VAT - IISS Piero Calamandrei

Value Added Tax
Page 1 of 5
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Value Added Tax (VAT) is a general consumption tax assessed on the value added to goods
and services.
It is a JHQHUDOWD[ that is applied to all commercial activities involving the production and
distribution of goods and the provision of services.
It is a FRQVXPSWLRQWD[ because it is borne by the final consumer. It is not charged to the
companies.
It is charged as a SHUFHQWDJHRISULFH, which means that the actual tax burden is visible at
each stage in the production and distribution chain.
It is collected IUDFWLRQDOO\ , via a system of deductions whereby taxable persons (i.e., VATregistered businesses) can deduct from their VAT liability the amount of tax they have paid to
other taxable persons on purchases for their business activities. This mechanism ensures that
the tax isQHXWUDO regardless of how many transactions are involved
It is paid WR the revenue authorities by the seller of the goods, who is the "taxable person", but it
is actually paid E\ the buyer to the seller as part of the price. It is thus an indirect tax
VAT is:
DJHQHUDOWD[D FRQVXPSWLRQWD[DSHUFHQWDJHRISULFHFROOHFWHGIUDFWLRQDOO\QHXWUDO
7$;$%/(3(5621$1'5(*,675$7,21
For VAT purposes, a taxable person is any individual, partnership, company or whatever which
supplies taxable goods and services in the course of business. A taxable person is required to
be registered. Registered VAT traders are given a number composed of 11 digits called 9DW
1XPEHU or Vat registration (partita Iva).
9$75$7(6
Since each UE Member State has its own VAT law and rates vary among Member States and
among certain types of products. The current Vat rates in Italy are as follows:
Value Added Tax
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4% minimum rate
10% reduced rate
20% standard rate
+2:72&+$5*(9$721$6,1*/(75$16$&7,21
English
Italian
Round to 2 decimal
taxable base
base Imponibile
5,300.50 ¼
Vat rate
Aliquota Iva
10%
Vat
Iva
¼530.05
+2:,6&+$5*('9$7"
Registered VAT traders have to show the VAT charged to customers on invoices. In this way,
the customer, if he is a registered trader, knows how much he can deduct in turn and the
consumer knows how much tax he has paid on the final product. In this way the correct VAT is
paid in stages and to a degree the system is self-policing. The system operates as follows:
The VAT due on any sale (or service) is a percentage of the sale price from which the taxable
person is entitled to deduct all the tax already paid at the preceding stage. Therefore, double
taxation is avoided and tax is paid only on the value added at each stage of production and
distribution. In this way, as the final price of the product is equal to the sum of the values added
at each preceding stage, the final VAT paid is made up of the sum of the VAT paid at each
stage.
([DPSOH
6WDJH
A mining company sells iron ore to a smelter. The sale is worth ¼1,000 and, if the VAT rate is
20%, the mining company will charge its customers ¼1,200. Out of these, ¼200 are due to the
treasury, but the company has also bought ¼240 worth of furniture, stationery, etc in the same
accounting period, including ¼40 VAT. In conclusion it is only required to pay ¼160 (¼200 less
¼40) to the treasury. The treasury also receives the ¼40 and now gets ¼160 making ¼200,
which is the correct amount of VAT due on the sale of the iron ore.
Supply: ¼1,000
VAT on supply: ¼ Purchases ¼200
VAT on purchases: ¼ Net VAT to be paid by the mining company ¼
to the Treasury)
6WDJH
The smelter has paid ¼200 VAT to the mining company. So when the smelter sells ¼2,000
worth of steel it charges ¼2,400 including ¼400 VAT. The smelter deducts the ¼200 already
paid on his purchasing and pays ¼200 to the treasury. The treasury receives ¼200 from the
smelter plus ¼160 from the mining company, plus ¼40 paid by the supplier of furniture to the
mining company.
Supply: ¼2,000
VAT on supply: ¼
Purchases ¼1,000
VAT on purchases: ¼
Net VAT to be paid by the smelter: ¼
,QEULHI ¼
to the Treasury)
200 (paid by the smelter) + ¼160 (paid by the mine) + ¼40 (paid by the supplier to
Value Added Tax
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the mine) = ¼400 or the correct amount of VAT on a sale worth ¼2,000.
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Vat has two different meanings:
,QSXWWD[
(Iva a credito sugli acquisti) in relation to a taxable person, means:
VAT on the supply to him of any goods or services
VAT on the acquisition by him from another EU member State of any goods
VAT paid or payable by him on the importation of any goods from a place outside
the member States,
being (in each case) goods or services used or to be used for the purpose of any
business carried on.
2XWSXW7D[
(Iva a debito sulle vendite) in relation to a taxable person, means
VAT on supplies which he makes
Value Added Tax
9DWVHWWOHPHQW
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(liquidazione Iva)
The Vat subject (taxable person) is entitled at the end of each prescribed accounting
period, usually a month, to credit for so much of his input tax and then to deduct that
amount from any output tax that is due from him.
There may be two different results of the Vat settlement:
2XWSXW7D[!,QSXWWD[
: the difference has to be paid by the 16th day of the month
following
,QWSXW7D[!2XWSXWWD[
: the amount of the input tax exceeding that of the output
tax can be held over to be credited in and for a subsequent period or, under
particular conditions, could be paid to the taxable person by the Treasury
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(QJOLVK
,WDOLDQ
actual
effettivo
assess (v)
accertare, valutare
be entitled to
essere autorizzato a
bear (bore-bornH)
sopportare
burden
onere (fiscale)
charge (v)
addebitare
collect (v)
riscuotere
company
società di capitali
consumer
consumatore
distribution chain
catena distributiva
furniture
arredamento
i.e.
cioè
input tax
iva a credito
iron ore
minerale di ferro
mining company
miniera
output tax
iva a debito
partnership
società di persone
proportional taxation
tassazione proporzionale
purchase, purchasing
acquisto
purpose
fine
1RWHV
mettere in conto
Value Added Tax
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regardless
nonostante
self-policing
autocontrollo
smelter
fonderia
stage
fase, passaggio
stationery
cancelleria
supply , supplier
fornitura , fornitore
tax liabilty
debito di imposta
treasury
erario, Ministero delle Entrate revenue authorities
VAT number
partita IVA
VAT rates
aliquote Iva
whereby
per cui
hold over
rinviare, tenere in sospeso
VAT return
dichiarazione Iva
VAT statement
standard rate
aliquota base (ordinaria)
tax evasion
evasione fiscale
to charge VAT
addebitare l'Iva
tax year
anno fiscale
the invoice includes Vat at
20%
la fattura è comprensiva
dell'Iva al 20%
to reduce/increase VAT to
22%
ridurre/aumentare l'Iva al
22%
In Italy 20%