VAT Debts in Italy

[skrlam]

Hi all, I have been running a successful retail business in the UK since 2005. We started expanding overseas since 2009 by opening 30 concession stores across Italy. In order to handle the VAT and taxes in Italy, we set up a subsidiary as a S.R.L. (Limited company) in Italy with myself being the director personally owning 95% and UK parent company owning 5%. We had been using a firm of lawyers and accountants in Milan recommended to us by an UK agent who set up the Italian subsidiary for us. The accountant in Italy was meant to handle all the aspects of our operation in Italy. The problem is they speak very basic English and I don't speak Italian at all. I completely relied on them for the local law and tax advice. They did the bookkeeping and accounts and advised me tax liability to pay. Unknown to me over the years, our Italian accountants had not conducted our tax affairs in the manners they should. As a results, the subsidiary has built up over €400,000 of unpaid VAT and other taxes with a significant amount of penalties and interest included. It was a real mess. I received a few unrelated correspondences that were forwarded to me by the accountants over the years but never received tax demand and was never told of building up of the large outstanding taxes. It only came to light when our Italian bank account was suspended in August 2016. I contacted the bank and was told the account was freezed by the Italian tax authority. The tax authority subsequently took €100,000 from the bank account and then we had not heard from them since. I questioned the accountants but they became from being evasive to not answering my calls. I immediately dismissed the accountants and appointed a new accountant to investigate.

The new accountant has done a lot of works on the case since November 2016 and has uncovered a large number of errors and mis-filings by the previous accountant. Unfortunately, the discovery has not helped. Due to the time restriction in place, all pre-2015 VAT and taxes totalling over €500,000 has now been crystallised and can not be challenged. What's even more worrying, the interest and penalty just keep building up. I was strongly advised by the new accountant not to contact the Italian tax authority directly as it may alert them the severity of the case. In Italy, any debts over €500,000 would trigger a bankruptcy proceeding by the tax authority. I am becoming increasingly frustrated with the lack of transparency and understanding of the Italian tax system and not being able to communicate with the tax authority directly. The new accountant suggested to dissolve the subsidiary and start a new company with a new owner to take over the retail operation in Italy, which I agreed. A new S.R.L. (Limited company) has now been set up and everything in this new company has been done correctly by the new accountant.

With regards to the debts in the old company, I will pay back 2016 and 2017 outstanding debts as they are still within time limit and with only a small percentage of interest to pay. For the old crystallised debt of over €500,000, the new accountant estimated the penalties and interest to be around €290,000. We don't know the exact amount as I have been advised not to contact the Italian tax authority. They have recreated our accounts from day one and established what we actually owed. We would pay the principle amount owed by instalments but will not and can not afford to pay the penalties and interest. I was told there is a risk of the Italian tax authority chasing for the penalties and interest through the UK HMRC one day through an EU-wide tax collection system.

My question are:
1) If the old S.R.L. (Limited company) is dissolved in Italy, can they still go after me here in UK for the penalties and interest? These penalties and interest were imposed on us unfairly.

2) Would HMRC be more understanding giving the fact that we will have repaid the bulk of the principle sum owed already. We were a victim of professional negligence on the part of previous accountant?

This case has cast a shadow over me since last year. The most frustrating thing for me is there seems to be nothing I can do other than wait and hope. I would rather the Italian tax authority are as approachable as HMRC so I can discuss and reach a deal with them but that just seems not possible.

 

[UK Contractor Accountant]

Does the old S.R.L hold any assets such as stocks, fixtures & fittings, cash at bank etc?

If so, dissolving the company might not be the right option. I would have thought that you would have go down the formal liquidation route.

 

[skrlam]

Yes the old S.R.L. holds no assets except some old stocks, which has been sold to the new S.R.L. It has cash at bank from sales of stocks but use part to pay the latest VAT and taxes and remaining paid UK company for the cost of the stocks. It will have no more cash from sales as everything has now been sold to the new S.R.L. which has taken over the whole concession business. Our new Italian accountant advised not to liquidate or dissolve the old S.R.L. for fear of alerting the tax office but to leave it dormant. On our part, we will continue to transfer money from UK company to Old S.R.L. bank account so it can continue to repay by instalments the principle sum of the taxes owed. They advised me it is common for Italian tax authority to offer amnesty every now and then for individuals or businesses that owe taxes. Under amnesty, all the penalties and interest are set aside and only the principle sum will need to be repaid. Any insolvency practitioner who has experience with both UK and Italian insolvency laws?

 

[UK Contractor Accountant]

Surely liquidating will involve writing off the whole debt?. With Limited Liabilty in place the Liquidators are not able to pursue you personally for the VAT debt unless they can prove you traded whlist insolvent and did not act in the best interest of the creditors.

Would need to pursue you in Court if they went down this road.