The EU Commission has been successful in its challenge to an amnesty offered by the Italian Government, the terms of which included very favourable VAT settlements. By explicitly providing for a general waiver of verification of taxable transactions effected in a series of tax years, the Italian Republic failed to fulfil its obligations under the Sixth Directive and the general principle of cooperation in good faith.

Italy offered a tax amnesty for the years 1998 to 2001 to correct past VAT tax returns by filing a ‘Supplementary return’ accompanied by payment of the additional VAT. In additional an ‘Automatic settlement’ procedure was offered to taxable persons who did not file returns to pay an amount equal to (or less than) 2% of the VAT payable on supplies of goods or services, and 2% of the VAT deducted during the same period. The effect of using either mechanism was that fiscal administrative penalties lapse, no criminal penalties were applied and no further tax verifications were required.

The ECJ noted that it is for each Member State to take all legislative and administrative measures appropriate for ensuring collection of all of the VAT due on its territory, by checking returns, and calculating and collecting the tax due. Although the Member States enjoy a certain measure of latitude as to how they use the means at their disposal, they are nevertheless bound by the obligation to ensure effective collection of the Community's own resources and not to create differences in the manner in which taxable persons are treated.

As the Irish Revenue are not as generous as the Italians in respect of incentives offered for co-operation under special investigations projects since 1993, it's unlikely that the EU Commission will find Ireland anything but dedicated to the principles of the Sixth Directive.

Full details are available at http://curia.europa.eu/en/actu/communiques/cp08/aff/index.htm