Biennial Preventive Agreement and Tax Settlement
The Biennial Preventive Agreement (D.Lgs. 12 February 2024, No. 13), abbreviated as “CPB”, is a compliance mechanism designed for smaller taxpayers, including both businesses and self-employed individuals operating in Italy. Essentially, the Biennial Preventive Agreement is a pre-emptive assessment process where professionals or companies and the tax authorities agree in advance on taxable income and net production value. In exchange, the taxpayer benefits from certain advantages. The CPB applies to the tax years 2024 and 2025, specifically targeting income from business activities or self-employment and the net production value for corporate income tax (IRES), personal income tax (IRPEF), and regional tax on productive activities (IRAP).
Under this agreement, the taxpayer voluntarily accepts a proposal from the Italian Revenue Agency, based on the economic trends of the sector in which they operate and the results of synthetic indices of tax reliability (ISA). Eligible for the CPB are taxpayers who apply the ISA indices, as well as those in the flat-rate regime.
The taxpayer can choose to adhere to the agreement by the deadline for submitting their 2023 tax return, as per Article 11 of Legislative Decree No. 1 of 8 January 2024. Specifically, this deadline is 31 October 2024 for taxpayers operating on a calendar-year basis, or the last day of the tenth month following the close of the tax period for other taxpayers. Importantly, eligibility for the CPB must be confirmed in the tax period preceding the application of the agreement.
By accepting the proposal, the taxpayer commits to subjecting pre-agreed income and production values to IRES and/or IRAP. Any deviations from these pre-agreed figures (whether higher or lower) will not be relevant for tax purposes. Those who participate in the CPB for the tax years 2024–2025 will enjoy the following benefits:
- Exemption from the need for certification of compliance for the offsetting of tax credits up to €70,000 per year for VAT, and up to €50,000 per year for direct taxes and regional tax;
- Exemption from compliance certification or the provision of guarantees for VAT refunds up to €70,000 per year;
- Exclusion from the application of regulations concerning non-operating companies under Article 30 of Law No. 724 of 23 December 1994;
- Exclusion from assessments based on simple presumptions as per Article 39, first paragraph, letter d), second period of D.P.R. 29 September 1973, No. 600, and Article 54, second paragraph, second period of D.P.R. 26 October 1972, No. 633;
- Acceleration by at least one year, based on reliability levels, of the statute of limitations for assessments under Article 43, paragraph 1, of D.P.R. 29 September 1973, No. 600 (regarding business income and self-employment) and Article 57, paragraph 1, of D.P.R. 26 October 1972, No. 633;
- Exclusion from synthetic income assessments under Article 38 of D.P.R. 29 September 1973, No. 600, provided the assessable income does not exceed two-thirds of the declared income.
The CPB will cease to be effective if significant changes occur that affect the assumptions on which the agreement was based. For instance, the CPB will no longer apply if the business ceases operations or if revenues exceed the threshold outlined in Article 1, paragraph 71, second sentence, of Law No. 190 of 23 December 1994, by more than 50%. In cases of specific violations, the agreement will be voided, and the benefits will be revoked for both tax years. Any exclusion from eligibility or failure to meet access conditions will also cause the CPB to be revoked.
Tax Settlement
To enhance the appeal of the CPB, the legislator introduced specific provisions during the conversion of Decree-Law No. 113 of 9 August 2024 (the so-called “Omnibus Decree”), allowing taxpayers eligible for the ISA to benefit from a special voluntary disclosure regime for the tax years 2018–2022.
Article 2-quater, introduced during the conversion process, allows taxpayers who have applied the ISA indices and wish to adhere to the CPB by 31 October 2024 to take advantage of a specific voluntary disclosure mechanism. This mechanism involves the payment of a substitute tax on income taxes and IRAP for the tax years 2018–2022. Therefore, adherence to the CPB is a prerequisite for accessing the settlement for previous tax periods, though participation in the settlement itself remains optional.
The calculation of the taxable base and the corresponding substitute tax varies depending on the ISA results. Additionally, the settlement cannot be applied to tax periods where a valid exclusion from the ISA has been declared.
The amounts to be paid, calculated in advance for each tax year eligible for settlement, are available in each taxpayer’s online tax account. Payments of the substitute tax can be made in a single installment by 31 March 2025, or in up to 24 monthly installments of equal amounts, with interest accruing from 31 March 2025. Participating in the settlement effectively shields the taxpayer from tax audits (for IRES and IRAP purposes) for the tax years included in the agreement.
At LDP, we are conducting individualized cost-benefit analyses to determine whether clients would gain a tangible economic advantage from opting into either the CPB or the settlement. The firm will contact eligible clients to assess whether joining these initiatives would be beneficial.