"NEWS October 10, 2016-The new hypothesis of reverse charge in force since May 2, 2016"

Posted by on Oct 10, 2016

With the Decree. 24/2016, adopted in implementation of directives 2013/42/EU and EU/43/2013, changes have been made that have enriched the landscape of transactions subject to the reverse charge procedure. In particular, the new legislation has replaced the letter c) of paragraph 6 of article 17 of the P.r.decree 633/1972, which now refers to supplies "of gaming consoles, tablet PCs and laptops, as well as to the supply of integrated circuit devices such as microprocessors and central processing units, carried out before installing them in products intended for the ultimate consumer".

Before entering into the substance of the interior arrangement it is considered appropriate to examine briefly the relevant Community provisions. The new forecast is rooted in article 199 bis of the directive 2006/112/EC. According to this forecast, for a temporary period (until December 31, 2018 and for a minimum period of two years), Member States may provide that, for certain operations specifically identified, that the person required to pay the VAT is a taxable person in respect of which they are made; among these, the letter h) of the said article 199 bis lists precisely the "supply of game console, tablet PCs and laptops.

This provision responds to the need to tackle the spread of fraudulent phenomena, especially in certain particular sectors clearly most at risk, by adjusting the reverse charge mechanism directly. In such case, the Member States have to adopt this particular mechanism to impose taxes, provided that they give notice to the VAT Committee and to provide information about the scope of the measure and the type and characteristics of the fraud, a description of accompanying measures, including reporting obligations applicable to taxable and any control measure.

It is therefore under the Faculty granted by Community rules that the national legislature has expanded the article 17, paragraph 6, letter c) of P.r.decree 633/1972, which, in the previous version, was refer only "to supplies of personal computers and their components and accessories".

Regarding the previous provision must be regarded as the same as a result of the Council implementing decision of November 22, 2010, n. 2010/710/EU which had decreed the entry into force, had limited application to only "integrated circuit devices such as microprocessors and central processing units before installing them in products intended for the ultimate consumer". With circular No. 59/E/2010 and resolution No. 36/E/2011, the Inland Revenue has already had the opportunity to clarify the scope of the reverse charge in relation to the supply of integrated circuit devices such as microprocessors and central processing units.

With reference to the precise scope of the new forecast expected, therefore, the necessary clarification from the IRS, which came with circular No. 21/E/2016. The first confirmation came by the Agency is that this change has brought innovative and therefore, runs from May 2, 2016 — from the sixtieth day following entry into force of the measure.

Other designations were expected and the precise identification of goods whose sale must take place with the application of the reverse charge mechanism and the distribution phase of trade affected by the application of that provision.

With regard to the first aspect, in fact, terms such as "tablet PC" and "laptop" (which in Italian means "laptop") in a rapidly evolving technology sector could create some difficulties of identification and then the IRS, with the abovementioned circular No. 21/E/2016, specifies that for the purposes of the identification of these goods, does not detect the name "commercial", but rather, the fact that it is goods of the same commercial quality, having the same technical characteristics and the same code of the combined nomenclature (CN):

  • Gaming Console (NC 9504 50 00);
  • Tablet PC (NC 8471 30 00);
  • laptop (NC 8471 30 00).

From the subjective point of view, then, the same practice document states that the buyer (or assignee) taxable person is obliged to carry out the tax using the reverse charge although not established in Italy or having a permanent establishment in Italy. In order to fulfil the above obligation, therefore, the transferee – not established or if there is no permanent establishment in the State – must be identified for VAT purposes in Italy as well as pointed out by the same agency in resolution No. 28/E/2012.

With regard to the second aspect, as it pertains to the relevance of the distribution phase of the trade in which they encounter the operations concerned to reverse charges, especially important (and reassuring) appear in the conclusions to which the Agency. It was not clear before the clarification, if the engraved "made before installing them in products intended for the ultimate consumer" should relate only to supplies of integrated circuit devices such as microprocessors and central processing units, or also to the supply of gaming consoles, tablet PCs and laptops.

To witness the delicacy of the matter there are those in the doctrine revealed how the formulation of Community provisions is not on the point, since the two cases are "governed" by two different letters of article 199 bis of the directive 2006/112/EC that verbatim as follows:

  • the letter d) the supply of integrated circuit devices such as microprocessors and central processing units, carried out before their installation in products intended for final consumption;
  • the letter h) the supply of gaming consoles, tablet PCs and laptops.

It is evident, therefore, that the legislator has given the different setting internal (with a wording not quite happy) than provided at Community level. On point circular No. 21/E/2016 intervenes, with a solution that severely limits what might be the scope of the provision, stating that "the obligation of the reverse charge mechanism in the present case, pursuant to article 17, paragraph 6, letter c) of P.r.decree 633/1972, applies to those supplies of goods made in the distribution phase which precedes the retail trade, as already stated by the writer with circular No. 59/E/2010 and resolution No. 36/E/2011 ".

This interpretation is held by the Agency (with arguments indeed unconvincing) consistent with the broad faculty granted to Member States under article 199 bis of the VAT directive and with the features that characterise the reverse charge mechanism, namely, the utility to avoid and discourage fraudulent schemes, and simplify the procedure for collecting VAT. The justification is, in fact, in consideration that the reverse charge mechanism for the present case does not apply to the retail trade stage whose activity, is usually characterized by frequently enough to make particularly onerous compliance with the application of the reverse charge mechanism on account of the transferee's taxable person–customer; otherwise, in respect of the supply of the goods in question that occur in all phases of previous retail marketing, the recipient of the supply, if taxable entity in the State, is obliged to carry out the tax, instead of the transferor.

Luke Cambell

DA-PROFESS