The new control mechanism on withholding taxes in private supply service agreements, recently introduced by Article 4 of the Tax Decree 2020 (Decree-Law no. 124 of October 26, 2019, converted into Law no. 157 of December 9, 2019), has been heavily criticized, particularly with regard to its practical implementation and the definition of the scope of the new regulations.

By means of Resolution 1/E of February 12, 2020, the Italian Revenue Agency intended to provide a complete interpretation of Article 17-bis of Legislative Decree 241/1997, as introduced by Article 4 of Decree Law 124/2019, in order to answer the many doubts concerning the new obligations for companies.

The first clarifications concern the scope of the regulations. On a subjective level, first of all, condominiums are to be excluded, as they do not hold capital goods in any form, as well as non-commercial entities, both public and private. However, the exclusion of staff leasing agencies from the scope appears to be more important. The Resolution clarifies that staff leasing agreements are not subject to the new obligations regarding inspections on withholding taxes in supply service agreements, as they are characterized by the fact that the authorized staff leasing agency "makes available to a user one or more of its employees, who, for the entire duration of the task, carry out their activities in the interest and under the direction and control of the user". Conversely, all cases of unlawful staff leasing are covered by the new regulations.

On the other hand, there are greater limitations on the so-called "chains of subjects" (i.e. on supply service agreements characterized by an articulated structure, involving subcontracting to third parties). In fact, in the context of "chain" relationships, each party acting as "principal" (and therefore the principal in relation to the contractor and the subcontractor, and the contractor in relation to the subcontractor) will have to fulfil the new obligations.

In order to verify the application of the new rules on an objective level, the regulations identify several preconditions that have to be jointly fulfilled. First of all, it is necessary to take as a reference the entrusting to a company of the completion of works or services which shall be carried out by means of agreements for the supply of services, subcontracting, entrusting to consortia or negotiating relationships, however denominated. In addition, their total annual amount shall be more than €200,000. For the purposes of calculating the aforesaid threshold ̶ as explained in the Resolution ̶ reference will be made to all existing agreements, to any contractual changes and to all new agreements entered into during the calendar year with each company. The clear objective is to avoid any circumvention of the threshold by artificially splitting up the entrusting.

The supply service agreements shall also be characterized by the prevalent use of labor at the principal's places of business with the use of capital goods owned by the latter or attributable to it in any form.

To this end, it should first be verified whether the use of labor is predominant (so called labor intensive). This phenomenon mainly concerns the logistics, business services and food and mechanical engineering sectors. However, the Resolution also makes it clear that the concept of labor covers all types of work, both manual and intellectual. Therefore, companies providing services of an intellectual nature, such as consultancy services, are fully covered by the new regulations.

It is also required that the activity be carried out at the principal's premises (i.e. in-house). On this point, the Resolution provided a rather broad interpretation of the definition of premises, which includes not only the registered office or operating headquarters but also "representative offices, land where the principal carries out the agricultural activity, construction sites, platforms and any other place that can be referred to the principal and that is intended for the performance of the business activity". In the light of the above, the places of operation of the principal would coincide with all the places intended for the performance of its business or professional activity.

The last prerequisite that should be met in order to apply the new regulations is that the activity be carried out with the use of capital goods owned by the principal or attributable to it in any form. The Resolution clarifies that it is in any case necessary that the capital goods required for the execution of the specific work or service commissioned are not exclusively referable, under any legal title, to contractors, subcontractors and other parties having contractual relationships, however named. Therefore, if the workers use capital goods traceable to the aforementioned subjects, the occasional use of capital goods referable to the principal or the use of its capital goods, which are not indispensable for the execution of the work or service, do not imply that the condition of applicability under examination is met.

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