No sanctions for taxpayers that comply

There is a legitimate expectation of the taxpayer pursuant to article 10, paragraphs 1 and 2 of Law n. 212/2000 whereby the tax administration, for a substantially long period, has implemented  significant actions that has generated doubts regarding the legitimacy of the taxpayer’s behavior: the taxpayer who relies on the erroneous interpretation of the tax administration, while still having to pay the tax, is not required to pay penalties and interest. The Court of Cassation clarifies this (once again) with Decision no. 13237/2024).

The relationships between the taxpayer and the tax administration are based (or rather should be based) on the principle of cooperation and good faith. This is provided for by article 10 of Law no. 212/2000 – Taxpayers’ Statute) which, in the first paragraph, establishes that “The relationships between the taxpayer and the tax administration are based on the principle of cooperation and good faith“.

What does it mean? We could say that it is a principle that enhances a subjective status, i.e. the trust that the taxpayer (and more generally the “administrated”) places in the behavior of the taxing entity, who is expected not to contradict itself, not to come contra factum proprio. On the tax administration side, the principle imposes an obligation of cooperation and good faith which is based on fundamental values of the Constitution, such as the good performance and impartiality of the Public Administration (article 97 of the Constitution), e.g. the principle of contributory capacity (article 53 of the Constitution), the principle of legality (article 23 of the Constitution), as well as the principle of equality, in terms of equal tax treatment and reasonableness (article 3 of the Constitution).

The fulfillment of this principle ranges from the non-application of sanctions to the non-recoverability of interest, even the tax amount has not been paid, trusting, in fact, in the conduct of the taxing entity. Second paragraph of the above mentioned article 10 contributes to corroborate  the above issue, pursuant to which “Sanctions shall not be imposed nor default interest are requested from the taxpayer, if he has complied with the indications contained in documents of the tax administration, even if subsequently modified by the tax administration itself, or if his/her behavior is executed following facts directly resulting from delays, omissions or errors of the tax administration itself. Limited to Union taxes, duties are also not due in the event that the interpretative guidelines of the tax administration, compliant with Union jurisprudence or with acts of the Union institutions and which have induced a legitimate expectation in the taxpayer, are subsequently modified as a result of a change in the aforementioned jurisprudence or the aforementioned acts“.

Apparently, this seems straightforward. Unfortunately, as often occurs, this is not the case.

If, in fact, any conduct of the tax authorities was to engender a protectable expectation, such conduct would risk innovating the legal system and becoming a source of law, which in our legal system must be ruled out.  It is for this reason that ‘disputes’ between taxpayers and the Administration are resolved (often) before the Court of Cassation, which is called upon to clarify what is meant by the protection of legitimate expectations.

In the recent Order No. 13237, the Italian Judges, on the one hand, recalled that ‘it is true that the mere passage of time and the merely passive conduct of the tax administration are not capable of integrating the exemption under Article 10(2) of Law No. 212 of 2000 with regard to the due amount of interest (Cass, Sec. V, 19 December 2019, no. 34067)’ but, on the other hand, they clarify that “‘the situation of interpretation uncertainty, engendered by resolutions of the tax administration, even if it does not affect the tax liability, must be assessed for the purposes of excluding the application of penalties’ and upheld the taxpayer’s argument by stating that the press release of the tax authority (in the case in point the Customs Office of Civitavecchia) that in self-assessment had annulled penalty provisions does not qualify as merely passive behaviour but as ‘active behaviour, which has engendered reasonable doubt in the taxpayer who, by conforming to an erroneous interpretation provided by the tax administration, is not only required to pay penalties, but also interest on the basis of the principle of the protection of trust (Cass. , Sec. V, 11 July 2019, no. 18618″.

In summary: the taxpayer who relies on the erroneous interpretation of the tax administration, while still having to pay the tax, is not required to pay penalties and interest. Hence, on the subject of tax penalties, it must be held that the situation of interpretative uncertainty, engendered by resolutions of the tax administration, even if it does not affect the liability to pay the tax, must be positively assessed for the purposes of excluding the application of penalties. Who knows whether the reform on tax penalties, soon to be implemented, will bring more certainty to the relationship between tax administration and taxpayers. We shall see and comment.

DISCLAIMER: This article merely provides general information and does not constitute legal advice of any kind from Macchi di Cellere Gangemi which assumes no liability whatsoever for the content and correctness of the newsletter. The author or your contact in the firm will be happy to answer any questions you may have.