Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision (EU) 2017/784 authorising the Italian Republic to apply a special measure derogating from Articles 206 and 226 of Directive 2006/112/EC on the common system of value added tax
Date: 2020-06-22
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Italy, VAT, derogation from EU law, goods and services, investment company, provision of services, public authorities, supplier, tax collection, tax relief

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   EUROPEAN COMMISSION  Brussels, 22.6.2020  COM(2020) 242 final 2020/0119 (NLE)  Proposal for a COUNCIL IMPLEMENTING DECISION amending Implementing Decision (EU) 2017/784 authorising the Italian Republic to apply a special measure derogating from Articles 206 and 226 of Directive 2006/112/EC on the common system of value added tax  
 
EXPLANATORY MEMORANDUM 

Pursuant to Article 395(1) of Directive 2006/112/EC of 28 November 2006 on the common 
system  of  value  added  tax1  ('the  VAT  Directive'),  the  Council,  acting  unanimously  on  a 
proposal  from  the Commission,  may authorise any Member State to  apply special measures 
for  derogation  from  the  provisions  of  that  Directive  in  order  to  simplify  the  procedure  for 
collecting VAT or to prevent certain forms of tax evasion or avoidance. 

By  letter  registered  with  the  Commission  on  4  December  2019,  the  Italian  Republic 
requested  authorisation  to  continue  to  derogate  from  Articles  206  and  226  of  the  VAT 
Directive with regard to VAT payment and invoicing requirements for supplies of goods and 
services  made  to  public  authorities.  That  request  implied  a  reduction  of  the  scope  of  the 
derogating  measure  in  force,  granted  by  Council  Implementing  Decision  (EU)  2017/7842, 
which also applied to supplies of goods and services to companies controlled by central and 
local public authorities and to a list of companies listed on the stock exchange.  

However,  by  letter  registered  with  the  Commission  on  27  March  2020,  Italy  changed  its 
request, asking that the scope of the authorisation should remain identical to that granted by 
Council  Implementing  Decision  (EU)  2017/784,  and  therefore  requesting  to  apply  the 
derogation  from  Articles  206  and  226  of  the  VAT  Directive  for  supplies  of  goods  and 
services  made  to  public  authorities,  to  companies  controlled  by  central  and  local  public 
authorities and to a list of companies listed on the stock exchange. In accordance with Article 
395(2)  of  the  VAT  Directive,  the  Commission  informed  the  other  Member  States  by  letter 
dated 5 May 2020 of the request made by the Italian Republic. By letter dated 6 May 2020, 
the  Commission  notified  the  Italian  Republic  that  it  had  all  the  information  necessary  to 
consider the request. 

1. 

• 

CONTEXT OF THE PROPOSAL 

Reasons for and objectives of the proposal 

Following  the  introduction  of  a  system  of  statistical  checks,  Italy  discovered  considerable 
VAT fraud in relation to supplies of goods and services to public authorities. To put an end to 
these  practices  Italy  requested  in  2014  that,  for  supplies  to  public  authorities,  the  VAT  due 
would no longer be paid to the supplier, but to a separate and blocked bank account of the tax 
authorities.  This  mechanism  is  commonly  referred  to  as  a  type  of  ‘split  payment’,  as  the 
payment which is usually transferred in full by the customer to the supplier (consideration in 
exchange for the supply plus VAT) is split into: (i) on the one hand, the consideration which 
is  paid  to  the supplier of the goods or services;  and, (ii) on the other hand, the VAT due  is 
paid to a blocked bank account of the tax authorities.  
The derogation was authorised by Council Implementing Decision (EU) 2015/14013 until 31 
December  2017.  It  authorised  Italy  to  derogate  from  Article  206  of  the  VAT  Directive 
regarding VAT payment and from Article 226 of the VAT Directive regarding the invoicing 
rules.  

The  derogation  was  requested  by  Italy  for  a  limited  period,  allowing  it  to  organise  and 
implement adequate control policy measures and to fully benefit from the data available via 
electronic invoicing. The implementation of the obligation of electronic invoicing for supplies 
to  public  authorities,  allowing  the  possibility  of  real-time  control  of  individual  transactions 

1 
2 
3 

OJ L 347, 11.12.2006, p. 1. 
OJ L 118, 6.5.2017, p. 17. 
OJ L 217, 18.8.2015, p. 7–8.  

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and  the  exact  amounts  of  VAT  which  public  authorities  are  due  to  pay  on  their  purchases, 
should  allow  Italy  to  audit  the  sector  concerned  on  the  basis  of  conventional  control 
techniques  without  the  need  to  derogate  from  the  VAT  Directive  in  order  to  apply  the  split 
payment measure.  

According  to  information  submitted  by  Italy,  the  introduction  of  electronic  invoicing  for 
supplies to public authorities provided tax authorities considerable information regarding the 
flow  of  invoices  allowing  the  control  of  transactions  and  corresponding  VAT  amounts. 
However,  another  element  of  the  effective  control  system  –  the  obligation  to  communicate 
data of all invoices issued and received to the tax authorities – was only introduced as from 1 
January  2017.  More  time  was  required  for  the  measure  to  be  effective  and  to  effectively 
induce  taxpayers  to  improve  their  compliance  with  tax  obligations.  Consequently,  Italy 
requested  to  prolong  the  derogation  from  Articles  206  and  226  of  the  VAT  Directive  on 
supplies to public authorities.  

Additionally, Italy discovered tax evasion in the sector of supplies to companies controlled by 
public authorities and to a small group of 40 companies that are listed on the stock exchange. 
In  order  to  fight  this  tax  evasion  and  to  ensure  no  further  VAT  losses  for  public  revenues, 
Italy requested to broaden the scope of the derogation from Articles 206 and 226 of the VAT 
Directive to supplies of goods and services made to the above mentioned entities which were 
considered  by  Italy  as  reliable  as  public  authorities.  These  entities  are  both  companies 
controlled by central and local public authorities and a list of around 40 companies listed on 
the  stock  exchange  adding  up  to  a  total  of  around  2  400  companies.  Italy  expected  that 
extending the split payment measure to these companies would tackle tax evasion in the form 
of  non-payment  of  VAT  by  the  suppliers  to  the  entities  concerned  and  consequently  would 
increase the VAT revenues. 

The  extension  of  the  derogation  with  its  widened  scope  was  authorised  by  Council 
Implementing Decision (EU) 2017/784 until 30 June 2020. 

In October 2018, Italy presented a report in accordance with second paragraph of Article 3 of 
the  Council  Implementing  Decision  (EU)  2017/784.  According  to  this  report,  the  split 
payment  measure  introduced  in  Italy  increased  VAT  revenues  and  this  increase  was  higher 
than the estimates made at the time of the introduction of the measure. Furthermore, the report 
stated that the increase in VAT credit for the suppliers of the companies within the scope of 
the  split  payment,  which  results  from  the  implementation  of  the  measure,  can  be  easily 
controlled and managed and that the situation of VAT refunds had not worsened.  

The split payment mechanism is part of a package of measures introduced by Italy in order to 
counter tax fraud and evasion. This package of  measures involves amongst others electronic 
invoicing and the electronic transmission of data on daily charges. Electronic invoicing was 
introduced  as  of  1  July  2018  in  respect  to  certain  sectors,  and  as  of  1  January  2019  in  a 
generalised  form.  This  obligation  was  authorised  by  Council  Implementing  Decision  (EU) 
2018/5934. The electronic transmission of data on daily charges requires taxpayers engaged in 
the  retail  trade  and  similar  activities  (not  involving  invoicing  obligations)  to  store  data  on 
daily  charges  electronically  and  transmit  them  electronically  to  the  Agenzia  delle  Entrate. 
This latter obligation became applicable on 1 January 2020 and, for taxpayers with a turnover 
of over EUR 400 000, on 1 July 2019. This package of measures has replaced  other control 
measures,  and  allows  the  Italian  tax  authorities  to  cross-check  the  different  operations 
declared by the operators and to monitor their VAT payments. The latest legislative changes 

4 

Council  Implementing  Decision  (EU)  2018/593  of  16  April  2018  authorising  the  Italian  Republic  to 
introduce  a  special  measure  derogating  from  Articles  218  and  232  of  Directive  2006/112/EC  on  the 
common system of value added tax, OJ L 99, 19.4.2018, p. 14-15. 

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introduced  an  obligation  to  make  the  data  on  VAT  transactions  from  electronic  invoices, 
cross-border transactions and electronic charges  immediately available to taxpayers in order 
to simplify their compliance; it will lead to VAT returns being pre-completed by the Agenzia 
delle Entrate and to the preparation of regular VAT assessments, which taxpayers will be able 
to  accept  or  supplement.  According  to  recital  7  of  the  abovementioned  Decision  2017/784, 
once  this  system  is  fully  implemented,  there  should  be  no  need  to  further  derogate  from 
Directive 2006/112/EC in order to apply the split payment measure. 

However,  according  to  the  Italian  authorities,  at  this  moment  it  would  not  be  convenient  to 
remove altogether the measure on split payment. According to their estimates, the measures 
implemented through the anti-fraud package reduce the time needed by the tax administration 
to  become  aware  of  the  existence  of  a  potential  case  of  evasion  or  fraud  to  three  months, 
compared  to  the  18  months  that  were  originally  necessary.  Nevertheless,  in  the  absence  of 
split payment, the recovery from the tax evaders or fraudsters once the check has been carried 
out could prove to be impossible if they are insolvent. The split payment mechanism, as an ex 
ante measure, provides a much higher effectiveness.  

The  Commission  still  considers  that  the  full  implementation  of  the  package  of  anti-fraud 
measures  designed  by  Italy  should  end  the  need  for  further  derogations  from  the  VAT 
Directive  in  order  to  apply  the  split  payment.  However,  it  is  still  early  to  fully  assess  the 
effectiveness  of  those  measures  due  to  their  recent  implementation.  The  generalised 
mandatory  e-invoicing  only  entered  into  force  on  1  January  2019  while  the  electronic 
transmission of data on daily charges was fully implemented on 1 January 2020. Therefore, 
the  evaluation  of  these  measures  and  their  impact  in  the  detection  of  VAT  fraud  and  the 
collection  of  the  tax  cannot  be  carried  out  extensively.  Thus,  in  the  absence  of  the  full 
implementation  of  the  anti-fraud  package,  it  is  advisable  to  extend  the  measure  for  an 
additional period, as its removal could have significant negative effects in the fight against tax 
evasion  and  the  collection  of  VAT  in  relation  to  the  sectors  covered  by  the  scope  of  the 
measure. Further, in case the measure will not be extended, the companies applying the split 
payment  mechanism  would  have  to  change  their  invoicing  systems  to  accommodate  the 
changes. The tax administration would have to implement similar adaptations to its systems. 
Due to the difficulties caused by the COVID-19 outbreak, that Italy is experiencing it does not 
seem  appropriate to  request  businesses and tax administration to undertake these changes at 
this moment.  

One of the effects of split payment is the fact that suppliers being taxable persons are not able 
to  offset  the  VAT  paid  on  their  input  with  the  VAT  received  on  their  supplies.  They  may 
constantly  be  in  a  credit  position  and  may  need  to  ask  for  an  effective  refund  of  this  VAT 
from the tax administration. On the other hand, under certain conditions Italy authorises these 
suppliers to offset the VAT they did not receive from their customers with other taxes due in 
Italy, thus  limiting the  cash flow problem  that otherwise may arise for businesses liable for 
paying their taxes in Italy.  

According to the information submitted by Italy, the refund procedure has been speeded up. 
Requests for refund are processed on average within 67 days and the average time for actual 
payment  to  the  beneficiary  is  7  days.  At  the  time  of  the  introduction  of  the  split  payment 
measure, it was envisaged that the taxable persons who carry out transactions subject to the 
split  payment  scheme,  within  the  limit  of  the  credit  deriving  from  such  transactions,  are 
entitled to receive the payment of the relevant VAT credits as a priority. This practice implies 
that refund requests related to the split payment mechanism are processed with priority both 
during  preliminary  investigation  and  during  the  payment  of  sums  due  vis-à-vis  non-priority 
refunds. 

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The  request  submitted  by  Italy  and  registered  with  the  Commission  on  4  December  2019, 
implied  a  reduction  of  the  scope  of  the  derogating  measure  in  force,  as  it  was  requested 
authorisation  to  continue  to  derogate  from  Articles  206  and  226  of  the  VAT  Directive  only 
with regard to VAT payments and invoicing requirements for supplies of goods and services 
made to public authorities. However, by letter registered with the Commission on 27 March 
2020,  Italy  changed  its  request,  asking  that  the  scope  of  the  authorisation  should  remain 
identical  to  that  granted  by  Council  Implementing  Decision  (EU)  2017/784,  and  therefore 
requesting  to  apply  the  derogation  from  Articles  206  and  226  of  the  VAT  Directive  for 
supplies of goods and services made to public authorities, to companies controlled by central 
and local public authorities and a list of companies listed on the stock exchange. 

The  reason  for  changing  the  scope  was  that  in  the  meantime  the  definitive  data  on  the 
effectiveness of the measure became available, showing that the effectiveness of the measure 
was  higher  than  indicated  in  previous  reports.  The  request  for  extension  submitted  in 
December  2019  was  modified  by  requesting  the  extension  of  the  derogating  measure 
authorised by Council Implementing Decision (EU) 2017/784. 

Given the broad scope of the derogation and the fact that the concerns of businesses in respect 
of the VAT refunds still persist, it is important to ensure the necessary follow-up within the 
framework of this derogation and in particular the impact of the measure on the level of VAT 
fraud and on the situation of VAT refunds for the taxable persons covered by the derogation. 
Italy is, therefore, requested to provide a report on the VAT refund procedure with regard to 
the situation of suppliers (taxable persons) covered by the derogation eighteen months after its 
entry into force. This report should, in particular, provide statistics as regards the average time 
needed to effectively refund the VAT to these taxable persons and outline particular problems 
that  might  have  occurred  in  this  context.  This  report  should  also  indicate  the  different 
measures implemented to combat the tax evasion for the supplies covered by the derogation, 
their date of entry into force, as well as an evaluation of their effectiveness. 

Even though Italy requested the authorisation to be prolonged until 31 December 2023, it is 
proposed  to  authorise  the  derogation  as  from  1  July  2020  until  30  June  2023.  That  period 
should  be  sufficient  to  make  a  complete  evaluation  of  the  effectiveness  of  the  measures 
implemented  aimed  to  reducing  tax  evasion  in  the  sectors  concerned.  Further,  by  then 
businesses  and  tax  administration  will  be  in  a  better  position  to  undertake  the  necessary 
adaptations in their systems. 

• 

Consistency with existing policy provisions in the policy area 

The  derogation  can  be  authorised  based  on  Article  395  of  the  VAT  Directive  in  order  to 
simplify  the  procedure  for  collecting  VAT  or  to  prevent  certain  forms  of  tax  evasion  or 
avoidance. Italy requested the derogating measure to fight tax evasion in the sectors in which 
VAT  fraud  has  been  detected  for  years  and,  according  to  the  data  provided  by  Italy,  the 
measure  has  been  effective  to  improve  tax  collection  and  curb  VAT  fraud  in  the  sectors 
targeted. The derogation is consistent with the existing policy provisions.  

By Council Implementing Decision (EU) 2019/3105 Poland was granted a similar derogation 
to apply the split payment mechanism. The Polish split payment system comprises a voluntary 
and  a  mandatory  split  payment  mechanism.  This  mandatory  split  payment  system  affects 
supplies of goods and services paid by electronic bank transfers, carried out between taxable 
persons in areas particularly exposed to VAT fraud and in which fraud has been detected for 

5 

Council Implementing Decision (EU) 2019/310 of 18 February 2019 authorising Poland to introduce a 
special measure derogating from Article 226 of Directive 2006/112/EC on the common system of value 
added tax, OJ L 51, 22.2.2019, p. 19.  

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years.  In  the  Polish  mandatory  split  payment  system,  the  bank  acts  as  a  splitting  agent, 
transferring the amount paid by the customer to the relevant accounts of the supplier, i.e. the 
taxable  amount  to  the  regular  account  of  the  trader  and  the  VAT  amount  to  the  trader's 
blocked VAT account. Funds on the blocked VAT account are owned by the taxable person, 
however, his possibility to dispose of the funds is limited in principle to the payment of VAT 
due  to  the  tax  authority  or  to  the  payment  of  VAT  resulting  from  invoices  received  from 
suppliers. 

Also  Romania  applied  for  derogation  to  apply  the  split  payment  mechanism  to  supplies  by 
certain  taxable  persons.  The  Romanian  split  payment  mechanism  raised  serious  concerns 
regarding  its  proportionality  and  its  compatibility  with  the  Treaty.  Consequently,  the 
Commission objected to the Romanian request.6 

2. 

• 

LEGAL BASIS, SUBSIDIARITY AND PROPORTIONALITY 

Legal basis 

Article 395 of the VAT Directive. 

• 

Subsidiarity (for non-exclusive competence)  

Considering the provision of the VAT Directive on which it is based, the proposal falls under 
the exclusive competence of the European Union. Hence, the subsidiarity principle does not 
apply. 

• 

Proportionality 

The Decision concerns an authorisation granted to a Member State upon its own request and 
does not constitute any obligation.  

Given that the derogation is limited in time and restricted to the public sector, to companies 
that are state-controlled and to companies listed on the stock exchange, the scope is targeted 
to a sector that poses considerable problems of tax evasion. Therefore, the special measure is 
proportionate to the aim pursued, i.e. to combat tax evasion. 

• 

Choice of the instrument 

The instrument proposed is a Council Implementing Decision. 

Under Article 395 of the VAT Directive, a derogation from the common VAT rules is only 
possible upon authorisation by the Council, which is acting unanimously on a proposal from 
the  Commission.  A  Council  Implementing  Decision  is  the  most  suitable  instrument  since  it 
can be addressed to an individual Member State. 

3. 

• 

RESULTS 
CONSULTATIONS AND IMPACT ASSESSMENTS 

EX-POST 

EVALUATIONS, 

OF 

STAKEHOLDER 

Stakeholder consultations 

No stakeholder consultation has been conducted. The present proposal is based on a request 
made by Italy and concerns only this particular Member State. 

6 

Communication  from  the  Commission  to  the  Council  in  accordance  with  Article  395  of  Council 
Directive 2006/112/EC, COM/2018/666 final. 

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• 

Collection and use of expertise 

There was no need for external expertise. 

• 

Impact assessment 

The proposal for a Council Implementing Decision aims at prolonging the application of the 
derogation from Articles 206 and 226 of the VAT Directive for supplies to public authorities, 
to  companies  controlled  by  central  and  by  local  authorities  and  to  a  list  of  around  40 
companies listed on the stock exchange. By imposing that the VAT due is paid to a separate 
bank  account  of  the  tax  administration,  the  proposal  for  a  Council  Implementing  Decision 
aims  in  the  first  place  at  combating  tax  evasion  in  the  form  of  non-payment  of  VAT  by 
suppliers  to  the  listed  entities.  The  measure  currently  applied  by  Italy  appeared  to  be  an 
effective tool for this aim.  

According to the data provided by Italy, the implementation of the measure in its initial scope 
has entailed an increase in payments of about EUR 3.5 billion in the year 2015. This amount 
was  determined  by  the  Agenzia  delle  Entrate,  by  considering  that  for  the  suppliers  of  the 
Pubblica Amministrazione (PA), for the same transactions, the sum of the lower output VAT 
actually  paid  following  the  introduction  of  split  payment  mechanism,  net  of  the  increase  in 
compensations and refunds, is lower than the payments made by the PA relating to the same 
transactions.  Further  analysis  made  by  Italy  conclude  that  this  effect  has  remained  stable  in 
subsequent years. According to this analysis, the broadened scope of the measure (suppliers of 
companies  controlled  by  central  and  local  authorities  and  companies  listed  on  the  stock 
exchange)  has  reported  an  additional  increase  in  payments  of  EUR  1.08 billion.  Again,  this 
initial  effect  of  the  measure  has  remained  stable  in  subsequent  years  of  its  application. 
Therefore, the total effect due to the application of the measure amounts to EUR 4.58 billion 
per year.  

Another  effect  that  should  be  taken  into  account  is  that  suppliers  under  this  system  do  not 
receive  the  VAT  from  their  clients.  Therefore,  they  will  more  often  have  to  ask  for  an 
effective refund of the VAT, in case they cannot offset this VAT with other taxes due in Italy. 
To  avoid  a  negative  impact  on  these  taxable  persons,  even  more  so  if  the  suppliers  are  not 
established in Italy, it is essential that the refund procedure is functioning properly and timely. 
According  to  Italy,  its  system  of  VAT  refunds  works  properly  and  the  average  period  for 
processing VAT refunds has been reduced to 67 days, plus 7 days for the actual payment to 
the beneficiary. Furthermore, the new rules that have been in force are expected to properly 
manage any possible increase of VAT refunds. Moreover, according to information provided 
by Italy, at the same time of the introduction of the split payment measure, it was envisaged 
that the taxable persons who carry out transactions subject to the split payment scheme, within 
the limit of the credit deriving from such transactions, are entitled to receive the payment of 
the relevant VAT credits as a priority. This provision implies that refund requests related to 
the  split  payment  mechanism  are  processed  with  priority  both  during  preliminary 
investigation and during the payment of sums due by comparison to non-priority refunds.  

• 

Fundamental rights 

The proposal does not have any consequences for the protection of fundamental rights. 

4. 

BUDGETARY IMPLICATIONS 

The measure will have no adverse impact on the Union's own resources accruing from VAT. 

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2020/0119 (NLE) 

Proposal for a 

COUNCIL IMPLEMENTING DECISION 

amending Implementing Decision (EU) 2017/784 authorising the Italian Republic to 
apply a special measure derogating from Articles 206 and 226 of Directive 2006/112/EC 
on the common system of value added tax 

THE COUNCIL OF THE EUROPEAN UNION, 

Having regard to the Treaty on the Functioning of the European Union,  

Having  regard  to  Council  Directive  2006/112/EC  of  28  November  2006  on  the  common 
system of valued added tax1, and in particular Article 395(1) thereof, 

Having regard to the proposal from the European Commission, 

Whereas: 

(1) 

(2) 

(3) 

By  Council  Implementing  Decision  (EU)  2015/14012,  Italy  was  authorised  until  31 
December  2017  to  require  that  value  added  tax  (VAT)  due  on  supplies  to  public 
authorities was to be paid by those authorities to a separate and blocked bank account 
of the tax authorities. That special measure constituted a derogation from Articles 206 
and 226 of Directive 2006/112/EC in relation to VAT payment and invoicing rules.  
By Council Implementing Decision (EU) 2017/7843 Italy was authorised to apply the 
special measure until 30 June 2020. Furthermore, the scope of the special measure was 
broadened, to include supplies to companies controlled by public authorities within the 
meaning  of  Article  2359  of  the  Italian  Civil  Code  (Codice  Civile)  and  to  companies 
listed on the stock exchange that are included in the Financial Times Stock Exchange 
Milano Indice di Borsa (‘FTSE MIB’) index. 

By  letter  registered  with  the  Commission  on  4  December  2019,  Italy  requested  this 
authorisation to be prolonged until 31 December 2023 and that the scope of the special 
measure be reduced for supplies of goods and services to public authorities only. By 
letter registered with the Commission on 27 March 2020, Italy requested that the scope 
of  the  measure  for  supplies  of  goods  or  services  be  broadened  to  apply  both  to 
companies  controlled  by  central  and  local  public  authorities  and  to  listed  companies 
included in the FTSE MIB index. As a result, Italy requests that the special measure to 
be  prolonged  with  identical  scope  of  the  authorisation  granted  by  Implementing 
Decision (EU) 2017/784. 

(4) 

By    letter  dated  5  May  2020,  the  Commission  informed  the  other  Member  States, 
pursuant to Article 395(2), the second subparagraph, of Directive 2006/112/EC, of the 
request made by Italy. By letter dated 6 May 2020, the Commission notified Italy that 
it had all the information it needed to appraise the request. 

1 
2 
3 

OJ L 347, 11.12.2006, p. 1. 
OJ L 217, 18.8.2015, p. 7–8.  
OJ L 118, 6.5.2017, p. 17.  

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(5) 

(6) 

(7) 

(8) 

(9) 

4 

This measure is part of a package of measures introduced by Italy in order to counter 
tax  fraud  and  evasion.  As  of  1  July  2018  in  respect  to  certain  sectors,  and  as  of  1 
January  2019  in  a  generalised  form,  an  electronic  invoicing  obligation  has  been 
introduced.  The  obligation  was  authorised  by  Council  Implementing  Decision  (EU) 
2018/5934.  That  package  of  measures,  including  electronic  invoicing,  has  replaced 
other  control  measures,  and  allows  the  Italian  tax  authorities  to  cross-check  the 
different operations declared by the operators and to monitor their VAT payments.  

Italy  explains  in  its  request  that,  even  though  the  package  of  measures  implemented 
reduces the time needed by the tax administration to become aware of the existence of 
a potential case of evasion or fraud to three months, compared to the eighteen months 
that were originally necessary, in the absence of split  payment the recovery from the 
tax  evaders  or  fraudsters  once  the  check  has  been  carried  out  could  be  impossible  if 
they  are insolvent.  The split  payment mechanism, as  an  ex ante measure, provides  a 
much  higher  effectiveness.  The  definitive  data  on  the  effectiveness  of  the  measure 
show that the measure has been even more effective than expected.  

One of the effects  of the measure is  the fact  that suppliers  being taxable persons are 
not able to offset the VAT paid on their input with the VAT received on their supplies. 
They  may  constantly  be  in  a  credit  position  and  may  need  to  ask  for  an  effective 
refund  of  this  VAT  from  the  tax  administration.  According  to  the  information 
submitted  by  Italy,  requests  for  refund  are  processed  on  average  within  67  days  and 
the  average  time  for  actual  payment  to  the  beneficiary  is  7  days.  At  the  time  of  the 
introduction  of  the  split  payment  measure,  it  was  envisaged  that  taxable  persons 
carrying out  transactions subject  to  the split payment scheme, within the limit of the 
credit  deriving  from  such  transactions,  are  entitled  to  receive  the  payment  of  the 
relevant VAT credits as a priority. This practice implies that refund requests related to 
the  split  payment  mechanism  are  processed  with  priority  both  during  preliminary 
investigation and during the payment of sums due vis-à-vis non-priority refunds. 

According  to  recital  (7)  of  Implementing  Decision  (EU)  2017/784,  once  the  system 
composed  by  the  package  of  control  measures  Italy  intended  to  apply  was  fully 
implemented, there should be no more need to derogate from Directive 2006/112/EC 
in order to apply the split payment. Therefore, Italy offered assurance that it would not 
seek to renew the derogation allowing the application of the split payment mechanism. 
However, given that it is still early to fully assess the effectiveness of these measures 
due to their recent implementation, and in view of the time of difficulties that Italy is 
experiencing due to the COVID-19 outbreak, which makes it more difficult for taxable 
persons to implement the changes required in their invoicing systems, and for the tax 
administrations  to  adapt  theirs,  the  removal  of  the  measure  could  have  significant 
negative effects in the fight against tax evasion and the collection of VAT, as well as 
on the administrative costs for taxable persons under the current circumstances. 

The requested derogation should be limited in time to allow an assessment whether the 
special  measure  is  appropriate  and  effective.  Even  though  Italy  requested  the 
authorisation  to  be  prolonged  until  31  December  2023,  it  should  not  be  prolonged 
further  than  30  June  2023.  That  period  should  be  sufficient  to  make  a  complete 
evaluation  of  the  effectiveness  of  the  measures  implemented  aimed  to  reducing  tax 
evasion in the sectors concerned. 

Council  Implementing  Decision  (EU)  2018/593  of  16  April  2018  authorising  the  Italian  Republic  to 
introduce  a  special  measure  derogating  from  Articles  218  and  232  of  Directive  2006/112/EC  on  the 
common system of value added tax, OJ L 99, 19.4.2018, p. 14-15. 

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(10)  To guarantee the necessary follow-up within the framework of this derogation and, in 
particular, the impact on VAT refunds to taxable persons covered by the derogation, 
Italy  should  submit  a  report  to  the  Commission,  within  15  months  after  the 
prolongation  of  the  special  measure  takes  effect,  on  the  overall  situation  of,  and,  in 
particular,  the  average  time  needed  for,  VAT  refunds  to  taxable  persons,  and  on  the 
effectiveness  of  this  special  measure  and  others  implemented  aimed  to  reducing  tax 
evasion  in  the  sectors  concerned.  The  report  should  include  a  list  of  the  different 
measures implemented together with their date of entry into force. 

(11)  The  special  measure  is  proportionate  to  the  objectives  pursued  since  it  is  limited  in 
time  and  restricted  to  sectors  which  pose  considerable  problems  of  tax  evasion.  In 
addition, the special measure does not give rise to the risk that evasion would shift to 
other sectors or other Member States. 

(12)  The derogation will not negatively affect the overall amount of tax revenue collected 
at the stage of final consumption and will have no adverse impact on the Union’s own 
resources accruing from VAT. 

(13) 

Implementing Decision (EU) 2017/784 should therefore be amended accordingly,  

HAS ADOPTED THIS DECISION:  

Article 1 

Council Implementing Decision (EU) 2017/784 is amended as follows: 

(1) In Article 3, the second subparagraph is replaced by the following: 

‘By 30 September 2021, Italy shall submit a report to the Commission on the overall 
situation of VAT refunds to taxable persons affected by the measures referred to in Articles 1 
and  2  and,  in  particular,  on  the  average  duration  of  the  refund  procedure  and  on  the 
effectiveness  of  this  measure  and  others  implemented  aimed  at  reducing  tax  evasion  in  the 
sectors  concerned.  This  report  shall  include  a  list  of  the  different  measures  implemented 
together with their date of entry into force’; 

(2) In Article 5, the date ’30 June 2020’ is replaced by the date ’30 June 2023’. 

This Decision is addressed to the Italian Republic. 

Done at Brussels, 

Article 2 

For the Council 
The President 

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