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Brussels, 19 March 2009

VAT: the European Commission requests that Italy modify its rules regarding the taxable amount for supplies of immovable property

The European Commission has formally requested that the Italian Republic modify its legislation according to which VAT on transactions involving immovable property is determined as a percentage of the open market value if the price declared by the parties does not correspond to the market price. Under Community rules on VAT, taxable amount, in principle, includes everything which constitutes consideration obtained by the supplier. In the absence of particular circumstances defined by the VAT Directive, the Italian tax administration cannot automatically calculate VAT for immovable property on the basis of the open market value without any evidence of tax fraud or evasion. The request takes the form of a ‘reasoned opinion’ (second step of the infringement procedure provided for in article 226 of the EC Treaty). If the relevant national legislation is not amended in order to comply with the reasoned opinion, the Commission may decide to refer the matter to the European Court of Justice.

Except in the cases explicitly provided for in the VAT Directive, the taxable amount for the purposes of VAT is the consideration actually obtained by the supplier. The Court has consistently ruled that consideration is a subjective value, determined by the parties to the transaction, and not a value estimated according to objective criteria.

In Italy, the Italian tax authorities can automatically adjust VAT returns on the basis of a presumption that the taxable amount for supply of immovable property is the open market value (Article 54(3) of D.P.R. 633/72).

Even if the presumption can be rebutted by producing evidence to show that the value indicated in the VAT return corresponds to the consideration actually received, the Commission considers this provision to be disproportionate, as it places the burden of proof on taxable persons without any evidence of the existence of tax fraud.

The Commission considers that the party which alleges tax fraud or evasion, i.e. controlling bodies, should come up with evidence to support its suspicion and refrain from unjustifiably shifting responsibility to taxable persons.

The Commission therefore concludes that the Italian legislation is not compatible with Articles 73 and 80 of the VAT Directive.

Should the Italian Republic fail to comply with the reasoned opinion within the prescribed two-month time limit, the Commission may bring this case before the European Court of Justice.

The Commission's reference number of the case is 2007/4575.

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