THE TAX ASSESSMENT: INTRODUCTORY CONCEPTS

The Internal Revenue Service, when from the inspection of the taxpayer's economic position it detects the presence of elements indicating the taxpayer's ability to pay that are inconsistent with the personal income declared by the taxpayer, proceeds with an assessment.

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THE DISCIPLINE OF ACCESS: INSPECTIONS AND AUDITS

To carry out an inspection at a domicile, an inspection power of attorney is required for relevant facts, otherwise Article 14 of the Constitution establishes its inviolability.

Unlike the domicile, to enter any industrial or commercial premises it is not necessary to have an inspection power of attorney, however, actual needs for investigation must be found: investigation that can take place during working hours, or ordinary business hours, causing the least disturbance to the work activity, except in cases of urgent need. 

During the inspection, the officials draw up the daily audit report: the outcome is concluded with the report of findings, PVC, containing the findings and violations identified by the auditors and is forwarded to the office responsible for litigation.

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NOTIFICATION AND TIMING OF THE NOTICE OF ASSESSMENT 

The notification of the notice of assessment has a complex process with stringent timing and formal procedural requirements; it is governed by Presidential Decree 600/73, "Common Provisions on Income Tax Assessment," and the Code of Civil Procedure. 

The office in charge of litigation sends the PVC to the taxpayer: the taxpayer within 60 days of the notification may issue its own statement, which will be followed by the notice of assessment that must take it into account, stating enhanced reasons if necessary.

Within 60 days, the taxpayer may appeal by challenging the act (90 days if it relates to a refund application): having made this choice, he has 30 days to file the appeal with a Provincial Tax Commission, CTP, making it admissible; in turn, the Tax Administration that figures as the respondent party has 60 days to file its counter-deductions.

In case the taxpayer instead of challenging the act decides to produce a complaint, the latter must be submitted to the office that issued the act within 60 days: the complaint may also contain a mediation proposal and is allowed for notices not exceeding € 50. 000, an amount net of penalties and interest; the tax authority may, in turn, within 90 days accept the complaint or reformulate a new proposal: once these terms have expired without a response, the complaint automatically turns into an appeal and within 30 days the taxpayer must file it and constitute himself in court to make it admissible. 

Once the procedural process is concluded, the hearing will come to be convened in Council Chamber at the end of these timeframes: in the event that public form is requested, the hearing must be convened 10 days in advance with an appropriate petition.

Upon the proclamation of the judgment, the hearing will give an outcome that will become res judicata: what has been said so far concerns the first instance to which there may be an appeal in the second instance, i.e., on appeal before the Regional Tax Commission, CTR, within 60 days from the notification of the judgment or 6 months from its publication.

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NATURE OF NOTICE OF ASSESSMENT

A notice of assessment can be served for income tax, VAT, liquidation with regard to indirect transfer taxes, registration tax, cadastral and mortgage taxes.

In order for it to be valid, the notice must formally contain: an indication of the tax and the monetary quantum, the amount of interest and penalties, the reasons that prompted the tax administration to send it explaining in detail the reasons of fact and law that justify its existence; moreover, it constitutes an intimation to pay 1/3 of the total tax claim (taxes, interest and penalties), i.e. it turns out to be an enforcement order. 

In order for an assessment notice to be valid, it must be served by the tax office with territorial jurisdiction, based on the taxpayer's tax domicile or the place where the notice is registered: all notices from an office that does not reflect these requirements are null and void. If the notification concerns a deed per relationem, i.e., the deed makes reference to another deed that is not known to the taxpayer, the deed is null and void if it does not report, even partially and without including the full text, the contents of the previous one.

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THE TIME LIMITS OF THE ASSESSMENT ACTIVITY

The assessment notice cannot be issued after the statutorily prescribed time limit: this time limit varies depending on the tax. 

Currently, the following time limits apply for income and VAT taxes: by December 31 of the fifth year following the year in which the return was filed or by December 31 of the seventh year following the year in which the return was omitted, or should have been filed. 

A notice of assessment issued outside the above deadlines is unlawful, but the unlawfulness must be objected to by the receiving party, i.e., the taxpayer, who consequently bears the burden of proof. 

Exceptions are income in tax havens for which there is always a presumption that capital held in such privileged taxation countries is produced through income removed from taxation in Italy: reason why the burden of proof is, also in this case but for different reasons, on the taxpayer who will then have to prove the contrary. 

In light of the above, the agency may proceed by December 31 of the tenth year from the year in which the claim was filed and by December 31 of the fourteenth year in which the return was omitted. 

There are other types of assessment, such as: for amounts due as a result of settlement activities (forfeiture Dec. 31 of the third year after the due date of payment of the last installment); registration tax (5 years from when registration should have taken place); defaults (Dec. 31 of the third year after the due date of the last installment of the installment plan). 

Do not confuse forfeiture and prescription: prescription means the way in which legal relations are extinguished because the right has not been exercised, within a certain period of time, in this case 10 years in the ordinary way.

 

Edited by: Massimo Giardino, Chartered Accountant and Statutory Auditor

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For more information:

massimogiardino@valoreassociati.it