Cassation Rules Illegitimate to Add VAT and Direct Taxes on Inductively Reconstructed Undeclared Income

• The Italian Supreme Court (Cassazione) ruled that the tax authority’s practice of determining a gross taxable base and then applying VAT and direct taxes in cases of total tax evasion is illegitimate.
• The case involved a taxpayer who failed to issue invoices or file tax returns, leading to an audit based on bank account movements and an inductive reconstruction of taxable income.
• The Court clarified that, under EU law, the right to deduct VAT depends on substantive requirements (actual business transactions), not merely on formal compliance (invoicing, bookkeeping).
• Denying the right to VAT deduction solely due to formal violations exceeds what is necessary; instead, proportionate penalties may be imposed for such infractions.
• The principle established is that, even in cases of completely hidden VAT operations, the inductive assessment must respect the substantive right to VAT deduction if the underlying requirements are met.

Source: commercialistatelematico.com

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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