The Advocate General (AG) has issued his opinion in favour of the taxpayer in the Banca Popolare di Cremona case. The taxpayer had argued that the Italian regional tax (IRAP) is illegal as it is similar to VAT and the EU treaties prohibit national taxes charged on turnover. If the opinion is upheld by the European Court of Justice (ECJ) this could cost the Italian Government €120 billion, according to the AG.

The Italian tax IRAP is levied on companies, partnerships and individuals, in a similar way to VAT. The taxpayer argued that the application of IRAP is contrary to European law as Italy has VAT on turnover.

The AG rejected the Italian Government’s argument that IRAP is not sufficiently similar to VAT.

Tony McClenaghan, head of indirect tax at Deloitte, says: “If the Advocate General’s opinion is upheld, the ECJ’s decision may have consequences for similar taxes that apply within the EU. Companies and their advisers may now consider whether taxes in countries including France, Germany, Hungary and Lithuania could also be incompatible with EU law.

“Any company that has paid IRAP, including Italian companies and subsidiaries or branches of multinational companies, should consider submitting formal refund claims now in anticipation of a ruling upholding the AG’s opinion. It is possible that the ECJ will impose a limitation period for refunds so early submission of claims is advised.

“Whilst this is an indirect tax case there may also be a UK or US corporate tax impact for multinationals with Italian subsidiaries. If the subsidiary obtains a refund of IRAP, double tax relief claimed in the UK or US may be reduced.”

Ends

Notes to editor
On the 16th November 2004 the ECJ heard case C-475/03 ‘Banca Popolare di Cremona; concerning whether the levying of IRAP (Italian Regional Tax) is contrary to European law.

Article 33 of the Sixth Directive allows Member States to levy any taxes, duties or charges which cannot be characterised as turnover taxes. The Provincial tax court of Cremona has asked the ECJ to rule whether IRAP is in fact a turnover tax of the type prohibited by article 33.

EU member states guidance on defining a tax too similar to VAT notes that if a tax is applied in a general way to supplies of goods and services, is proportional to the price of goods and services, is collected at each stage of production / distribution and it affects the value added to goods and services it is considered to have the ‘essential elements of VAT’ (i.e. turnover tax).

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