Italy confirms direct VAT refund route where recovery from the customer is impossible

Summary 

• Italian case law confirms that a supplier may seek a refund directly from the Treasury where VAT has been paid but cannot be recovered from the customer and the ordinary credit-note mechanism is unavailable. 

• The taxpayer must show that it has taken reasonable recovery steps and that the revenue risk has been eliminated. A customer’s failure to reimburse VAT does not automatically permit a credit note if the taxable amount itself has not changed. 

• The decision reinforces the distinction between reducing the taxable amount and reclaiming tax paid but economically unrecoverable. Suppliers should preserve recovery files, correspondence, enforcement evidence and procedural deadlines. 

Extended article 

The Italian Supreme Court has further clarified the remedies available where a supplier has accounted for VAT but cannot recover the corresponding amount from its customer. The ordinary adjustment mechanism under Article 26 of Presidential Decree 633/72 is not automatically available merely because the customer fails to reimburse the VAT. A credit note generally requires a reduction in the taxable amount or another statutory adjustment event. 

However, the absence of a credit-note route does not necessarily leave the supplier without a remedy. A direct refund claim against the Treasury may be available where the supplier has paid the VAT, taken all reasonable steps to recover the amount from the customer and can demonstrate that recovery is no longer realistically possible. 

The principle is consistent with earlier Italian case law on prolonged insolvency proceedings. Judgment no. 4900 of 4 March 2026 recognised a direct refund where a customer had remained in insolvency for more than ten years, a credit note could no longer be issued and the creditor could reasonably demonstrate that its claim would not be satisfied. 

Businesses should map unpaid-VAT cases by legal route rather than treating all bad debts alike. The relevant questions include whether the taxable base changed, when insolvency proceedings began, whether a credit note remains legally possible, what recovery action was taken and when the refund limitation period expires. 

External links: Italian VAT refund analysis | KPMG report on judgment no. 4900/2026 

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