Italy and UK reach agreement on reciprocity for VAT refunds

Executive summary

On 7 February 2024, an agreement was executed between the Embassy of Italy (Italian Embassy) and the Embassy of the United Kingdom of Great Britain and Northern Ireland (British Embassy) recognizing reciprocity for purposes of granting VAT refunds for purchases made by Italian traders in the British territory and, conversely, by British traders in Italy. The agreement is retroactively applicable as from 1 January 2021.

Thus, claims for VAT refund submitted by Italian/British traders for purchases carried out (and input VAT accrued) in the British/Italian territory shall now be regulated by the Thirteenth Council Directive 86/560/EEC of 17 November 1986 (Thirteenth Directive), which sets out the parameters for refunding VAT to taxable persons not established in European Union (EU) territory.

Detailed discussion

Claims for VAT refund after the reciprocity agreement

Due to the reciprocity agreement and under the Thirteenth Directive, Italian/British traders are no longer required to appoint a local VAT representative acting on their behalf, but instead may submit the claim on their own, in compliance with the Directive's specific rules.

Claiming an "extra-EU" VAT refund in Italy

To be refunded VAT paid in Italy with respect to purchases carried out in connection with (and/or for the purposes of) their business activities, UK traders will need to submit a specific application form, referred to as "Modello 79."

The form must:

1. Be drafted in Italian or English, and be submitted on a quarterly or annual basis

2. Be filed in hardcopy (i.e., on paper) with the Italian Tax Authorities (Agenzia delle Entrate - Centro Operativo di Pescara - via Rio Sparto, 21 - 65129 Pescara); alternatively, the form may be submitted by:

         a. Hand delivery

         b. Post

         c. Express courier

3. Be submitted no later than 30 September of the year following the one to which the request refers

4. Pertain to a request for refund amounting to, at least:

       a. €400 (if the request is quarterly)

       b. €50 (if the request is annual)

5. Be accompanied by specific documents, such as:

      a. Originals invoices

      b. Documentation demonstrating payment of the invoices

      c. Certification, issued by the Administration of the Country of establishment of the applicant, showing the "VAT status" of the applicant, as well as the effective date of such a registration

The assessment of the application should be completed within six months from its receipt (extended to up to eight months if the Italian Tax Authorities request additional information).

Payments should be made within 10 working days from the approval of the application.

After 180 days from the application, 2% interest per year applies, but no interest is due if the applicant, either:

     a. Fails to provide, within one month, any additional information requested

     b. Failed to enclose the required documents with the application

A maximum of five applications can be submitted per year.

If a UK trader receives an undue VAT refund, the Italian Tax Authorities will issue a recovery order and the recipient of the VAT refund must repay it within 60 days from receiving the order. An administrative penalty ranging from 100% to 200% of the amount unduly refunded shall be charged.

For completeness, be aware that:

• Claims for VAT refund submitted in Italy by extra-EU entities are deemed valid (thus accepted) provided that the applicant is able to prove that it is a VAT subject in his country of establishment.

The whole amount of the VAT claimed may be refunded, provided that the business activity of the applicant is not (fully or partially) VAT-exempt because, in this latter case, the VAT refund would be excluded or limited based on the pro-rata deduction applicable to the applicant.