Tax Disputes Guide in Italy

Investigations are prompted by the need for regular checks, particularly for multinationals and when the tax authorities suspect tax fraud. In recent years, investigations have also been prompted by the need to verify the eligibility of specific tax benefits (typically tax credits) claimed by taxpayers, or to recognise refunds. Adherence to the Cooperative Compliance regime helps to prevent totally unexpected audits, as well as the implementation of internal procedures aimed at monitoring or limiting tax liability, such as those provided for by the Tax Control Framework regime, the application of which has recently been extended to a wide range of taxpayers.

The statute of limitations period varies depending on the type of tax. For direct taxes and VAT, it is 6 years from the submission of the tax return; this increases to 8 years if the return is omitted. In some special cases, the standard limitation period is extended, or even doubled, as is the case when income is assessed in countries listed as tax havens.

The tax authorities have broad powers during an investigation. They are entitled to conduct raids and seizures, and to request information from third parties. However, some actions are subject to special judicial authorisation, such as seizures and raids, which are generally permitted in the event of a criminal investigation conducted under the authority of the Public Prosecutor. The results of these investigations are then usually transferred to the standard tax administrative audit.

Taxpayers have specific rights and guarantees during tax audits, mainly set out in Law No. 212/2000 (Statuto dei diritti del contribuente).

Taxpayers have the right to be informed of the reasons for the audit, its subject and scope, the office conducting it, and their rights and obligations. They also have the right to be assisted by an accountant or lawyer during the audit and can request this assistance at any time.

Taxpayers can refuse to disclose certain types of information if it is covered by professional secrecy or other forms of confidentiality recognised by law. However, neither the legal privilege nor the lawyer-client privilege is properly regulated.

Italian tax law provides for administrative and criminal penalties. Interest is always charged on late or unpaid taxes.

There are several instruments under Italian law for challenging or reducing penalties, such as a self-defence petition, an appeal, or an administrative or judicial settlement. Penalties may also be reduced if special legislation (e.g. amnesty legislation) permits a full or partial waiver upon request. Penalties are also significantly reduced if paid early through voluntary disclosure.

The administrative phase is crucial for resolving disputes quickly and minimising penalties before court proceedings begin. Depending on the complexity of the case, this phase can last from a few weeks to several months.

If no agreement is reached during this phase or the taxpayer chooses to immediately challenge a tax decision, the dispute will proceed to judicial review.

The process typically involves the following steps:

• filing a tax appeal
• first hearing and discussion
• first instance judgement.

Thus, a full tax dispute may last from 1-7 years, depending on its complexity and the number of appeal levels.

Taxpayers can request the suspension of tax payments while a dispute is ongoing, either through the courts or directly from the tax authority.

There are several forms of alternative dispute resolution, ranging from voluntary correction and negotiated settlement to judicial conciliation.

These mechanisms are widely used and often result in faster, cheaper and less adversarial outcomes with reduced penalties and interest.

Tax disputes are handled by specialist tax courts and there is a formal, three-tier appeals process. An appeal to the Supreme Court is only available on matters of law.

Estimated durations are 12-18 months for the first instance tier, 12-24 months for the appeal tier and 2-4 years for a Supreme Court trial.

The entire system is governed by a dedicated set of procedural rules and has recently undergone reform to enhance efficiency and professionalism.

The developments in tax disputes are primarily driven by legislative measures and increased audit activity.

A notable trend is the increasing use of tax credits and incentives to encourage investment and development in certain sectors. This has given rise to a greater volume of tax audits and related disputes concerning entitlement to these benefits.

Audit practices have become more sophisticated; in response, legislative interventions have been introduced to provide clearer definitions of key legal and technical concepts, and to standardise the methods used to assess whether or not the relevant conditions have been met. 

The tax litigation system is structured, starting with administrative procedures that encourage settlement and allow for penalty reduction. If the dispute cannot be resolved amicably, it is referred to a multi-tiered judicial system. Although the process can be lengthy, it provides taxpayers with several opportunities to assert their rights and seek fair treatment.