Year-end notes 2023

At year-end, a number of special features must once again be observed in invoicing and in particular in the deduction of input VAT on incoming invoices. And contrary to recent press reports, these have not yet changed this year; various simplifications are to be enacted only next year.

1. Invoicing at year-end:

The rules in force on electronic invoicing and on the deduction of input VAT again entail a number of special features at year-end. In this respect the following principle must in particular be observed: the issue date of an electronic invoice is the date on which the invoice is uploaded to the SdI platform. Special rules apply, however,

at year-end – as in previous years – with regard to the deduction of input VAT on incoming invoices. Below is an overview:

1.1 Outgoing invoices at year-end:

Here it should first be recalled that invoices for services must be issued at the latest at the time of payment and invoices for supplies of goods, as a rule, at the latest upon the handover of the goods, unless payment has already been made beforehand. Since the introduction of the electronic invoice, however, a relief applies in this respect: the invoice itself may be issued and transmitted within the following 12 days, but must then state the date of the transaction separately; as a reminder: previously, invoices had to be prepared by 24:00 on the day on which the transaction was carried out, with the sole essential difference that delays could not be detected where the invoice was correspondingly backdated. In the case of supplies of goods which are, however, evidenced by accompanying documents, a monthly collective invoice may also be issued as a “deferred invoice”; this collective invoice, which in theory may also relate to a single documented supply only, must be issued at the latest by the 15th of the following month, whereby the VAT must nevertheless be accounted for in the settlement for the month of the supply.

These deadlines must be observed most scrupulously, all the more so since the grace periods for suspended and reduced administrative penalties have all expired. The Italian Revenue Agency last drew attention to this in Reply No. 528 of 16 December 2019. In practice, the following cases arise at the turn of the year:

• If a service was paid for on 16 December 2023, for example, the invoice must be issued with the “date of the transaction” 16.12.2023, and specifically at the latest within 12 days of that date, i.e. by 28.12.23, and this date also marks the deadline by which the invoice must be transmitted via the SDI platform.
• The same deadlines also apply in the case of immediate invoicing of supplies of goods.
• If the invoice for a service which has not yet been paid is issued for administrative reasons – as is generally customary – with the date 31 December 2023 (issue date 31.12.2023), it must be transmitted via the platform at the latest within 12 days, i.e. by 12 January 2024, and the corresponding VAT must be accounted for in December 2023.

- If an invoice for supplies of the month of December which are evidenced by transport documents is prepared as a “deferred” (collective) invoice, either the date of the last supply must be stated as the issue date, or the last day of the month may also be given as the issue date (to this effect Reply No. 389 of 24 Sept. 2019). In the special case of such deferred invoicing, the invoice may be transmitted as late as 15 January 2024. The corresponding VAT of this collective invoice must likewise be taken into account in the settlement for December on 16 January 2024.

1.2 Incoming invoices and input VAT deduction at the turn of the year:

Here it should be recalled that at year-end the prescribed annual cut-off date of the annual VAT return must be observed, which as a result of electronic invoicing can be verified precisely. It follows that:

- An invoice bearing an issue date in 2023 which is transmitted by the supplier via the SDI portal only in 2024 and which therefore arrives only in 2024 may be recorded in the register of incoming invoices only in 2024, and the input VAT is deductible only in 2024. It is accordingly not permissible to deduct the input VAT on an invoice transmitted on 2 January 2024 already in the December settlement, even if the supply of goods or services was still made in December and even if the issuer still has to pay the VAT with the December settlement.

Example 1: invoice issued on 30.12.2023 and invoice received on 30.12.2023: deduction of the input VAT in December 2023

Example 2: invoice issued on 30.12.2023 and invoice received via the SDI portal on 3 January 2024: input VAT deduction in January 2024

- The next case is more cumbersome, however: in the case of an invoice bearing an issue date in 2023 which also arrives electronically in due form still in 2023 but which, for administrative reasons (e.g. because it still has to be checked by the purchasing department), is not recorded until January or February 2024, the input VAT may not be deducted in the month of the recording (e.g. January or February), but solely in the annual VAT return for 2023.

In the case of taxpayers settling VAT on a monthly basis, a 13th VAT settlement must therefore be prepared in practice. Depending on the software, it may be necessary to set up a separate VAT register for these invoices in order to achieve a clear separation in the VAT settlement. In any event, these invoices give rise to a discrepancy between the December monthly settlement and the annual VAT return.

- If, for whatever reason, an invoice issued and transmitted in 2023 is not recorded until after the annual VAT return for 2023 has been filed in April 2024, the input VAT is admittedly not lost, by virtue of the principle of VAT neutrality, but it is necessary to file a new annual VAT return for 2023 and to include the corresponding input VAT therein. This causes problems in particular where the VAT return is filed early, in the first days of February, on account of a credit to be reclaimed and then has to be corrected once again subsequently.

For invoices received at year-end, the following cases therefore arise for taxpayers settling VAT on a monthly basis:

What is decisive in this connection is not the date stated on the invoice, but the issue date resulting from the transmission to the SdI platform, which constitutes the actual invoice date.

Reverse charge – foreign transactions

In the case of invoices which must be supplemented under the reverse charge mechanism, it is the date of receipt of the invoice that counts, and no special rules apply here at the turn of the year: accordingly, the general provision of Art. 47 of Law Decree 331/1993 applies, under which such invoices must be supplemented and recorded at the latest by the 15th of the month following receipt (but always with reference to the month of receipt). All invoices received in December 2023 must therefore be taken into account in the VAT settlement for December 2023; invoices received in January are included in the settlement for January 2024.

Invoicing of the mixed use of vehicles

Where cars are made available to employees and freelance collaborators for mixed use against consideration (rental agreement), benefits in kind must be calculated for this purpose. In this connection we remind you that the corresponding invoice must be issued at the latest by 31.12.2023. As regards payment, in the absence of official instructions it may be assumed that the extended cash principle applies here as well (i.e. payment by 12 January 2024).

2. Issue of credit notes with VAT for irrecoverable receivables

We remind you that the provisions on the issue of credit notes for irrecoverable receivables were fundamentally amended by Law Decree No. 73/2021 with effect from 26 May 2021, and the Italian Revenue Agency explained this reform shortly before the end of the year in Circular No. 20/2021 of 29 December 2021.

The reform applies only to proceedings opened on or after 26 May 2021. For proceedings opened before that date, credit notes with VAT within the meaning of Art. 26 of the VAT Act may as a rule be issued in insolvency proceedings as from the date of the definitive closure of the proceedings. The final deadline for issuing such credit notes is the due date of the annual VAT return for the year in which the right to issue the credit note arose. Insofar as bankruptcy proceedings were therefore closed in 2023, the corresponding credit notes may still be prepared up to 30 April 2024.

For proceedings opened on or after 26 May 2021, by contrast, the new rules apply. Here a credit note for the VAT may be issued as early as upon the opening of the bankruptcy proceedings. The adjustment of the tax does not have to be taken into account by the receivership. The creditor must, however, scrupulously observe the tax period in which the right to the adjustment arises. Below are the relevant reference dates for proceedings opened on or after 26 May 2021:

• date of the judgment declaring the opening of bankruptcy proceedings,
• date of the order admitting the debtor to composition proceedings with creditors (“concordato preventivo”),
• date of the order concerning controlled liquidation proceedings (in the case of cooperatives),
• date of the court approval (homologation) of debt restructuring proceedings (Art. 182-bis Royal Decree No. 267/1942),
• date of publication in the Companies Register of the audited debt restructuring plan in the case of proceedings within the meaning of Art. 67(3)(d) of Royal Decree No. 267/1942, or
• date of the order concerning extraordinary administration proceedings for large undertakings.

The list shows that, in the case of bankruptcy proceedings, composition proceedings with creditors and the extraordinary administration of large undertakings, as well as in the case of controlled liquidation proceedings, the point in time for the credit note has been brought forward to the opening of the respective proceedings.

But caution: in the case of the debt restructuring proceedings set out above and also in the case of individual judicial enforcement proceedings, reference continues to be made to the conclusion of the proceedings or to the unsuccessful outcome of the enforcement proceedings.

Where the point in time has been brought forward, the credit note may, for proceedings opened on or after 26 May 2021, be issued as early as in the month of the opening; for proceedings opened in 2023 there is still time up to 30 April 2024. If, however, the credit note with VAT is not issued by then, the tax is irrevocably lost.

See also the instructions in Circular No. 20/E of 29 December 2021: anyone who has already issued the credit note for proceedings opened in 2023 must record it in the relevant settlement period, whereas anyone who issues it in the first 4 months of 2024 may deduct the VAT either in the relevant monthly or quarterly settlement or else only in the annual VAT return for 2024 in April 2025.

And the aforementioned circular contains one further important clarification: for the issue of a credit note with VAT it is no longer necessary for the creditor itself to have participated in the bankruptcy proceedings (so-called “insinuazione al passivo”); as is well known, in the case of hopeless proceedings in particular such participation was often omitted for reasons of cost, with the result that the Italian Revenue Agency declared it inadmissible to issue credit notes for the lost VAT in these cases.

This restrictive interpretation has now been declared obsolete by the Agency itself; it may be assumed that this easing also applies to proceedings opened before 26 May 2021.

Incidentally: as regards the deadlines for these credit notes, there is a new interpretation by the Association of Italian Accountants and Tax Advisors (AIDC) in Recommendation No. 222 of September 2023: a credit note may also be issued after the expiry of one year from the transaction if the background to the credit note is not merely a subsequent agreement of intent between the parties, but a (even only potential) dispute which is settled by way of a settlement agreement. Where such a settlement agreement exists, it therefore constitutes the basis for a credit note with VAT even after expiry of the one-year period.

We enclose Recommendation No. 222 with this circular and remain at your disposal for any advice on the subject.

3. Extended cash principle and directors’ remuneration 2023 (payment by 12 January 2024)

Remuneration paid to employees and income treated as equivalent to such remuneration for the year 2023 must be paid out at the latest by Friday, 12 January 2024 in order for it still to be allocated to the 2023 tax period and to be included in the corresponding wage tax certificates (CU) and tax returns (formerly Form 770) for 2023. Remuneration for freelance work, in particular that paid to the members of the board of directors, is deductible as an expense for tax purposes still in the year 2023 if it is paid out by 12 January 2024. It remains to be recalled that this extended cash principle does not apply to directors holding their own VAT number: directors who invoice their remuneration had to be paid by 31 December 2023 in order for the deduction still to be admissible in the financial year. In this connection there is a special feature this year: the non-taxable reimbursements of electricity and gas bills and the like (see our previous communications on this) up to a maximum amount of 3.000 euro to collaborators and employees may also still be paid out up to 12 January 2024.

At this point, once again as a reminder: remuneration paid to directors of companies must have been determined by a resolution of the shareholders’ meeting!

4. Limitation periods

At the end of 2023 the periods for formal checks for the years 2015, 2016 and 2018 expire. According to the view of the Italian Revenue Agency, the periods for the service of any assessment notices expire only 85 days later in each case. If no tax return was filed, the limitation period is extended. As a result of various amendments, a special rule remains in place for the 2017 tax period, which expires only at the end of next year. Accordingly, the following tax limitation periods apply at the turn of the year 2023 for the purposes of IRPEF, IRES, IRAP and VAT:

5. 110% tax credits

Unless some extension is granted at the very last moment, the deadline for claiming the increased tax deduction of 110% for condominium buildings expires on 31.12.2023; under the law as it currently stands, anyone still wishing to claim the increased deductions must therefore make payment by bank transfer within the year, stating the tax code and the reference to the law (so-called “bonifico parlante”), and the works paid for must also have been carried out. The respective technicians, who may prepare and transmit their certifications even in 2024, must then confirm that the payments made by 31.12.2023 also related to works which were carried out still in the current year.

6. Electronic invoices as from 1 January 2024 also for the flat-rate scheme

Unless some change is made at the last moment, self-employed professionals and micro-enterprises applying the flat-rate scheme may issue and lawfully transmit invoices in paper form only up to 31 December 2023. As from 1 January 2024, the general rules on electronic invoicing apply to them as well.

Enclosure: Recomm. No. 222 AIDC Milan