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EU Greenlights Continuation of Italian Business-to-Government Split Payment Method

Italy has secured the European Union's endorsement to extend the utilization of a split payment mechanism for transactions involving business-to-government supplies and corporations enlisted on the FTSE MIB index.

Originally introduced in 2017, this mechanism serves as an anti-tax evasion strategy, compelling government entities to directly remit the Value Added Tax (VAT) owed from a contract to the state, rather than to the supplier.

Under the framework of the split payment mechanism, when one taxable entity procures goods or services from another taxable entity, the segment of the payment that corresponds to VAT is independently and automatically channeled into a dedicated account belonging to the seller. This serves to fulfill the VAT obligation that must be remitted to the tax authority. The seller receives the net amount for the transaction, while the sum deposited in the account can be employed to meet the taxpayer's VAT responsibilities.

Although Italy has consistently explored the gradual phase-out of this mechanism, the extension received approval with certain stipulations. In return for the extension, Italian authorities agreed to eliminate the measure's application for goods and services furnished to companies listed on the FTSE MIB index, effective from July 1, 2025.


Additionally, Italian authorities are required to prepare a comprehensive report for submission to the European Commission by September 2024. This report should offer insights into the measure's efficacy in curbing tax evasion and alleviating the tax burden on payers.

The Council Implementing Decision (EU) 2023/1552 formally endorses the extension of the split payment mechanism for business-to-government transactions until June 30, 2026.


Contacts

If you require assistance in relation to the above and/or would like to discuss anything further, please do not hesitate to contact info@act.london or your usual A.C.T. contact.

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