Italy - VAT deduction recognised to subjects benefiting from public funds | Tax Connect Flash

A new legislative interpretation of the law relevant to the VAT deduction allowed to training organizations benefiting from public funds has been introduced into the domestic Italian law.

In particular, the training organizations benefiting from public funds are allowed to deduct the input VAT on goods and services provided that the goods and services purchased with such public funds are used to carry out activities relevant for VAT purposes and that give rise to a legitimate right for the VAT deduction.

This clarification derives from a response to a number of doubts raised by practitioners in the sector.

Training organizations benefiting from public funds, in order to determine the deductible input VAT on goods and services should not consider the source of their funds, rather they must only consider that goods and services purchased are used for the carrying out of activities that are relevant for VAT purposes or are exempt from the scope of VAT or do not fall within the scope of VAT.

Notwithstanding that the fact that the law makes specific reference to the training organizations benefiting from public funds, it is reasonable to presume that the same principles apply to all tax payers benefiting from public funds.

Furthermore, the law contains a provision specifically referred to training organizations benefiting from public funds, on the basis of which the VAT deduction made in the past by such organizations is considered correct also where it has been made in violation of the stated principle. This benefit applies only if the following conditions are met:

i. The VAT deduction was made before 27 February 2016;

ii. VAT has not been considered a specific part of the public funds by the public body that provided the public funds.

Many significant consequences could derive from the above interpretative law with reference to the deduction of VAT made in violation of the stated principle. A further analysis of any specific case is advisable with particular reference to taxpayers other than those specified in the legislation, including in order to evaluate possible ways to regularize VAT deductions made in the past in violation of the stated principles.