DLP Insights

Fictitious contracts and illegal labour supply: liability 231 for tax offences

Categories: DLP Insights, Practice | Tag: Fraudulent

14 Jul 2022

The Court of Cassation, III Criminal Section, in its ruling no. 16302/2022, held a logistics company liable for the administrative violation arising from the commission of the offence referred to in Art. 2 of Legislative Decree no. 74/2000 (“Fraudulent declaration by using invoices or other documents for inexistent transactions”), committed by its managers in its interest and to its benefit. This is the first time that administrative liability has been recognised for a company under Legislative Decree no. 231/20011 for the commission of a tax offence.

In this case, it was ascertained that the company, using an illicit supply of labour, caused unfair competition between companies, resulting in the alteration of market rules, leading to the exploitation of workers and producing tax and contribution evasion, particularly VAT.

As reconstructed by the investigators, the company, by using a fake contract, exercised its right to deduct VAT after organising a mechanism where the payment of invoices for “fictitious” works and services contracts, involved “writing down” VAT from a consortium which, in turn, “wrote down” the tax from the consortium cooperatives to be paid to the State and instead, after a few years, ceased trading, leaving the debt with the Treasury. The Treasury was prevented from recovering the tax, resulting in tax evasion being passed on to the community.

The Court of Cassation, cited tax section case law, and observed that “if fraudulent labour intermediation was found, the VAT that the principal (…) assumes to have paid to the alleged contractor for the subjectively inexistent transaction (since it was paid to a person who was not entitled to request tax refund due to the prohibition of intermediation and the fraudulent nature of the negotiated transaction), cannot be deducted under Presidential Decree no. 633 of 1972, art. 19 (…).”

In other words, “fictitious” contracts result in “the subjective inexistence of invoices, entailing the non-deductibility of the VAT shown in the declaration” under Art. 2 of Legislative Decree no. 74/2000, resulting in the liability of the entity involved under Art. 25-quinquedecies of Legislative Decree no. 231/2001.

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