1. Background
The Italian Tax System, such as the vast majority of OECD and EU Countries’, has been traditionally based on a self-assessment mechanism, where taxpayers are responsible for tax returns and the intervention of Tax Offices has an ex-post nature, by means of audits aimed at verifying the regularity and correctness of tax obligations.
Nevertheless, in the last decades this principle has been progressively shaped, providing new preventive dialogue tools between taxpayers and the Revenue Agency (e.g. tax rulings, APAs), aimed at granting more certainty in business choices and involving more transparency in taxpayer/Authority relationships.
This has led to the introduction, in 2015, of a cooperative compliance regime aligned with guidelines emerged from BEPS Project’s Action 12. Opting for this program could assure to the enterprise the benefit of having an ongoing and advanced interaction with the Tax Authority, based on criteria of “common evaluation” and “anticipation of control”. In this perspective, cooperative compliance rules have granted an higher proficiency, predictability and clearness of tax situations, and clear disclosure effects in favor of the Tax Administration.
Over the past year, this regime has been newly strengthened in the context of a comprehensive reform of the Tax System, that affected many issues both from a substantive and procedural point of view.
With Law No. 111/2023 the Italian Parliament has instructed the Government to adopt new measures aimed at obtaining more certainty for taxpayers, and, specifically, to improve cooperative compliance rules for large taxpayers, as well as to introduce a new voluntary regime for medium-small enterprises equipped with tax control framework models, inspired by the will of increasing the number of eligible entities, simplifying procedures and enhancing the reward effects in favor of taxpayers.
The following notes are intended to give a general overview of cooperative compliance and TCF voluntary regimes in Italy, highlighting the main innovations introduced after the Law No. 111/2023 and the way those measures can trigger a new deal in taxpayers/Revenue Agency relationships and feed tax risk management approaches.
2. The (old and) new Italian cooperative compliance regime
Since its introduction in 2015 (by Legislative Decree No. 128/2015), the Italian cooperative compliance regime has had a voluntary basis and been addressed to larger companies, i.e. resident enterprises and permanent establishments of non-resident enterprises that achieved a turnover or revenue of not less than ten billion euros (threshold halved to 5 billion for the two-year period 2020 and 2021 and subsequently to 1 billion euros for the years 2022, 2023 and 2024), as well as to companies that, following a ruling on new investments, wished to make large investments in Italy (amount not less than thirty million euros) with significant employment repercussions.
Furthermore, since its first version it required applicant companies to be equipped with a tax control framework model (TCF) in order to detect, monitor and manage tax risks related to business choices. It is worth observing that this model had no particular “standardized” form to be compliant with, except being structured in order to highlight the tax strategy adopted by the company, the potential tax risks and the relative safeguards, the model of governance, a monitoring plan (i.e. verification activities aimed at assessing the adequacy and effectiveness of the implemented tax control framework) and appropriate reporting activities.
The main benefits of entering into a cooperative compliance program were – and, with some adjustments, remain – the right of early earing before the Tax Administration, a fast track ruling procedure, the reduction of administrative tax penalties and, finally, the exemption of guarantees for obtaining tax refunds.
Recent amendments (Law No. 111/2023, Legislative Decrees Nos. 221/2023 and 108/2024, and subsequent implementing measures; hereinafter, the “Reform”) have had an impact on several fronts, extending the subjective scope of the regime, introducing new tools and strengthening the set of incentives.
Firstly, the Reform has modified the eligibility threshold lowering it to 750 million from 2024 (a threshold that will drop to 500 million in 2026, until settling at 100 million in 2028) and providing the applicability of the cooperative compliance regime also to SMEs belonging to a group of companies in which there is at least one eligible entity.
It has also been introduced a specifical Code of Conduct, which disciplines reciprocal obligations for Tax Authority and taxpayers involved in the regime, with particular regard to the disclosure of tax risks, and it has been provided a mandatory “TCF certification” requirement for taxpayers intending to enter into a cooperative compliance program.
This latter provision has a crucial importance in the context of the new cooperative compliance regime. In fact, the certification concerns the concrete and effective ability of TCF to detect and manage tax risks, taking into account all the internal control procedures and the functions involved in tax choices. Certifying professionals must have specific skills in accounting, tax and management control matters, must be different from the consultants who contributed to the construction of the model and avoid conflicts of interest with the enterprise and are directly responsible for their actions before the Tax Authority.
Another worth noting innovation is the transition from an open model to a more standardized TCF model: the Italian Revenue Agency is going to publish specific guidelines containing instructions for the building and updating of an effective Tax Compliance Framework and for its certification, and, up to date, has instituted a technical working group in partnership with the Italian Accounting Board, particularly focusing on drafting specific instructions regarding the mapping and management of tax risks arising from the accounting principles applied by the taxpayer.
As regards incentives, the Reform has finally introduced, from one hand, the reduction of two years (extendable in some cases up to three) of tax assessments’ terms, and, from the other hand, a plein administrative and criminal penalty protection for collaborative taxpayers. In particular, except where the taxpayer is involved in tax frauds or simulation behaviors, no administrative fines nor criminal penalties should apply for enterprises which communicate in advance and comprehensively the existence of relevant tax risks to the Tax Authority by means of tax rulings or alternative notification tools.
3. The voluntary TCF regime for SMEs
The Reform has also introduced new rules for taxpayers lacking requirements to opt for cooperative compliance programs (therefore taxpayers with a turnover or revenues lower than 750 million euros for 2024, 500 million in 2026, 100 million in 2028).
Those taxpayers can voluntarily adopt a system for the detection, measurement, management and control of tax risk (i.e. a Tax Control Framework), notifying it to the Italian Tax Authority. As for the cooperative compliance regime, the Tax Control Framework must be certified by independent and specialized professionals, who are attest its effectiveness and reliability.
The option takes effect from the beginning of the tax period in which it is exercised, has a duration of two tax periods and is irrevocable. At the end of this period, the option is tacitly renewed for another two tax periods, unless expressly revoked.
The incentives for the optional regime at stake essentially lie on a penalty protection regime both for administrative and criminal purposes.
In particular, except in the case of tax infringements characterized by simulative or fraudulent conduct, administrative fines are not applied for violations relating to tax risks communicated in advance by means of a tax ruling. Moreover, except for tax infringements characterized by simulative or fraudulent conduct or dependent on the indication in the annual returns of non-existent passive elements, they do not give rise to criminal penalties violations of tax rules dependent on tax risks communicated to the Revenue Agency by submitting a request for a tax ruling.
Many Scholars and Practitioners have welcomed with great favor this new voluntary regime, noting how TCF models were already widely spread among the best corporate practices; the Reform, therefore, did nothing more than provide legal consequences (in terms of penalty protection) as a result of the disclosure of these models to the Tax Authority.
4. The Dawn of a New Era
As above seen, the pivotal element both of (new) cooperative compliance regime and Voluntary TCF regime lies on the adoption of an internal models of measuring, monitoring and managing the tax risk, certified by independent professionals (vis-a-vis the enterprise as well as the consultants who contributed to build the tax control framework), responsible for their effectiveness and adequacy directly towards the Tax Authority.
Moreover, tax incentives to set up those models – reduction or cancellation of sanctions, reduction of assessment terms, benefits on tax refund procedures, quick dialogue tools – are just one piece of a larger and more varied picture.
In fact, the best international practice on sustainability reporting pays a greater attention to aspects related to tax collection and its management in terms of strategy, risk control, relationship with Tax Authorities. Tax variable and the approach to tax risks have become indicators that the market – as well as financial administrations, non-governmental organizations and consumers – consider in the evaluation of a company, its performance and the relative degree of social responsibility.
In its Guidelines for Multinational Enterprises on Responsible Business Conduct (Paris, 2023), the OECD has highlighted the central role of tax risk management policies in the context of corporate tax governance and tax compliance.
Furthermore, despite no express tax standard is settled by the CSRD framework (Corporate sustainability reporting directive 2022/2464/EU, recently implemented in Italy with Legislative Decree No. 125/2024), businesses should demonstrate that their organizations adopt certain minimum guarantees (minimum safeguards) in tax matters. Among these minimum guarantees, the October 2022 Report “Sustainable Finance Platform”, by a group of experts from the European Commission, also includes those relating to taxation, referring to the standards of conduct of businesses contained in the OECD Guidelines for Multinational Enterprises.
In conclusion, from different sides an high pressure is put on taxpayers to be equipped with tax risk control models.
It is predictable that this will trigger a completely new approach in relationships between taxpayers and the Tax Authority, based on evaluation of effectiveness and reliability of those models, rather than on a posteriori tax audits grounded on “substantial” tax challenges; and it will also drive a widespread diffusion of new methods of corporate tax governance, where enterprises will foreseeably invest more and more resources in equipping themselves with efficient systems for preventing and containing tax risks, “internalizing” the social costs of tax non-compliance.