ADVERTISEMENT

The relevance of the principle of competence

ADVERTISEMENT

The relevance of the principle of competence
Written by aquitodovale

Starting from an IRAP assessment notice, the Court of Cassation focused on the relevance, not only formal, of the principle of competence. The details in the Ordinance number 13909/2022.

The Court of Cassation, with theOrdinance n. 14909/2022clarified the relevance, not only formal, of the principle of competence.

In the present case, the taxpayer filed an appeal against a assessment notice for IRAPin relation to the 2009 tax year.

The Office believed that the taxpayer, carrying out the construction activity, had failed to account, in the 2009 tax year, of the revenues referable to advances paid by the clients in 2007 and 2008, against the construction of housing units completed in the year under review.

Court of Cassation – Order number 14909 of 11 May 2022
The text of the Order of the Court of Cassation number 14909 of 11 May 2022

The facts of the Ordinance no. 14909 of 2022 on the relevance of the principle of competence

The Provincial Tax Commission accepted the appeal, with a sentence later confirmed also by the Regional Tax Commission, which, on the accounting method of the sums collected as an advance and on the applicability of art. 109 of the Dpr. n. 917 of 1986, noted that the sums that the Office wanted to recover for 2009 had already been invoiced, accounted for and declared in the years 2007 and 2008 and, therefore, even if this behavior did not satisfy the accounting principle OIC 23, published on 16 September 2015 and in force at the accounting date of the transactions in question, adherence to the Administration’s thesis would have resulted in a unlawful double taxation.

L’Revenue Agency finally, he filed an appeal in cassation, arguing the violation and false application of art. 109 of the Dpr. n. 917 of 1986, given the mandatory nature of the accounting principle of competence.

The ground of appeal, according to the Supreme Court, was well founded.

Highlight i judges of legitimacy which, in terms of business incomefor the purpose of determining theexercise of competence to which the revenues, expenses and other positive and negative components of income are temporally attributed, Article 109 of the Tuir – according to which the revenues, costs and other charges contribute to form the income ofexercise of competence provided that their existence or their amount can be determined objectively – aims to reconcile the need to calculate all the components of the exercise of competence with the need not to place a burden on the taxpayer that is too difficult to comply with, so that this rule must be interpreted in the sense that the duty to count these components in the reference year stops only in the face of those revenues and costs that are not yet known at the determination of incomethat is, at the time of drafting and submitting the declaration (cf. Cass. n. 36600 of 2021).

With regard to corporate income taxes, for the purposes of determining the relevant year to which revenues, expenses and other positive and negative components of income are to be allocated in time, pursuant to Article 109 of the aforementioned account of the moment in which the two conditions of the “certainty”, with regard to subsistence, and of the “Determinability”, in relation to the amount, the proof of which is borne by the tax authorities with regard to positive componentsand the taxpayer with regard to the negative components (see, Cass. n. 19166 of 2021).

In terms of business income, the Supreme Court notes, the rules on the temporal imputation of negative components, generally dictated by the Tuir, are therefore mandatory, as the taxpayer is not allowed to choose to deduct a cost in a different year. from that identified by law as exercise of competenceso as to alter the result of the declaration.

Nor does the application of this criterion imply, in itself, the consequence of double taxation, which can be avoided by the taxpayer with the request for restitution of the higher tax, which can be proposed, within the ordinary limits of the prescription pursuant to art. 2935 cc, starting from the formation of the judgment on the legitimacy of the recovery of costs in relation to the annuity not of competence (see, Cass. n. 18035 of 2021).

As regards the determination of business income, therefore, the Court adds again in the text doors reform 2004 (Article 75 of Presidential Decree 917/86), applicable ratione temporis in the case in question, the mandatory principle was the one according to which only the profits realized at the financial year closing date, taking into account, pursuant to art. 2423 bis, paragraph 1, nn. 2 and 3 of the Italian Civil Code, of the income and charges for the year, regardless of the date of collection or payment, the declaration of contingent assets in different financial year (see, Cass. n. 4398 of 2020).

The rule therefore does not allow to attribute importance to the date on which the invoice for the expenditure incurred is received, nor does it allow the deduction of costs in financial years other than the relevant periodsince the taxpayer cannot be left to be the arbiter of the choice of the period in which to record the liabilities, since the attribution of a certain cost to one year rather than another can, in abstract, lead to thealteration of the results of the declarationthrough the compensation mechanisms of revenues and costs in the individual financial years (see Cass., Cass. no. 18401 of 2018).

The ruling of the Regional Tax Commission did not comply with the aforementioned principles, where – affirming that on the method of accounting for the sums collected as an advance and on the applicability of art. 109 of the TUIR, the sums that the Office wanted to recover for 2009 had already been invoiced, accounted for and declared in the years 2007 and 2008 and therefore, even if this behavior did not satisfy the accounting standard OIC 23adherence to the Office’s thesis would have resulted in unlawful double taxation – on the one hand, it had erroneously attributed relevance to the fact that the advances had already been invoiced, accounted for and declared in years prior to the relevant one, having instead to have regard on the date of delivery of the goods, and, on the other hand, he had erroneously considered derogable budgetary principlesbelieving that the taxpayer could freely opt for the cash principle rather than for that of competence.

On the other hand, the appellate courts had finally held that theapplication of the principle of competence necessarily implied one double taxationthe consequences of which, the Court notes, are instead avoidable by the taxpayer with the request for refund of the higher tax.

In conclusion, regardless of the specific procedural case, in more general terms, the following can also be highlighted.

Focus on the principle of competence

Article 109, paragraph 1, establishes that “The revenues, expenses and other positive and negative components, for which the previous rules of this section do not provide otherwise, contribute to forming the income in the year of competence; however the revenues, expenses and other components whose existence is not yet certain in the relevant year or the amount can be determined objectively in the year in which these conditions occur “.

The principle of jurisdiction therefore consists in taking into account, for tax purposes, not the period in which the cost was paid, but the one in which theobligation to bear the burden (or the right to obtain revenue, in the case of positive components).

However, this criterion does not have absolute value and its first exception is already found in paragraph 1 of article 109 of the TUIR, which states that, if in the exercise of competence the positive and negative components of income are uncertain in the existence and not objectively determinable in the amount, these must in any case be calculated in the financial year in which these conditions will occur, i.e. when they are certain in thean is in the quantumtherefore, where certainty concerns the incontrovertibility of the existence of the cost and objective determinability concerns instead theincontrovertibility of its quantification.

And if it is true that the cost (or the revenue) is considered certain when its existence has actually occurred in the year of competence, it is also true that the same cost (or revenue) is considered objectively determinable not only when its exact amount is known, but also when its methods of determination are simply known, as for example it can be inferred from formal documents (see contracts, etc.).

It is therefore not necessary to radicalize the concept of certainty, otherwise there would be the risk of reaching the excess of assuming that the certainty (and determinability) of the cost (or revenue) has been reached only at at the time of paymentthus ending, in reality, to marry theopposite principle of the case.

Consequently, certainty cannot be understood, in a material sense, as an effective numerical variation, but rather in a juridical sense: the income component is certain, that is when based on the existence of a title that produces legal effects existing at the closing of the tax period and / or at the deadline for submitting the return relating to that period.

.

#relevance #principle #competence

ADVERTISEMENT

About the author

aquitodovale

Leave a Comment