Italy-UK VAT refunds: reciprocity agreement with retroactive effect from 1 January 2021

published on 10 May 2024 | reading time approx. 3 minutes

The news that a reciprocity agreement on VAT refunds has been reached closes one of the main open issues following Brexit, which has caused significant difficulties for economic operators in Italy and the United Kingdom in last years.

The release of the exchange of diplomatic notes between the Embassy of Italy in London and the Embassy of the United Kingdom in Rome made public the agreement between the two countries that guarantees reciprocity for VAT refunds under Directive 86/560/EEC.

From these notes we learn that the legal prerequisites for the recognition of the condition of reciprocity for the purposes of granting VAT refunds are fulfilled in respect of purchases made:

by Italian operators on British territory;
by British operators on Italian territory.

Therefore, UK traders without a permanent establishment in Italy do not necessarily have to identify themselves directly for VAT purposes or appoint a tax representative in Italy if they wish to apply for a VAT refund for purchases made on Italian territory.

In particular, entities will be able to submit such a VAT refund claim if they meet the following requirements:

absence of a head office or a permanent establishment in Italy during the reference period;
absence of VAT-relevant transactions in Italy except for non-taxable transport, reverse charge transactions and services pursuant to Article 74-septies of Presidential Decree 633/72;
carrying out purchases conferring the right to deduct VAT in Italy, subject to the requirement of inherent nature with respect to the activity of the non-EU taxable person.

The above-mentioned refund application is made by submitting the VAT 79 form to the Pescara Operational Centre, no later than 30 September of the year following the year to which the refund application refers, by registered mail with return receipt, courier or directly by hand.

The diplomatic notes exchanged between Italy and the United Kingdom clarify that the reciprocity agreements for VAT refunds take retroactive effect, extending to all purchases made on or after 1 January 2021. Therefore, it can be noted that the right to a refund of VAT paid abroad is seamless given that the recognition of the refund was guaranteed for transactions until 31 December 2020.

At present, it has not been clarified whether the retroactive effect for the purposes of the recognition of the refund results in a reopening of the terms for the past or whether the legitimacy of the refund is simply recognised for those who had submitted the application in the period between 1 January 2021 and the date of the agreement between the two States. It is to be hoped that the Italian Revenue Agency will issue an ad hoc resolution on its position on this issue.

The news of the agreement reached between Italy and the United Kingdom was taken up by the British government department responsible for taxation (HMRC - His Majesty's Revenue and Customs) through a private body (CIOT - Chartered Institute of Taxation) and also in this context it was pointed out that the recognition of VAT refunds has retroactive effects from January 2021.

In Italy, on the other hand, Tax Authority Resolution No. 22, published on May 2, 2024, officially acknowledged the agreement between Italy and the United Kingdom for the purpose of mutual recognition of VAT refunds paid in the two countries.