The Tax Court of First Instance of Lecce, in its ruling of May 25, 2023, No. 850, provided an innovative interpretation of Article 7, Paragraph 5-bis, of Legislative Decree 546/1992, which establishes a new burden of proof in the tax process: the Internal Revenue Service, in the notice of assessment, must prove in court the contentions made in the Report of Assessment (RoA)
The case concerned a tax audit initiated against a company operating a bathing establishment, as a result of which a RoA had been issued contesting the non-declaration of revenues and the undue deduction of costs. A notice of assessment (NoA) was subsequently served on the company, the grounds for which merely restated the contentions made in the RoA.
One of the most relevant contentions concerned the taxpayer's provision of a number of beach beds, the occupation of which - for the entire duration of the operating season - should have resulted in revenues in greater amounts than those declared. Also noted in the RoA was the taxpayer's organization of a number of public events, the revenues of which had not been declared.
The company appealed the notice, challenging the IRS's failure to meet its burden of proof and in any case the insufficiency of the evidence brought.
In upholding the taxpayer's appeal, the Court first noted that the RoA has a purely investigative function, internal to the tax assessment proceedings, while the NoA is a final tax act, with external relevance. Since the two acts have a different function, equally different is the burden of proof framework that must connote the two acts. In fact, while there is no special discipline on proof with regard to the RoA, the new Article 7, paragraph 5-bis, of Legislative Decree 546/1992 lays down stringent rules on the content and motivation of the NoA. In particular, the provision states that "the administration shall prove in court the violations contested through the appealed tax act".
When the IRS has failed to prove the basis of the contentions made in the NoA, the court must annul the tax act.
The court found that the IRS, in the case at hand, had adopted a NoA whose motivation did not comply with the aforementioned normative dictate.
In fact, it was found that (a) the availability of cribs does not in itself mean the use of them (the taxpayer had pointed out that some of them were intended for escort purposes and were therefore practically unused); (b) the organization and publicizing of a public event did not equate to its actual realization (the taxpayer contested that the public events identified by the IRS had not been held for a variety of reasons, such as bad weather or illness of the artist).
The circumstance, therefore, of having justified the tax act solely by referring to the contentions made in the RoA, without giving them concrete evidentiary support, evidently resulted in a motivational deficiency in violation of Article 7, paragraph 5-bis. Consequently, the judge ordered the partial annulment of the NoA.
The Court's rulings in the present case could take on an innovative and generalized scope. Indeed, it is common practice for NoAs, issued as a result of a tax audit, to have a motivation “per relationem” with respect to the contentions already made in the RoA. The thesis of the Lecce Court leads to the view that, while in the context of the endoprocedural act, the formulation of contentions lacking adequate evidentiary support may be permissible, a different matter concerns the consequential tax act. Consequently, the IRS cannot simply transpose sic et simpliciter the contentions made during the tax audit, as it must supplement them with additional evidence.