the various instruments available to national legislators, we find also the possibility of extending liability for non-payment of VAT tax to the purchaser (who is normally exonerated from any liability in the event of default by the seller). In this context, under the Presidential Decree 633/1972, a new Article 60-bis became official which says that in certain conditions, it has the effect of extending liability to the purchaser. In other words, if the seller fails to pay the collected VAT on the sale, the buyer will be held accountable. The sectors identified were: motor vehicles, trailers; mobile products and their accessories; personal computers, components and accessories; live animals such as cattle, sheep and swine. As of December 3, 2012, the following sectors have also been added; new tires, retreaded or second-hand tires, solid or cushion tires, tire treads and rubber flaps. We should also mention that under the Article 60-bis of the DPR 26 October 1972, no. 633 (Law on VAT) - introduced by the 2005 Financial Act (Law 311/2004) – provisions were made for the payment of VAT on certain goods by the buyer if the sale is made at a lower price than the normal value and the related tax is not paid by the seller. But what is the normal value? The rule states that it is the "average price for goods of the same kind or similar, in conditions of free competition and at the same stage of marketing, at the time and place where the goods were purchased and, failing that, at the closest time and place.” However, the rule does not define the extent at which even small oscillations could implement this hypothesis The second element relates to non-compliance by the seller. The provision applies to transactions involving taxable entities (business, crafts and professions), therefore the new law does not apply to tires sold to private individuals.


In case of a tax audit,  attention will be drawn only to the fact that the seller has failed to pay the VAT together with the fact that goods or services were purchased at prices lower than the market value; such elements will be sufficient to be able to claim the payment of VAT from the buyer, unless he can provide the opposing evidence, however difficult that may be. If the buyer did not pay the VAT and bought goods and services at a lower price compared to market rates, any justification would be objectively difficult as it is not enough to claim that such prices were related only to one specific sale. So a fleet manager that may have spared a few Euro believing to have found a shortcut, is likely to receive a visit by the “Guardia di Finanza” (Italian Finance Police), given that with the modern IT tools being adopted by both the National financial administration and companies - think for example of the "Spesometro", an expense-reporting system recently introduced by the Government – detecting phenomena of tax evasion will become increasingly easier.


As for tire dealers, the activities performer by the sector’s associations are aimed at protecting the vast majority of honest operators who are having to fight, with their hands tied behind their backs, against unfair competition. That is why, the fact that Europe, through the words of its most authoritative commissioner, seems to have taken the issue to heart, is rekindling the hope of bringing competition back to the right level of quality, efficiency and performance.

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