New domestic reverse charge mechanism in Italy

7 December 2015

A new domestic reverse charge mechanism has been implemented in Italy relating to sales of laptops, game consoles and computer tablets. This mechanism allows customers to account for the VAT on the transactions in their own VAT reporting, meaning that the supplier does not charge VAT to their customers. Usually, this mechanism is used as a means to try to eliminate VAT fraud.

Non-resident Italian VAT registered companies will now be able to claim VAT refunds of up to €15,000 without the obligation to provide a bank guarantee. The Italian tax office currently require this bank guarantee as security that VAT has been claimed correctly. Removing this requirement  will hopefully reduce the high amount of administration currently imposed on these companies.

As stated in our January 2015 newsletter, if certain budgetary targets were not met then from 1 January 2016 the Italian VAT rate would increase from 22% to 24%. However, due to a recently proposed draft budget for 2016, it seems that Italy have confirmed that the VAT rate increase will not go ahead and that the standard rate of VAT will remain at 22% during 2016.

The draft budget for 2016 also contained a proposal to reduce the VAT rate on e-books from 22% to the reduced VAT rate of 4%.  This change comes in an effort to align the VAT treatment of electronic and paper books which are already charged at the reduced rate of VAT. However if this change is implemented then it will put Italy into conflict with the European Court of Justice  (ECJ) as there have already been VAT rulings in regards to the VAT treatment of e-books. In all of these cases it was held that e-books were a digital service which incurred the higher rate of VAT.