Who Proves What in VAT? Italy’s Reform and the EU’s Evolving Approach to Evidence

In the European VAT system, the burden of proof does not follow a single, uniform rule. Unlike traditional areas of procedural law, where evidentiary principles are often defined abstractly, VAT operates through a functional logic shaped by its internal structure. Neutrality, the prevention of fraud, and the protection of public revenue interact to create a differentiated system of evidentiary obligations.

Recent developments in the case law of the Court of Justice of the European Union, combined with Italy’s reform of Article 7(5-bis) of Legislative Decree No. 546/1992, have placed the burden of proof at the centre of VAT litigation. The key issue is no longer simply identifying which party must prove a given fact, but understanding how evidentiary burdens are allocated in order to preserve the coherence of the VAT system.

Italy offers a particularly interesting perspective. The domestic reform appears to strengthen the evidentiary role of the tax administration, while EU case law continues to emphasise a functional and case-specific approach. The interaction between these two levels reveals a structured and evolving system.

VAT and the Logic of Proof

The allocation of the burden of proof in VAT cannot be separated from the nature of the tax itself. VAT is designed as a general consumption tax in which the economic burden is borne by the final consumer. Taxable persons act as intermediaries, collecting and remitting the tax through the mechanism of output tax and input tax deduction.

This structure ensures neutrality. Businesses are not intended to bear the cost of VAT, provided they operate within the taxable chain. The right to deduct input VAT is therefore not a procedural advantage but a structural component of the system.

From this perspective, evidentiary rules serve a specific function. They determine how the risk of uncertainty is distributed between taxpayers and tax authorities. The burden of proof becomes a tool for maintaining equilibrium between neutrality and the need to combat fraud.

This explains why the CJEU has not developed a single general rule on evidence in VAT. Instead, it has adopted a functional approach, tailoring evidentiary obligations to the nature of each legal situation.

The Core Rule: Proof in Deduction Case

The starting point is the ordinary regime governing the right to deduct input VAT. In this context, the burden of proof lies primarily with the taxable person.

To exercise the right to deduction, the taxpayer must demonstrate that it is a taxable person, that the transaction actually took place, and that there is a link between the goods or services acquired and taxable activities carried out downstream.

This obligation concerns substantive requirements only. The taxpayer is not required to prove economic convenience or profitability, nor to demonstrate elements that fall outside the structure of VAT.

The CJEU has consistently held that the right to deduct arises when the substantive conditions are met. Formal requirements, such as invoice details or reporting obligations, cannot override the existence of the right where the essential elements are satisfied.

This distinction is fundamental. Substantive requirements determine whether the right exists, while formal requirements govern how it is exercised and controlled.

Substance Over Form

A key principle in EU VAT law is the primacy of substance over form. The right to deduct or to benefit from an exemption cannot be denied solely on the basis of formal defects if the substantive conditions are fulfilled.

This principle has important practical implications. Tax authorities cannot refuse deduction simply because an invoice is incomplete if they already possess the necessary information to verify the transaction. Similarly, alternative forms of evidence may be accepted where standard documentation is missing.

At the same time, the principle does not eliminate the need for proof. The distinction between formal irregularities and lack of evidence remains essential. Where the taxpayer fails to demonstrate the existence of the transaction itself, the right to deduct cannot arise.

VAT is therefore not formalistic, but neither is it permissive. It requires proof of economic reality rather than compliance with rigid formalities.

Exemptions and Enhanced Proof Requirements

A stricter evidentiary regime applies in the case of VAT exemptions. Since exemptions represent a departure from the general principle of taxation, they must be interpreted narrowly.

As a result, the taxpayer bears a heavier burden of proof. It must demonstrate not only that the transaction occurred but also that all the conditions for the exemption are satisfied.

However, EU law does not impose a closed list of acceptable evidence. The taxpayer may rely on any reliable documentation capable of demonstrating the substance of the transaction. What matters is the credibility and consistency of the evidence, not its formal classification.

The difference between deduction and exemption lies therefore in the intensity of the burden. Exemptions require a more rigorous demonstration because they constitute exceptions to the normal functioning of VAT.

Fraud and the Kittel Doctrine

The most complex area of VAT evidence concerns fraud. In this field, the CJEU has developed a structured approach known as the Kittel doctrine.

Under this model, the burden of proof initially lies with the tax administration. The authorities must demonstrate that a fraud exists, that the transaction is linked to that fraud, and that the taxpayer knew or should have known of its involvement.

Only once these elements are established does the burden shift. The taxpayer must then show that it took all reasonable steps to ensure that it was not participating in a fraudulent scheme.

This structure prevents automatic denial of deduction. Taxpayers are not required to guarantee the conduct of their suppliers, nor can authorities rely on general presumptions of fraud.

The system is progressive and conditional, ensuring that anti-fraud measures do not undermine VAT neutrality.

Incorrect Invoicing and the Protection of Revenue

A separate evidentiary regime applies in cases of incorrectly invoiced VAT. Under Article 203 of the VAT Directive, VAT is due by any person who indicates it on an invoice.

This rule serves to protect public revenue by preventing situations in which VAT is deducted without being properly due. The focus is therefore not on the taxpayer’s entitlement but on eliminating the risk of loss to the treasury.

In such cases, the person who issued the invoice must demonstrate that the risk of revenue loss has been removed. This regime applies regardless of good faith, reflecting its objective of safeguarding the system.

At the same time, the taxpayer must be allowed to correct the situation where appropriate. The aim is not to impose sanctions but to ensure that the VAT system remains coherent and neutral.

Proportionality as a Limiting Principle

Across all evidentiary regimes, the principle of proportionality plays a central role. Tax authorities may impose obligations necessary to ensure correct tax collection and prevent fraud, but these obligations must not go beyond what is strictly necessary.

This principle limits the scope of evidentiary requirements. Authorities cannot demand excessive documentation, nor can they impose obligations derived from unrelated regulatory frameworks.

Proportionality also prevents the use of general presumptions that effectively shift the burden of proof onto the taxpayer. It ensures that evidentiary rules remain aligned with the objectives of VAT.

Italy’s Reform of the Burden of Proof

Italy has introduced a significant reform through Article 7(5-bis) of Legislative Decree No. 546/1992. The provision requires the tax administration to prove the violations it alleges and obliges courts to annul assessments where the evidence is insufficient or contradictory.

This reform strengthens the procedural position of taxpayers by emphasising the responsibility of the administration. It appears to move away from traditional concepts such as proximity to evidence and toward a stricter allocation of the burden of proof.

However, its interpretation remains open. Some view it as a confirmation of existing principles, while others see it as a genuine shift in favour of taxpayers.

The real impact of the reform will depend on how it is applied in practice and how it interacts with EU law. The key challenge is ensuring consistency between domestic procedural rules and the functional approach developed by the CJEU.

A Functional System of Evidence

The developments described above reveal that VAT evidence operates through a structured system of regimes rather than a single rule.

The taxpayer bears the primary burden in deduction cases. This burden increases in exemption cases. The administration carries the initial burden in fraud cases. A separate regime applies to incorrect invoicing. All these regimes are subject to the overarching principle of proportionality.

This system reflects the dual nature of VAT. It must ensure neutrality while protecting public revenue. Evidentiary rules are the mechanism through which this balance is achieved.

Italy’s reform fits within this framework, reinforcing the role of the administration while remaining subject to EU principles.

Conclusion

The burden of proof in VAT is not static. It evolves through the interaction between EU law and national systems. Italy’s recent reform highlights this dynamic process and offers an opportunity to align domestic practice with European principles.

For practitioners, the key takeaway is that VAT evidence cannot be approached through rigid procedural categories. It requires a functional understanding of the tax system and its underlying principles.

As case law continues to develop, the balance between neutrality, fraud prevention, and proportionality will remain central. In this evolving landscape, Italy’s experience provides valuable insights into the future direction of VAT litigation in Europe.