No VAT deduction in case of non-existent transactions subject to taxable VAT regime under reverse charge mechanism

Italian Supreme Court, judgement no. 22727 of 20 July 2022

In light of the principles of the ECJ and the need to prevent VAT fraud, the Italian Supreme Court affirms that in the case of non-existent transactions subject to taxable VAT regime under reverse charge mechanism, the VAT recoverability should be disallowed and the proportional penalty (from 90% to 180%) applied to the transferee. The lesser penalty regime (from 5% to 10%) operates only when non-existent transactions involved would be zero rated or exempt.