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The Biennial Preventive Concordat

NORMA
Introduced by Articles 6 et seq. of Legislative Decree No. 13 of 2024, implementing the enabling act for tax reform and subsequent amendments introduced by Legislative Decree No. 108/2024, the Biennial Preventive Arrangement is a compliance institute that grants, for two years (2024 and 2025), the taxpayer the right to pay taxes on the basis of a proposal formulated by the Revenue Agency, in accordance with the data contained in the databases available to the Tax Administration and the income declared by the taxpayer.

In the event that a taxpayer carries out two activities, one as a business and one as a self-employed person, both subject to Isa, the Agency will formulate two distinct proposals, to which the taxpayer may adhere either jointly or individually.

 

SUBJECTS CONCERNED

The Biennial Preventive Arrangement is aimed at taxpayers applying the Synthetic Indexes of Reliability (Isa) and those adopting the flat-rate regime.

The Preventive Arrangement is aimed at natural persons and smaller businesses engaged in business, arts or professions that apply the Synthetic Indices of Reliability (ISA) referred to in Article 9-bis of Decree-Law No. 50 of 24 April 2017 and in particular:

self-employed persons;
partnerships (S.a.s. or S.n.c.);
corporations (S.r.l or S.p.A.).

Income subject to Concordat concerns:

the income from self-employment deriving from the exercise of arts and professions, referred to in Article 54, paragraph 1 of the TUIR, without taking into account the values relating to capital gains and losses, income or portions of income relating to participations in partnerships and associations referred to in Article 5 of the TUIR and the consideration received following the sale of clients or intangible elements in any event, referable to the artistic or professional activity referred to in Article 54, paragraph 1-quater of the TUIR
business income, as referred to in Article 56 of the TUIR and, with regard to taxpayers subject to IRES, to the provisions of Section I of Chapter II of Title II of the TUIR, or, for minor undertakings, to Article 66 of the TUIR, without taking into account the values relating to capital gains, capital losses and contingent assets and liabilities, income or portions of income relating to shareholdings in entities referred to in Article 5 of the TUIR, or to an Economic Interest Grouping EEIG, or in companies and entities referred to in Article 73(1) of the TUIR losses on receivables in addition to capital gains/losses and out-of-period income/expenses.

 

Business or self-employment income from the exercise of arts and professions cannot be less than EUR 2,000.

On the other hand, taxpayers who:

have tax and/or social security debts exceeding €5,000 (except for those who have an active instalment plan and/or a suspension and relief measure in place)
have failed to file a tax return in relation to at least one of the three tax periods preceding the period of application of the Biennial Preventive Arrangement, where there is an obligation to do so
have been convicted, in the last three tax periods preceding those of application of the Biennial Preventive Arrangement, of one of the offences provided for in Legislative Decree No. 74 of 10 March 2000, Article 2621 of the Civil Code, as well as Articles 648-bis, 648-ter and 648-ter 1 of the Criminal Code (offences of money laundering, self-laundering, false corporate communications).

 

WHEN TO APPLY

Interested parties must adhere to the two-year composition agreement by 31 October 2024,

A taxpayer who has already filed a return for the tax year 2023 without having adhered to the Biennial Preventive Arrangement proposal in the same, is still in time to reconsider and adhere to the institute, by filing a corrective declaration within the deadline by 31 October.

For taxpayers with a tax period not coinciding with the calendar year, acceptance must take place by the fifteenth day of the tenth month following the end of the tax period.

 

FORFEITURE AND TERMINATION

The two-year Preventive Concordat is valid for two years, provided that all the conditions laid down are fulfilled. However, the agreement may cease or lapse earlier if irregularities occur.

Biennial Preventive Concordat sees its termination in cases of:

cessation or modification of the activity
presence of particular and exceptional circumstances that have led to the contraction of the effective taxable amounts by more than 30% with respect to those subject to the arrangement adherence to the flat-rate regime provided for in Article 1, paragraphs 54 to 89, of the Flat-rate Law (for ISA taxpayers only)
merger, demerger or contribution operations carried out by companies or entities, or, changes in the corporate structure
declaration of revenues or compensation exceeding the limit established by the decree approving or revising the relevant summary tax reliability indexes increased by 50 per cent (for ISA taxpayers only)
exceeding of the limit of revenues or remuneration referred to in Article 1, paragraph 71, second sentence, of the Flat-rate Law increased by 50 per cent (for taxpayers applying the flat-rate regime only).

The Biennial Preventive Agreement sees its forfeiture:

as a result of an assessment, in the tax periods covered by the arrangement or in the previous one, the existence of undeclared assets or the non-existence or non-deductibility of declared liabilities, for an amount exceeding 30% of the declared revenues, or other violations of no minor entity, are discovered;
following amendment or supplementation of the tax return, the data and information declared by the taxpayer result in a different quantification of the income or net production value compared to those on the basis of which the acceptance of the arrangement proposal took place;
when data are indicated in the tax return that do not correspond to those communicated, for the purposes of the definition of the proposal for arrangement
when one of the grounds for exclusion occurs, i.e. when the requirements relating to tax debts are no longer met
when the payment of the amounts due as a result of adherence to the arrangement is omitted, it being understood that, even in the event of forfeiture, the amounts subject to the omitted payments remain due.

In short, the agreement is not permanent and requires strict compliance with the rules established to maintain its validity.

OPERATION

Parties who adhere to the Biennial Preventive Arrangement proposal have access to specific bonus benefits (including those relating to value added tax) and, unless the causes of forfeiture provided for by law apply, are excluded from tax assessments.

In particular, if the taxpayer accepts the proposal, the higher income actually earned during the two-year period 2024 and 2025 will not be taken into account for tax assessment purposes. In addition, a substitute tax will be levied on the portion of the agreed income in excess of the income declared in the preceding tax period (the year 2023):

for ISA subjects varies from 10% to 15% depending on the score obtained:

10% if the ISA level of the tax period prior to the one of the arrangement, is not less than 8;

12% if the ISA level of the tax period preceding the arrangement, is not less than 6 and less than 8;

15% if the ISA level of the tax period preceding the arrangement is less than 6.

10% or 3% for flat-rate flat-rate start-ups

The acceptance of the proposal obliges the taxpayer, in the tax periods subject to the Biennial Preventive Arrangement, to fulfil the ordinary accounting and reporting obligations and to report the agreed amounts in the income and regional business tax returns.

Taxpayers who accept the proposal of arrangement undertake to declare the agreed amounts in the declarations (Income and IRAP) relating to the tax periods subject to the arrangement (2024 and 2025. The Revenue Agency shall carry out the automated control referred to in Article 36-bis, Presidential Decree No. 600/1973 for the amounts not paid, without prejudice to the possibility of availing itself of the “ravvedimento operoso”.

The subjects who have adhered to the proposal:

are excluded from the assessments referred to in Article 39 of Presidential Decree No. 600 of 29 September 1973, provided that, as a result of the investigations carried out by the tax authorities, the specific grounds for forfeiture do not apply;
access the specific bonus benefits of the ISA regime.

Legislative Decree 18/2024 extends the bonus benefits provided for also for VAT purposes, it being understood that adherence to the arrangement does not produce any effect for that tax.

Two-year composition agreement: calculation procedure, ‘ISA report card’ and recovery plans

For the purpose of the application of the CPB, each taxpayer may calculate his or her proposal for the two-year tax settlement of income from the exercise of a business or profession and the value of net production relevant for income tax and IRAP by declaring the data relevant for the application of ISA plus other data specific to the CPB through the use of the ‘Your ISA’ software.

In a nutshell, using the software the taxpayer can:

enter the necessary data
calculate the Concordat proposal;
accept the proposal by 31 October.

The data resulting from this processing must be provided to the Revenue Agency ten days before the due date for payment of the balance of income tax and IRAP (when due).

The wording of the proposal, for the tax periods 2024 and 2025, is calculated on two tax bases:

business income or self-employment income relevant for income tax purposes, net of income or shares of income related to participations;
net production value relevant for regional business tax purposes.

The proposal thus formulated is communicated by the Inland Revenue Agency to the taxpayer within five days of sending the requested data.

Once the proposal of the two-year income definition is received, the taxpayer will be free or not to accept it without incurring possible controls (right?). Those who accept the proposal will be required to agree the agreed amounts in their tax returns (and IRAP where due) for the two tax periods of the two-year period.

Renewal of the composition agreement

After the expiry of the two-year period covered by the arrangement, if the taxpayer has retained the necessary prerequisites and no grounds for exclusion have arisen, he may enter into a new two-year period of arrangement.

The taxpayer who adhered to the CPB for the 2024 and 2025 tax periods may, using the software that will be made available for the 2025 tax period, adhere to a new two-year arrangement proposal drafted by the Revenue Agency relating to the subsequent 2026-2027 two-year period, in the manner provided for by the CPB decree for the first adhesion.

Concordato preventivo: determination of advance payments

Legislative Decree 108/2024 provides that for the first tax period of accession to the arrangement:

if the advance payment of income taxes is determined on the basis of the tax relating to the previous period (historical method), a surcharge of an amount equal to 10% of the difference, if positive, between the agreed income and the business or self-employment income declared for the previous period, adjusted for extraordinary components, is due
if the IRAP advance payment is determined on the basis of the tax for the previous period (historical method), a surcharge of an amount equal to 3% of the difference, if positive, between the agreed net production value and the declared net production value for the previous period, adjusted for extraordinary items;
if the advance payment is determined on the basis of the tax relating to the current period (forecast method), the second advance payment is calculated as the difference between the total advance payment due on the basis of the agreed income and net production value and the amount paid in the first instalment calculated according to the ordinary rules.

CONCLUSIONS

In our opinion, the Biennial Preventive Arrangement presents several critical issues and gives rise to some reflections:

The Inland Revenue in order to verify the goodness of the assessment of the ISA report cards could activate assessment procedures on the years still ascertainable to date (2019, 2020, 2021 and 2022);
In the event of a significant decrease in income in the tax year 2026 and thereafter (should the Biennial Preventive Arrangement not be renewed), the Revenue Agency could ascertain the taxpayer on the basis of a consolidated income conviction in the years covered by the Biennial Preventive Arrangement;
The taxpayer who adheres to the concordat, according to the rule, is not subject to tax assessment for two years. If he accepts, the taxpayer benefits from bureaucratic simplifications, exemptions from ordinary assessments and more generous limits for offsets and refunds (again according to the rule).

And here the question arises: why should taxpayers who have always declared the correct income, paid the relevant taxes and, above all, with high ISA report card values, fear spot assessments by the Internal Revenue Service?

Risk of possible declarations of inadmissibility of the Biennial Preventive Concordat measure as happened in the past to other types of amnesties;
If, due to variables that cannot be predicted at present, the taxpayer will have a lower income than the one agreed upon, he will have to pay more tax; and the variables of the last few years (war in Ukraine, increase in inflation, increase in commodities, etc.) teach us that it is not easy to predict the short-term future.

In fact, the level of income growth decided by the Internal Revenue Service, in the case of a proposed Biennial Preventive Arrangement, does not always coincide with the real one, and one runs the risk of paying more.

Lastly, a polemical note: can a tax system that calls itself civilised, and that would like to become a friend of the taxpayer and of businesses in general, and that in Article 34, paragraph 2 of Legislative Decree 13/2024 states that ‘The Revenue Agency and the Guardia di Finanza Corps will intensify controls on subjects who do not adhere to the Biennial Preventive Arrangement or who lapse from it’, be defined as credible and constitutionally valid? Because if the answer is affirmative, in order not to be assessed the taxpayer would have to accept to pay potentially unfavourable taxes and face increasing pressure from the tax authorities.

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