Tax assessments: how to respond to the tax agency?

The tax authorities may initiate different types of tax control procedures against individuals or companies.

Tax assessments are a procedure initiated by tax authorities to check taxpayers' declarations.

Tax assessments of individuals or companies can take various forms, ranging from audits of accounting documents to in-depth, on-the-spot audits on the regularity of taxes.

But how does it work? What are the procedures? And can the revenue agency's decisions be challenged?

Let's find out together in this article.

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What are tax assessments?

Every year, both companies and individuals hand in their tax returns to the Revenue Agency, which may be in the form of the 730 or 770 model. Once the data on the economic-financial situation has been transmitted, the tax authorities have the right to check that this information is true and that no attempt at fraud has taken place.

Therefore, the tax authority may carry out spot checks on the files registered with the Revenue Agency. If an anomaly or inconsistency is found, then tax assessments are carried out, i.e. a detailed check by tax officials.

What documents are examined for the tax assessment?

Within a certain period of time, in fact, the tax administration has every right to proceed with the assessment on the

• tax returns,
• annual VAT returns,
• annual Spesometro invoices and VAT transactions,
• communications on IRPEF, VAT, IRAP, IRES taxes that may have been omitted or sent or paid late by taxpayers.

Tax assessments: how do they take place?

Tax assessments vary depending on the type of file to be analysed or whether the person in question is a natural person or a company owner.

The simplest and most frequently performed tax assessment is the current account assessment. The tax agency requests a copy of the account statements from the bank to verify that the statements match.

The second type of assessment used is called a synthetic assessment on expenditure indices. In this case, the tax agency analyses expenditure and compares it with the presumed purchasing power, which is determined by the annual income declared to the tax authorities. If you have bought a second home or a luxury car and the declared income is almost zero, it is clear that the tax agency will ask questions about your financial situation.

The assessments just described apply both to natural persons and to owners of a business or partners in a company. However, for the latter, the tax agency may decide to implement additional controls:

• Analytical assessment. This control is carried out on the analysis of the company's accounting documents, which are compared with the tax return provided to the tax agency
• Inductive assessment. This control is a real investigation by the tax agency into your company's finances. In fact, the tax authorities have probably deemed your accounting statements to be inadequate and unreliable, so they turn to this method to personally check the financial health of your company.
• Parametric assessment. The tax agency draws up rough estimates of a company's annual revenue based on sector, number of employees, size of company, etc. If your company, therefore, declares revenue far below the established parameters, you may be suspicious and be the subject of an audit.

How are tax assessments notified?

The tax agency can proceed to check the payment of tax obligations of natural persons and corporations.

As we have seen, it may use different methods of assessment to verify that citizens do not commit violations with regard to the payment of state taxes due.

Once, however, the revenue agency has established that there has been an irregularity in payment, it can use two methods to report the tax assessment

• the tax audit report
• the assessment notice

The tax assessment report

If the Guardia di Finanza officers carry out an on-the-spot check at the taxpayer's physical premises and find anomalies, they will proceed to compile a tax assessment report listing all the infringements found, if any, and the corresponding amount to be paid.

Assessment notice

In the event that tax agents have not turned up on site, but the tax office has carried out the control using the methods of assessment we have discussed, the taxpayer in question will receive a notice of assessment, i.e. a court document listing the amount to be repaid to the tax agency and a detailed account of the control carried out.

In this legal document, the reasons for the assessment must be explained in detail, specifying:

• "the taxable amounts assessed and the rates applied
• the taxes assessed, gross and net of deductions, withholding taxes and tax credits
• the office from which information can be obtained as well as the person in charge of the procedure
• the method and deadline of payment
• the court to which an appeal may be lodged."

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Can you challenge the decision?

If you have received a tax assessment from the tax authorities and do not agree with their decision, you have three possibilities to try to challenge the ruling

• contesting the notice
• the appeal
• admission of guilt and acquiescence or adhesion process.

Contesting the assessment notice

Article 12(7) of the Taxpayer's Statute (Law 212/2000) states that the notice of assessment should only be sent to the taxpayer once 60 days have elapsed since the delivery of the tax audit report. If the Revenue Agency has, therefore, sent you this notice before the 60 days, you can avail yourself of the contestation procedure.

The appeal

If the assessment notice was sent within the contractual time limit imposed by law, but you disagree with the decision, you can make an appeal to the tax commission, specifying the reasons why you consider the tax assessment unlawful.

When drafting your appeal, you should include the following information:

• Personal data;
• The data of the company's legal representative, if any;
• The PEC address and fax number of the legal representative;
• The identification number of the act to which you are making the appeal;
• The Revenue Office to which you are appealing.

Acquiescence or adhesion process

The acquiescence process consists of an admission of guilt and therefore acceptance of the tax assessment in its entirety. In this case, you do not disagree with the tax office's decision and therefore a one-third reduction of the penalty will be applied. If the tax office has not sent you the report closing the operations before the assessment notice, you will be entitled to a one-sixth reduction of the penalty.

If you opt for the acquiescence process, you will, however, have to pay the amount determined by the tax office within 60 days.

The other option available to you if you do not wish to contest the decision of the tax agency is the accession process. You will then try to reach an agreement with the tax agency by making a proposal to the tax institute. In this situation, you will have to repay the taxes due plus one third of the penalties. If no agreement is reached, you will be obliged to take legal action to settle the dispute, which does not, however, provide for any discounts or reductions.

How to make payment?

If the appeal has been rejected and the Inland Revenue has ruled that you must repay the tax authorities a certain amount of money, you are not obliged to pay the whole amount in one lump sum. In fact, Delegated Law 23/2014, Legislative Decree 159/2014 and Legislative Decree 159/2015 states that:

• for a debt of up to €5,000, the amount may be instalmentable from 2 up to 8 instalments.
• for a debt exceeding €5,000, the amount may be spread over 2 to 20 instalments.

The instalments may be quarterly. But if you choose this option, additional criteria apply:

• for debts of up to EUR 50,000, the amount can be paid in instalments of up to 8 quarterly instalments
• for debts exceeding EUR 50,000, the amount may be spread over up to 16 quarterly instalments

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Can tax assessments be time-barred?

Tax assessments have specific time limits within which they can be carried out by the Revenue Agency. Once these deadlines have passed, tax assessments can be considered null and void

For the year 2020, in case of detected irregularities, tax assessments and resulting tax warnings must be communicated to the relevant taxpayers

• by the 5th year following the year in which the return was filed
• by 31 December of the 7th subsequent year if the return was not submitted or was declared void by the tax office