Legislative decree no. 128/2015 signed into legislation the Cooperative Compliance Regime with the aim of promoting stronger forms of communication and cooperation between the Italian Tax Authorities and taxpayers whose framework includes systems for detection, measurement, management and control of tax risks and exposure.
The cooperative compliance system attempts to build a partnership of trust between the Italian Tax Authorities and the taxpayer, aiming to establish an enhanced level of certainty regarding relevant tax matters.
The cooperative compliance regime implies a specific commitment from both the Italian Tax Authorities and the taxpayers admitted to the regime and responds to the need to establish certainty and stability in the application of tax law and reduction of litigation.
Article 3 of Legislative Decree 128/2015 provides for constant and preventive communication between the parties regarding factual elements, including preliminary assessments, aimed at a common evaluation which favors the prevention and resolution of situations likely to generate tax risks.
It is therefore worth noting that this marks a change from an ex posto audit, based on declarations and a source of conflict which often resulting in tax disputes, to an ex ante evaluation where the parties can discuss and verify each other’s positions and approaches.
The taxpayer voluntarily adheres to the cooperative compliance in the event that it satisfies specific subjective and objective prerequisites.
Subjective Prerequisites
The regime is reserved for taxpayers with turnover or operating revenue:
- starting from 2024 of no less than 750 million euros;
- starting from 2026 of no less than 500 million euros;
- starting from 2028 of no less than 100 million euros;
Furthermore, taxpayers are also eligible for the regime if they belong to the National Tax Consolidation Convention provided that:
- at least one participating subject satisfies the technical prerequisites;
- the group adopts an integrated and certified system in order to deal with detection, measurement, management and control of tax risks and exposure.
Objective Prerequisites
In order to take part in the regime, taxpayers must have an effective integrated system for the detection, measurement, management and control of tax risks and exposure, operating in the context of corporate governance and internal control systems (so-called “Tax control framework”).
For such a system to be effective, it must provide the company with constant protection against tax risks. In this regard, the following must exist:
- a clear attribution of roles and responsibilities in various sectors of the taxpayer’s organization with regards to tax risks;
- effective procedures to deal with detection, measurement, management and control of tax risks and exposure, whose compliance is guaranteed across all corporate levels;
- effective procedures to remedy any flaws encountered in one’s operations and to put in place necessary corrective measures;
- risk mapping of tasks relating to corporate processes.
Such a system, as provided for by Legislative Decree no. 221/2023, shall be subject to specific certification by a qualified independent party (tax lawyers or certified auditors) who shall attest to the efficacy of said system.
Beneficial scheme
Article 6 of Legislative Decree no. 128/2015 governs various beneficial aspects for corporations interested in participating in the regime:
- Shortened rulings
The company shall always have access to the shortened preventative rulings procedure, meaning it shall receive, within 45 days, a response regarding the application of tax provisions in concrete cases with regards to that which the requesting party acknowledges as tax risks.
The company can always access the abbreviated preventive consultation procedure to obtain, within 45 days, a response regarding the application of the tax provisions to concrete cases in relation to that which the requesting party acknowledges as tax risks. In the event of unfavorable response, the Italian Tax Authorities, before ruling, must invite the taxpayer to a cross-examination to explain its position.
- Penalty reduction
The taxpayer shall not incur administrative sanctions if, before filing its tax returns, it communicates to the Italian Tax Authorities in a timely and extensive fashion, potential areas of tax risks corresponding to the question at hand, excluding any case of deceptive or fraudulent conduct.
The taxpayer shall incur penalties which are reduced by half, and in any case no higher than the statutory minimum,- if it adopts conduct attributable to a non-significant tax risk included in its risk mapping
- if it communicates (in the 120 days following its admission into the regime) the tax risks connected to previous actions which happened before admission, inspections or any sort of verification.
- Reductions in assessment deadlines
The taxpayer shall benefit from a two-year reduction in assessment deadlines regarding activity for the tax periods the regime is applied to.
The possibility of reducing the deadline by a further year (compared to the above, meaning 3 years) for the tax periods the regime applies to shall be put into effect if the taxpayer is issued (by an auditor member of the certified auditors register and upon the fulfillment of the conditions referred to in Article 36 of Legislative Decree no. 241/1997) tax certification attesting to its correct application of substantive tax rules, as well as the compliance to the obligations, controls and activities indicated annually by means of decree by the Minister of Economy and Finance.
There are no reductions in deadlines for taxpayers in cases of violations carried out through the use of false documentation or non-existent operations, through contrived or fraudulent acts.
- Exemption of obligation to provide guarantees
Exemption is awarded to the taxpayer against the necessity to provide guarantees for reimbursements of direct and indirect taxes for the entire period of regime adherence.
- Elimination of criminal penalty risk
Taxpayers adhering to the regime shall not incur criminal tax penalties (provided for by Article 4, Legislative Decree no. 74/2000) based on risks of a fiscal nature relating to active elements when communicated before sending tax returns or before the tax deadline in question has passed. The communication shall be sent to the Italian Tax Authorities in a timely and exhaustive manner (both with a formal request and by timely communication to the Italian Tax Authorities).
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One other innovation provided for by Legislative Decree no. 221/2023 is the introduction of a new system for taxpayers who are not eligible for cooperative compliance given that they do not meet the relevant requirements. Eligibility for this new regime requires the following:
- the exercise of a specific option;
- the adoption of a system of detection, measurement, management and control of tax risks and exposure, based on that which is provided for in cooperative compliance.
The participation in this specific cooperative compliance regime entails the following advantages:
- administrative sanctions shall be reduced to one third, and in any case shall not exceed those of the statutory minimum, for violations connected to risks of a tax nature. This shall be communicated in advance through formal request before tax return submission or before the relevant tax deadlines have passed;
- exemption of punishment for criminal tax penalties (provided for by Article 4, Legislative Decree no. 74/2000) based on risks of a fiscal nature relating to active elements when communicated before sending tax returns or before the tax deadline in question has passed. The communication shall be sent to the Italian Tax Authorities in a timely and exhaustive manner (both with a formal request and by timely communication to the Italian Tax Authorities).
