Correction of accounting errors: first clarifications from the Italian Revenue Agency

 published on 17 April 2024 | reading time approx. 4 minutes

The Revenue Agency, in its answer to questioning No. 73 published on March 21, 2024, provided the first clarifications regarding the rules on the correction of accounting errors as amended by DL 73/2022 and L. 197/2022.

The current wording of Article 83 paragraph 1 of the TUIR provides that, for entities subjecting their financial statements to statutory audit, the principle of enhanced derivation also applies in relation to items booked as a result of the accounting error process. Therefore, extraordinary income/cost charged to the financial statements for the correction of accounting errors relating to previous fiscal years assume tax relevance, for the purpose of calculating the IRES and IRAP tax base, in the fiscal year in which the correction is made without the need to proceed with the submission of amended return with reference to the fiscal year in which the error was committed. This provision does not apply to extraordinary costs for which the deadline for filing the supplementary return has expired.

The above-described provision was introduced with the aim of simplifying taxpayer compliance; however, significant interpretative doubts have arisen limiting, to date, the application of above described rules.

In fact, the answer to questioning No. 73/2024 represents the first official clarification offered by the Italian Tax Authority on the issue under consideration.

Specifically, questioning No. 73/2024 set out the case of an audited entity, adopting ITA GAAP, that in the financial statements for FY2022 had proceeded to correct a material accounting error consisting in the failure to allocate expenses to fiscal years 2019, 2020 and 2021.

First of all, the Revenue Agency's response confirmed the application of new rules for correction of accounting errors to income components from previous years entered in the financial statements for FY2022. An initial interpretative doubt, in fact, concerned the effective date of the new regulations introduced by DL 73/2022 and L. 197/2022.

On the second hand, the Revenue Agency clarified that the aforementioned discipline of accounting errors can only be applied to errors, regardless of their materiality, that qualify as such according to accounting standards (OIC 29) while it does not apply to errors that are a consequence of incorrect application of tax rules.

In addition to the above clarifications regarding compliance with the subjective and objective requirements for taking advantage of the discipline under consideration, the Revenue Agency's answer provided two additional clarifications regarding:

tax treatment of corrective items. The Revenue Agency specified that the provisions introduced by DL 73/2022 do not allow derogation from other tax rules that limit or reduce the tax relevance of certain income components. In addition, the deduction cannot be for a greater amount than the amount "crystallized" in the individual tax period affected by the accounting error. In this way, there is a recovery, in the tax period in which the correction takes place, of the tax regime applicable to the individual negative item as of the tax period in which the error is made;
implications with reference to the calculation of ACE. Recalling the Explanatory Report to the Ministerial Decree August 3, 2017, the Revenue Agency argues that items resulting from the correction of accounting errors are irrelevant for ACE purposes. Consequently, in this case, the taxpayer should proceed to set the ACE base for the individual tax periods affected by the errors exclusively through amended tax return.