As part of its efforts to combat tax evasion, the Italian government has introduced the biennial preventive agreement (CPB, or “concordato preventivo biennale”"), an initiative that aims to maximise revenue collection by encouraging small taxpayers to voluntarily comply with their reporting obligations. The agreement represents a new tax approach designed to foster cooperation between the Italian tax authorities and value-added tax (VAT) declarants. In this article, you will learn about the two-year preventive agreement, who can apply, and how to sign up.

What’s in this article?

• What is the two-year preventive agreement?
  
• Who can apply?
  
• How do I sign up for the two-year preventive agreement?
  
• Exclusion criteria
  
• Termination of the two-year preventive agreement
  
• Forfeiture of the two-year preventive agreement
  

What is the two-year preventive agreement?

The biennial preventive agreement is an initiative designed to promote cooperation between taxpayers and the Italian tax authorities and to encourage voluntary compliance with reporting obligations. It is a type of agreement between the Agenzia delle Entrate (the Italian Revenue Agency) and taxpayers registered for VAT, in which the agency proposes a tax payment plan based on the data it has on the taxpayer. In practice, by signing the agreement, the taxpayer pays taxes for two years based on the Agenzia delle Entrate’s estimate rather than their actual income.

The two-year preventive agreement was introduced by Legislative Decree No. 13 of 12 February 2024, and amended by Legislative Decree 108/2024, known as the “Corrective Decree to the Two-Year Preventive Agreement,” which came into effect 6 August 2024.

Who can apply?

These categories of taxpayers are eligible for the two-year preventive agreement in 2024:

• Natural or legal people engaged in business, arts, or professions to whom the Summary Reliability Indices (ISA) apply.
  
• Taxpayers who use the flat-rate tax regime.
  

How do I sign up for the two-year preventive agreement?

Interested flat-rate taxpayers can calculate their proposed arrangement by completing the fields in part LM of the 2024 Income PF Form (for tax year 2023) using the RedditiOnline service or the pre-filled tax return application.

ISA taxpayers, on the other hand, can use the Your ISA 2024 CPB software to calculate their ISA and to agree on their self-employment or business income and Italian regional tax on productive activities (IRAP) tax base for 2024 and 2025.

When it comes to the deadline for joining the arrangement, you can refer to this page of the Ministry of Economy and Finance.

How to fill out Part LM, Section IV of the 2024 Income PF Form

To calculate the proposed two-year preventive agreement, individuals using the flat-rate tax regime must complete the fields in Section IV of Part LM of the Income PF Form, specifically lines LM60 to LM64.

By ticking the box in line LM60, the taxpayer certifies they have no outstanding tax debts or they have paid all debts of €5,000 or more in accordance with the conditions for entering into the two-year preventive agreement.

In line LM61, the taxpayer must certify none of the exclusion criteria for access to the two-year agreement applies to them. In line LM62, the code corresponding to any extraordinary events identified by the ministerial decree must be entered, while line LM63 is used to indicate the taxpayer’s proposed income for CPB purposes for the 2024 tax period. Finally, by ticking the box in line LM64, the taxpayer declares their acceptance of the proposed CPB for the 2024 tax period.

How to fill out the 2024/2025 CPB form

ISA taxpayers must complete the 2024/2025 CPB form in the sections covering conditions of access, accounting data, declaration of taxable income for purposes of the agreement, and acceptance of the agreement.

By ticking the box in line P01, the taxpayer confirms their eligibility for the two-year preventive agreement. In line P02, it is necessary to confirm the absence of any exclusion criteria, and in line P03, the code of any extraordinary events is required. Regarding accounting data, line P04 should indicate the business or self-employment income, while line P05 should indicate the net output for IRAP purposes.

In the third section, CPB Proposal, the taxable income on which the taxes for 2024 and 2025 will be calculated should be reported. This income is derived solely from ordinary business activities, excluding capital gains, capital losses, contingencies, and certain types of stock or partnership interests. Finally, by ticking the box in line P10, the taxpayer agrees to accept the agreement.

As your business expands, managing accounts can become more complicated, and errors might occur more frequently. With tools such as Stripe Revenue Recognition, you can create accurate revenue reports to prepare tax returns, ensuring your financial reporting aligns with the requirements of the two-year agreement.

On 17 September 2024, the Agenzia delle Entrate published Circular No. 18/E, which offers guidance on the specific rules of the two-year preventive agreement for flat-rate taxpayers and those using summary reliability indices.

Exclusion criteria

Article 11 of Decree Law No. 13/2024 states that taxpayers who have one of these exclusion criteria are not eligible to access the two-year agreement:

• Failure to file income tax returns for at least one of the three tax periods preceding the application for the agreement.
  
• Tax or social security debts that exceed €5,000 for the tax period before the one covered by the proposed agreement. Debts that are subject to instalment or suspension payments do not count toward the $5,000 limit.
  
• Conviction for tax crimes under Legislative Decree 74/2000, including fraudulent declaration through false invoices or other means, false or omitted declarations, issuing invoices or documents for non-existent transactions, concealment or destruction of accounting records, failure to pay certified withholding taxes, failure to pay VAT, undue compensation, and fraudulent evasion of tax payments.
  
• Conviction for any of these crimes: false corporate communications; money laundering; use of money, goods, or services of illicit origin; and self-laundering, committed within the last three tax periods before the application for the agreement.
  

Additionally, the corrective decree to the two-year agreement introduced grounds for exclusion for VAT-registered taxpayers who:

• In the previous tax period, earned exempt, excluded, or non-taxable income that exceeded 40% of the income from business activities, arts, and professions.
  
• Have enrolled in the flat-rate scheme for the first tax period covered by the agreement.
  

Termination of the two-year preventive agreement

Article 21 of the decree specifies various circumstances that invalidate the agreement because they fundamentally alter the conditions required for it. These are:

• Cessation of activity.
  
• A change of activity during the two-year agreement period from the activity carried out in the previous tax period. For flat-rate taxpayers, cessation is not considered to have occurred if the same profitability calculations used to determine income apply to the new activity. For ISA taxpayers, cessation is not considered to have occurred if the same summary reliability index applies to the new activities.
  
• The existence of exceptional circumstances, as determined by a decree of the Ministry of Economy and Finance, that cause the actual income or net production value to be more than 30% lower than the values covered by the agreement.
  
• For ISA taxpayers, enrolment in the flat-rate tax system.
  
• For ISA taxpayers, the execution of any merger, demerger, transfer, or changes in corporate structure during the first tax period covered by the agreement concerning businesses or associations mentioned in Article 5 of Presidential Decree No. 917 of 22 December 1986.
  
• Exceeding the revenue limit by more than 50%
  

Forfeiture of the two-year preventive agreement

Article 22 of the decree outlines the reasons for the forfeiture of the agreement, which becomes ineffective for both tax periods in instances in which:

• As a result of an assessment in the tax periods covered by the agreement or in the preceding period, if it is established that undeclared assets (or the non-existence or non-deductibility of declared liabilities) exceed 30% of the declared income.
  
• As a result of a supplementary tax return, if the data and information declared by the taxpayer lead to a different calculation of income (or net production value) compared with those used for the acceptance of the agreement proposal.
  
• Data included in the tax return that does not correspond to the data communicated for the purpose of defining the proposal of agreement.
  
• Any of the above reasons for exclusion occur.
  

In the event of forfeiture of the agreement, taxes and contributions calculated based on the agreed income remain payable if they exceed the income actually earned.