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ITALY REAL ESTATE UPDATE APRIL 2013
CLARIFICATIONS PROVIDED BY THE ITALIAN TAX AUTHORITY ON VAT IN THE SOCIAL HOUSING SECTOR
The April issue of our newsletter covers the VAT regime applicable to real estate funds (particularly the ones operating in the social housing sector), using the explanations provided by the Italian Tax Authorities in response to an advance tax ruling submitted by an Italian “SGR”, to this purpose assisted by DLA Piper.
THE ADVANCE TAX RULING
An Italian asset management company (SGR) submitted a request for tax ruling pursuant to article 11 of Law No. 212 of 27 July 2000 (so-called «Statuto del Contribuente»), concerning the VAT regime applicable to the real estate initiatives to be undertaken by a newly established real estate fund (the “Fund”), in the field of social housing.
The project provided that most initiatives – concerning the social housing sector – would have been realised by the Fund by executing planning and construction agreements, so that the same initiatives should have been regarded as taxable for the purposes of VAT, falling within the mandatory or optional regime of VAT taxation
provided by the amended article 10, paragraph 1, numbers 8), 8-bis) and 8-ter) of the D.P.R. no 633 of 26 October 1972, concerning the «Institution and discipline on value added tax» (hereinafter the “VAT Decree”).
On this specific matter there were some interpretative doubts with reference to the scope of the letter i) of article 19-bis 1 (entitled «Exclusion or reduction of the deduction for certain goods and services») of the VAT Decree, which precludes the deduction of value added tax in connection with the purchase and maintenance of residential real estate assets in respect of taxable persons other than (i) construction companies and (ii) taxable persons executing lease agreements which are VAT exempt (according to article 10, n. 8) of the VAT Decree), as such transactions imply the reduction of the percentage of deduction, according to article 19, paragraph 5 and article 19-bis of the VAT Decree.
Pursuant to the letter i) of article 19-bis 1, in fact:
«It is not permitted to deduct VAT applied to the purchase of buildings (or portion of buildings) for residential housing, nor VAT relating to lease or maintenance, recovery or management thereof, except for commercial enterprises that have, as exclusive or main object of activity, the construction of such
02 | Italy Real Estate Update – April 2013
buildings or portions of the foregoing. The provision does not apply to those activities which give rise to exempt transactions referred to in article 8, number 10) which imply the reduction of the percentage of deduction in accordance with article 19, paragraph 5, and article 19.».
THE CLARIFICATIONS PROVIDED BY THE “AGENZIA DELLE ENTRATE”
The “Agenzia delle Entrate – Direzione Centrale Normativa” (hereinafter, for brevity, the “Agency”) gave positive response to the request for tax ruling, recalling article 8 of the Law Decree no. 351 of 25 September 2001 (hereinafter the “Decree 351/2001”), relating to «Tax Regime of the fund for VAT purposes», whose paragraph 1 states the following:
«1. The management company is the taxable person, for purposes of value added tax, for the supply of goods or the supply of services relating to transactions of real estate funds established by it. The value added tax shall be determined and settled separately from the tax due for the activities of the company in accordance with the provisions laid down in Decree of the D.P.R. no 633 of 26 October 1972 (...) and is applied separately for each fund. The payment of the tax shall be made cumulatively for the amounts due by the company and by the funds. Acquisitions of real estate assets made by the management company on behalf of the single funds, as well as their maintenance, entitle to deduct value added tax in accordance with article 19 of the aforementioned Decree.».
According to the Agency, article 8, paragraph 1, of Decree 351/2001 is a special rule, which – subject to certain conditions, to be verified on a case by case basis – allows real estate funds to deduct VAT paid on the acquisition and maintenance of residential buildings.
With such an interpretation – which is “unprecedented”, because for the first time set out in the document at hand –, the Agency has provided an important clarification on the regime of deductibility of VAT of real estate transactions carried out by real estate funds, thereby allowing the solution of interpretative and operational issues of material importance.
FOR ANY QUERIES REGARDING THIS SPECIFIC ISSUE OF THE NEWSLETTER, PLEASE CONTACT:
Fabrizio Capponi Partner Tax Rome
Roberta Moscaroli Senior Associate Tax Rome
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KEY CONTACTS
Partners of the Italian practice
Olaf Schmidt Head of International Real Estate Head of Real Estate Italy Milan [email protected]
Francesco De Blasio Partner Real Estate Rome [email protected]
Guido Inzaghi Head of Regulatory Italy Town Planning Milan [email protected]
Federico Vanetti Partner Environmental Milan [email protected]
Newsletter Committee
Rosemarie SerratoSenior Counsel Town Planning Milan
Paolo Foppiani Senior Associate Real Estate Milan
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