VAT Split payment regime: application extension to 30.06.2023
VAT regime Split payment
In the context of transactions carried out with Public Administrations (“P.A.”), public bodies and companies listed in the FTSE MIB index, the VAT regulations (art. 17-ter DPR 633/72 so-called “Split payment” regime) provide that the purchaser or customer pays directly to the Tax Authority, the VAT applied by the supplier or service provider on the invoice. For sales and services to the P.A., the discipline applies both when the P.A. acts in the context of its institutional activity and when it acts in the exercise of business activities.
With the recent EU decision 24.7.2020 n. 1105, the European Commission has confirmed the two-year extension of the “Split payment” mechanism, extending the application of the rules on the subject until 30.6.2023.
Below we summarize the main aspects that relate to the VAT “Split payment” system.
Objective scope
The split payment mechanism applies to supplies of goods and services relevant for VAT purposes, documented by invoice (Cir. 1/E/2015).
Excluded from the split payment mechanism:
- transactions for which the customer is already liable for tax (art. 17-ter para. 1 of Presidential Decree 633/72; articles 1 and 7 of DM 23.1.2015), i.e. transactions subject to reverse charge;
- transactions subject to special regimes (e.g. single-phase regimes, margin regime), for which VAT is not shown on the invoice;
- non-taxable or exempt transactions;
- transactions for which the customer plans to request the non-application of VAT pursuant to Art. 8, para. 1 letter c) of Presidential Decree 633/72, with spending of the VAT plafond available (Cir. 27/E/2017, § 2);
- operations subject to a flat-rate mechanism of deduction (e.g. special regime for agricultural producers; regime ex Law 398/91 for ASD and similar subjects);
- transactions for which there is no obligation to issue an invoice (Cir. 15/E/2015, § 2), including transactions whose fees are recorded in the register referred to in art. 24 of Presidential Decree 633/72 (Cir. 27/E/2017, § 2);
- transactions for which the fee is already available to the supplier (e.g. revenue collection service and other income; see Cir. 15/E/2015, § 2);
- permutative transactions, except for any adjustments (Cir. 27/E/2017, § 2);
- services provided by technical consultants to the Administration of Justice (Cir. 9/E/2018, § 4.2).
Target subject
According to the changes introduced by art. 1 of DL 50/2017 and art. 3 of DL 148/2017, the mechanism of the split payment concerns the transfers and services to the following subjects:
- Public Administrations, as defined by art. 1 para. 2 of Law 196/2009;
- National, regional and local economic public entities, including special companies and public personal services companies;
- Foundations participated by Public Administrations (art. 1 para. 2 of Law 196/2009);
- Companies directly controlled by the Presidency of the Council and Ministries;
- Companies owned by the Public Administrations or by the entities or companies mentioned in one of the previous points or in the next point of the list;
- Companies directly or indirectly controlled by the Public Administrations or by the entities or companies mentioned in one of the four previous points of the list;
- Listed companies included in the FTSE MIB index of the Italian Stock Exchange identified for VAT purposes in Italy;
For the purpose of the proper identification of the P.A. required to apply for the split payment, reference is made to the official list available on the Public Administrations Index website (www.indicepa.gov.it), without considering, in this list, the subjects classified as “Public Service Managers “.
While on the website of the MEF (Department of Finance), the lists of foundations, entities, and companies (including those listed on the FTSE MIB Index) for which the special discipline applies are published. In case of uncertainty, it is advisable to consult the lists of those to whom the discipline applies, before issuing the invoice, at the following address: http://www1.finanze.gov.it/finanze2/split_payment/public/ .
Supplier Fulfilments
The supplier is required to issue the invoice according to the general rules, stating among others, the taxable amount, the applicable VAT rate, the VAT amount and the note “splitting of payments” (and, possibly, the reference to art. 17-ter of Presidential Decree 633/72). In the electronic invoice, the latter obligation is fulfilled by reporting in the field “VAT chargeability” the value “S” (splitting of payments).
In any case, the invoice must be recorded in the register of invoices issued according to the general rules of articles 23 and 24 of Presidential Decree 633/72, taking care not to include VAT in periodic settlements.
VAT Refunds
The supply transactions subject to the split payment regime in accordance to art. 17-ter DPR 633/72, as “zero” rate transactions, contribute to meet the requirement of the average rate for the purposes of VAT refunds (art. 30, para. 2 letter a) DPR 633/72).
Taxpayers who have carried out split payment transactions benefit from the execution of VAT refunds as a priority, within the limits of the total amount of VAT applied through split payment (art. 8 of DM 23.1.2015).
VAT refunds applied by tax account are paid to taxpayers directly from the management structure provided for by art. 22 co. 3 of Legislative Decree 241/97, reducing the time needed to pay the refunds themselves (art. 1-quater of DL 50/2017, DM 22.12.2017).
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