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The European Commission has granted approval to Italy to continue the use of anti VAT fraud split payments regime with state organizations. The Commission also allowed Italy to extend the measures to state-owned companies, businesses in the FTSE MIB Index and companies directly controlled by local public bodies.
According to the European Commission, it is possible to derogate Articles from 206 and 226 of the EU VAT Directive regarding transactions with public authorities in industries with a significant evidence of VAT fraud.
Under the VAT split payment mechanism, VAT is not collected by the supplier and then paid to the tax authorities. Instead, the customer pays the VAT element directly to the tax authorities, hence avoiding the output and input VAT mechanism.
Since its implementation, this mechanism significantly decreased VAT fraud in transactions with public entities, however, fraud remained active in certain areas not covered by the initial legislation. Italy has now requested an extension of the current measure to be applied on supplies of goods and services made to additional public entities and businesses listed in the stock exchange.
The European Commission has approved this request and it will be implemented from 1 May 2017. The European Council of Ministers must ratify the decision.