Split Payment Abolition: What Could Change for Public Administrations and Businesses?
The possible abolition of the Split Payment system is becoming an increasingly discussed topic. With the next deadline set for 30 June 2023, several uncertainties remain, particularly for Public Administrations (PAs) that may face financial challenges related to investment expenses in the commercial sector. These expenses could be especially significant when linked to PNRR (National Recovery and Resilience Plan) investments.
What Is Split Payment?
Split Payment is a VAT mechanism introduced by the 2015 Stability Law (Law No. 190/2014) for suppliers working with the Public Administration. Its purpose is to regulate the collection and payment of VAT while helping to combat tax fraud and reduce VAT evasion.
Under the traditional VAT system, suppliers charge VAT to customers through invoices and subsequently pay the collected tax to the tax authorities. Under the Split Payment regime, however, the Public Administration pays the VAT directly to the tax authorities instead of transferring it to the supplier.
The Impact of the 30 June Deadline
One of the main consequences of a possible change to the Split Payment system concerns companies that provide goods and services to the Public Administration. These businesses may no longer be able to offset VAT collected on sales invoices against VAT paid on purchase invoices, as they have done in the past.
As a result, companies could be required to request VAT refunds from the tax authorities, potentially increasing administrative procedures and extending reimbursement timelines.
Operational and Technological Challenges
Any changes to the current system would require significant operational adjustments. Organizations would need to update their accounting processes and adapt all related IT procedures. In addition, businesses would have to implement new methods for issuing and recording invoices.
This scenario could lead to the creation of two separate accounting management systems, generating additional costs for software upgrades as well as increased time and resources dedicated to staff training.
Financial Risks for Businesses
Financial implications should not be underestimated. Since companies would no longer collect VAT directly from Public Administration customers, businesses that primarily work with the public sector could experience a reduction in available financial resources and cash flow.
The Connection with PNRR Investments
Considering the scale of expected PNRR investment flows and the strict deadlines associated with these projects, any disruption caused by regulatory changes could create operational difficulties. Such challenges may increase the risk of administrative errors, which could ultimately result in substantial penalties.
Is the End of Split Payment Approaching?
The possibility of abandoning the Split Payment regime appears increasingly likely. Although no official decision has been announced, the growing frequency of discussions on the topic at various institutional levels suggests that significant changes could be on the horizon.
The Importance of Professional Support
In periods of regulatory transition, it is essential for organizations to rely on experienced financial consultants and trusted technology partners. Professional support can help businesses and Public Administrations adapt efficiently to new regulations, ensure compliance, and minimize operational and financial risks.
