Italy introduces new provisions to Cooperative Compliance regime

On 26 July 2024, the Italian Council of Ministers approved the Legislative Decree No. 108, dated 8 August 2024, (published in Gazzetta Ufficiale No.182 dated 5 August 2024) (Corrective Decree) containing supplementary and corrective provisions to the Cooperative Compliance regime set forth in the Legislative Decree No. 128/2015 as amended by the Legislative Decree No. 221/2023, which entered into force on 4 January 2024.

The amendments introduced by the Corrective Decree will have significant implications for efforts to encourage new taxpayers to participate in the Cooperative Compliance regime, as well as for taxpayers who do not qualify for the Cooperative Compliance regime and opt to apply the tax control framework (TCF). The TCF, governed by Article 7 bis of Legislative Decree No. 128/2015, allows the taxpayer to provide certain communications to the Revenue Agency (so-called Optional TCF).

For taxpayers who enter into the Cooperative Compliance regime, the Corrective Decree also:

• Extends the guaranteed waiver for reimbursements for taxpayers who were in the Value-Added Tax (VAT) Group regime, when Legislative Decree No. 221/2023 entered into force

• Excludes the reductions of the assessment statute of limitations set forth by Legislative Decree 128/2015 (of two or three years) for entities that guarantee the traceability of payments for transactions exceeding €500, as provided by Article 3, of the Legislative Decree No. 127/2015

• Imposes penalties on professionals who issue unfaithful TCF certifications; the Tax Revenue Agency may also make its own determinations regarding eligibility for, or permanence of, the Cooperative Compliance regime

Following is a summary of the main amendments introduced by of the Corrective Decree.

For entities admitted to the Cooperative Compliance regime, the criminal penalty for filing an unfaithful tax return, under Article 4, Legislative Decree No. 74/2000, no longer applies to tax violations involving tax risks that have been communicated to the Italian Revenue Agency (by means of a brief tax ruling request or by the specific communication). Thus, an unfaithful tax return will not be considered a criminal report (pursuant to Article 331 of the Code of Criminal Procedure), unless the tax return provides imitation or fraudulent tax information, including by reporting nonexistent costs. This type of fraudulent conduct is not permitted under, or in compliance with, the cooperative and transparency relationship inherent in the Cooperative Compliance regime, as specified by the Code of Conduct published on 7 June 2024. In this regard, the Corrective Decree specifies the scope of the criminal shield (i.e., criminal penalty exemption) by no longer referring exclusively to tax-positive income.

Now, a taxpayer who is not under audit and, within 120 days of entering into the Cooperative Compliance regime, informs the tax authorities about tax risks related to the taxpayer's conduct in prior fiscal years, will not be subject to the criminal penalty or administrative tax penalties for filing the unfaithful tax return. The same provision applies to taxpayers who have already been participating in the Cooperative Compliance regime and decide to communicate the risks of their past conduct within 120 days from the Corrective Decree's entry into force. Note that the previous wording of the legislation would have reduced tax penalties by 50% rather than eliminating them.

Access to the Cooperative Compliance regime has now been extended to taxpayers belonging to a group of companies (as a set of companies under a common control pursuant to Article 2359, paragraph 1, no. 1 and 2 and paragraph 2 of the Italian Civil Code), where at least one of the companies meets the requirements for accessing the regime and the group adopts a general certified TCF, thus eliminating the previous condition of opting for the fiscal-unit regime.

Furthermore, taxpayers that do not meet the requirements for accessing to the Cooperative Compliance regime, but decide to adopt the Optional TCF, as a system of detection, measurement, management and control of tax risk, may access the main benefits provided in the Cooperative Compliance regime, in particular (i)the non-application of administrative tax penalties and (ii)the non-application of the criminal penalty for the filing of the unfaithful tax return. These benefits apply provided that (i) the taxpayer communicates its specific tax risks by submitting an ordinary tax ruling request before submitting the relevant tax return, and (ii) the taxpayer's conduct corresponds exactly to the conduct represented in the ruling request. Simulative or fraudulent conduct and including nonexistent costs in the tax return are not permitted.

Finally, taxpayers already admitted to the Cooperative Compliance regime as of 18 January 2024, even though not required to certify the TCF, will have to certify that their TCF is operational and effective.

Implications

Financial entities (including banks and insurance companies) that require assistance in setting up the TCF and managing the Cooperative Compliance regime should contact a tax advisor. For example, support and assistance may be needed with regard to:

• Assessing the relationship between the TCF and entry into the Cooperative Compliance regime

• Implementing the TCF roadmap and providing support during the preliminary stages of access to the Cooperative Compliance regime

• Navigating admission to and compliance with the Cooperative Compliance regime

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