Commission Backs Italy’s VAT Derogation on certain vehicles Through 2028

Summary: The European Commission proposes to extend Italy’s special VAT measures until 31 December 2028, allowing continued limitation of input VAT deduction on certain vehicles and exemption from treating private use as a taxable supply.

Key Points from the Document

• Legal basis: Italy requested an extension of its derogation under Article 395 of Directive 2006/112/EC, originally granted by Decision 2007/441/EC. The derogation allows Italy to limit input VAT deduction to 40% for certain vehicles and not treat private use as a supply of services.
• Scope of vehicles: Applies to motorised vehicles (excluding agricultural/forestry tractors) used for both business and private purposes, with a maximum authorized mass of 3,500 kg and up to eight passenger seats.
• Justification: Italy cites administrative burden and fraud risks due to unverifiable private use of vehicles, especially among micro-enterprises (which make up 94.5% of Italian businesses). The 40% cap simplifies compliance and reduces disputes.
• Exemptions: Full deduction allowed for vehicles used as taxis, driving school cars, leased vehicles, stock-in-trade, or by sales representatives.
• Extension timeline: The derogation is proposed to remain in force until 31 December 2028, with Italy required to submit a review report by 31 March 2028 if seeking further extension.
• Comparative context: Similar derogations (often at 50%) have been granted to Estonia, Hungary, Croatia, Poland, Latvia, and Romania, reflecting broader EU flexibility on VAT deduction rules for mixed-use assets.

Source data.consilium.europa.eu

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