Italian Supreme Court upholds denial of VAT deduction even in case of supplier’s failure to remit VAT

Ruling Context: The Italian Supreme Court ruled that while purchasers typically aren’t required to verify VAT payments by suppliers, this protection is lost when there are close personal or corporate relationships, as seen in a case involving family ties between a purchaser and the supplier’s shareholders.
Contrast with ECJ Standards: This ruling diverges from the European Court of Justice (ECJ) standards, which necessitate objective indicators of VAT fraud or evasion to deny VAT recovery rights. A temporary liquidity issue of a supplier does not equate to VAT evasion, and mere familial connections are insufficient evidence of knowledge regarding a supplier’s tax compliance.
Implications for Businesses: Companies in Italy should enhance their supplier due diligence practices, especially with suppliers having personal or family ties, to avoid potential VAT deduction denials. Italy’s stricter standards may lead to challenges not aligned with the ECJ’s approach, emphasizing the need for thorough supplier risk assessments.