On July the 1st , comes into force the rule that should, at least in the intentions, change the scope of the hearing prior to tax assessment (limited only to direct taxes and VAT), anticipating the desired dialectic between tax and taxpayer – from a collaborative point of view – already in the investigative phase, preparatory to the issuance of the tax act.
In details, the provision (new Article 5-ter of Legislative Decree n.218/97) provides that the Tax Authority, before serving an assessment notice, except in cases of particular urgency or well-founded danger for the revenue collection, is now required to preliminarily invite the taxpayer, in order to establish with him the “assessment with adherence” procedure (currently relegated – at least in practice – to a merely possible and subsequent phase, which will now be reduced, if not disappear with the introduction of the new institution).
The legislator’s purpose is clearly to allow the Offices to acquire in advance from the taxpayer all the clarifications relating to his case, in order to avoid the issuance of unnecessary and easily disputable acts; but also to promote as much as possible the friendly definition of the tax claim, thus considerably anticipating the tax collection (with consequent reduction of the penalties, in favor of the taxpayer, to 1/3 of the minimum).
This is – at least on paper – a real revolution with respect to the traditional way of considering tax assessment, in an ever more deflating view of tax litigation, which is often actually generated by a lack of (not to say non-existent) interaction between the parties involved, during the whole period in which the administrative decision is taken.
Given the worthy legislative intent and the good proposals expressed by the Tax Authority in its recent Guideline (n. 17/E/2020), the practical usefulness of the provision should, however, be evaluated in practice, since the text leaves several doubts about its interpretation, which may even completely deprive such provision of its effectiveness.
Indeed, if it is true that the above mentioned Guideline urges the offices to make extensive use of the new instrument, inviting them to use it “even in the cases for which the same is not mandatory”, it is equally true that the cases in which the prior discussion is actually binding for the tax authorities, under penalty of invalidity of the assessment (see par. 5), are rather limited.
In fact, the prior hearing rule doesn’t apply in all “cases in which a copy of the verification closing report has been issued by the control bodies”. Therefore, whenever the assessment is preceded by accesses, inspections and verifications, resulting in the issue of a report and the related term for the taxpayer’s observations, the prior discussion does not have to take place.
Also outside from the rule scope are those assessments relating to indirect taxes (different from VAT), as well as those for which the participation of the taxpayer in the preliminary phase is already provided for by other provisions in force. These are, in particular, assessment notices based on income presumption indexes, inductive assessments, summary assessments and those concerning abusive cases, as defined in Article 10-bis of the Statute of the taxpayer’s rights.
The previous invitation is also excluded in the event that the office proceeds to issue partial assessment notices pursuant to Article 41-bis of Presidential Decree 600/73 and Article 54, third and fourth paragraphs, of Presidential Decree 633/72.
This is certainly the most significant limitation established by the new provision, since, as is well known, tax offices often qualify – even improperly – all their assessments as partial, through the insertion of a “safeguard clause”, aimed at not compromising any further verification activities (as long as they are carried out within the ordinary assessments terms).
Indeed, at least with regard to direct taxes – unlike VAT – Article 41-bis of Presidential Decree No 600/73 does not impose any particular limitations on the use of the partial assessment, which the tax office may freely use, in derogation from the principle of the unicity of the tax assessment, whenever it has learned, through whatever source, about elements which may lead to a tax claim, reserving the right to further investigation.
In this respect, the Tax Authority’s Guideline no. 17/E seems to want to restrict the appreciation margins of tax offices, establishing that the limits imposed by art. 54 of the VAT Decree should be applied for direct taxes as well. This provision restricts the use of partial tax assessment notice – excluded from the scope of this new prior hearing – to only the cases where the higher taxable income is determined in a certain and direct way, not using presumptions.
On the other hand, the invitation to be heard should be compulsory notified if the assessment is based, even in part, on Tax Agency’s deductions and/or presumptions.
Despite the valuable effort by the Tax Authority, the provision, as worded, remains arguable. Firstly, it does not certainly identify, at least for direct taxes purposes, the cases in which the Administration can legitimately use the partial tax assessment notice (as said, the art. 41-bis of the Presidential Decree no. 600/73, generally referred to the provision in comment, is, in reality, a provision without specific limits). Secondly, it does not directly sanction an abusive use of the partial assessment by tax offices.
It will be up to the taxpayer to challenge in court failure by the offices to activate the prior hearing, giving due proof of the abusive use of a partial assessment and, lastly, passing the so-called “test of resistance”.
In fact, as to the new provision, failure to activate the prior hearing, if required, results in the total invalidity of the issued assessment only if “the taxpayer concretely demonstrates the reasons that he would have been able to present in advance if the prior hearing had been activated”.
According to the Italian Supreme Court, in order to pass the so-called “resistance test”, it must be given judicial demonstration that the procedural hearing, if it had taken place, would have been not a mere simulacrum, but it would have had their own raison d’être. Doing so, the exception of invalidity of the act for failure to activate the endoprocedural prior hearing is not purely specious, and a diversion from the purpose of adequate safeguard for which the defensive instrument was created for (cf. Supreme Court of Cassation SS.UU. 24823/2015, also referred by the Guideline in question).
Also in this respect, the new provision shows its limitations when it provides for the reversal of the burden of proof, regulating the taxpayer, who intends to plead the nullity of the act, to prove in court the reasons which he could have alleged in the administrative procedure, had he been duly invited to be heard.
The defense of the taxpayer before the Court shall be essential both to demonstrate that the Tax Agency unlawfully failed to summon the taxpayer and to suceed the “resistance test”.
The issue concerning the so-called “enhanced motivation” of the assessments, issued after the new prior hearing, is equally delicate and it is likely to give rise to litigations against the Tax Authority. The provision literally states that, in case of non-compliance, the assessment must be specifically motivated in relation to the clarifications provided and the documents produced by the taxpayer during the hearing procedure. However, once again, this is an incomplete provision, since, on one hand, it leaves a wide margin of discretion in relation to the minimum standard of motivation to be adopted in order to consider the assessment as adequately reasoned and, on the other hand, it does not subject to sanction its infringement in any manner.
Against this legislative vacuum, only the clear position of the Tax Authority is recorded. The abovementioned Guideline no. 17/E (§4) states that it is not sufficient for the offices to evaluate the elements provided by the taxpayer, but it is necessary that the offices clearly justify the reasons why they haven’t accepted them.
The interpretation provided by the Tax Authority, which seems to establish a real obligation to provide a “enhancedmotivation”, despite a lack of incisive legislation, is once again a remarkable one. However, it cannot be excluded that local offices will defend their acts in the courts, even if they are not properly motivated with regard to the clarifications provided by the taxpayer.
Finally, there is still the difficult question concerning the extension of the assessment deadlines connected with the application of the rule in question.
In fact, the decree that introduced the new institute of mandatory prior hearing has also provided for an extraordinary extension – of 120 days – of the deadlines related to the assessment activity.
The extension operates when a period of less than 90 days runs from the date of the taxpayer’s appearance in front of the office to the deadline for the assessment notice service.
As a result, the assessments expiring on 31 December, for which the Tax Authority has activated (also on an optional basis) the prior hearing, with the taxpayer’s appearance after the 1st of October of the same year, are extended for 4 months.
There are already those who suspect that the office may use such a measure, even arbitrarily, whenever they find themselves unable, for whatever reason, to notify the tax assessment within the ordinary terms.
Once again, the taxpayer’s defense will therefore be essential to demonstrate misuse of the legislative instrument by the Tax Agency, aimed exclusively at obtaining a temporal extension of its deadlines.
In conclusion, practical effects of this new rule will be subject to wide evaluation.
 Once the taxpayer receives the invitation for the prior discussion, in fact, regardless of his effective response and participation, he will no longer be able to activate the “assessment with adherence” procedure following the assessment notice’s notification.
 Cfr. Art. 2, Par. 5 of Legislative Decree n. 218/1997.
 The Legislator considered that in this case the dialectic between the Tax Authority and the taxpayer is already effectively guaranteed by the provisions of Article 12, paragraph 7 of the Statute of the taxpayer’s rights, which establishes a period of 60 days, starting from the date of notification of the verification report, for the taxpayer’s observations (which, then, the office must take into account). Nevertheless, Circular 17/E/2020 (§3) states that “although not obligatory by law, it is always appropriate for the office to engage a dialogue even in cases of assessment activities related to the results of a report, in order to arrive as far as possible at the correct determination of the tax claim”.
 The systematic placement of the rule within Chapter II of Legislative Decree 218/1997, concerning the definition of assessments only for profit taxes and VAT, has led the Tax Authority (see Circular 17/E/2020; §2) to believe that the rule applies only to the following taxes: Ires, Irpef (and related additional charges), Irap, social contributions, withholding taxes, VAT, IVIE and IVAFE.
 In fact, it is common to read in the tax assessments issued by the various Provincial Departments that “this is without prejudice to the right of the tax authorities to take further actions within the terms of the law”.
 This provision follows what was already established by the last instance case-law (both European and national) regarding the infringements of provisions on endoprocedural right to be heard. It is not sufficient for the taxpayer to allege the failure to activate the prior hearing or to reply to his observations, but it is also necessary for him to prove that his reasons, if duly taken into account, could have led to a different result from that had been achieved.
Author: Avv. Iacopo Bissi
ph: Designed by rawpixel.com/ Freepik