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Biennial composition agreement: analysis of last updates

published on 15 October 2024 | reading time approx. 7 minutes

Legislative Decree no. 108 of 05.08.2024 has provided the latest adjustments to biennial composition agreement introduced by Legislative Decree 12.02.2024.

The biennial composition agreement, introduced on February 2024, has been significantly modified by Legislative Decree 108/2024 in order to make it more attractive and to regulate better its application to avoid abuse or misapplications.

The aforementioned Legislative Decree 108/2024 was also preceded by Ministerial Decree 14.06.2024 and Ministerial Decree 15.07.2024, which defined:

mechanisms for the calculation of taxable income and value of the production covered by the agreement among taxpayers and Tax Authority;
conditions that may lead to the termination of the agreement.

In the light of the mentioned regulations, we report below a summary of the biennial composition agreement (hereinafter also “CPB”) features at to date.

Subject matter

CPB regards two kind of taxpayers with business income and self-employed taxpayers:

taxpayers applying the Synthetic Reliability Indices (so-called "ISA")¹;
taxpayers under the flat-rate regime, according to Law 190/2014. In this case, the CPB is applied only for FY 2024.

The above mentioned taxpayers may carry out the agreement with Tax Authority if, in the previous fiscal years (i.e. 2023 for "solar" taxpayers) they meet the following criteria:

they have no outstanding debts with Italian Tax Authority and contributory debts that are definitively ascertained with an irrevocable judgment or with tax acts no longer subject to appeal;
they have paid he aforementioned debts, if any, within the term for joining the CPB and, in any case, the total amount of the residual debt, including interest and penalties, is less than Euro 5,000.00.

Moreover, it is necessary to consider the following causes of exclusion preventing the application of COB:

for flat-rate taxpayers, in the FY 2023, the exceeding of Euro 85,000.00 of revenue and fees for their activity;
for ISA and flat-rate taxpayers:

lack of current income taxes returns submission for at least one of the three tax periods before the application of CPB;
conviction, in the three FY prior to the application of the CPB, for one of the tax crimes mentioned in Legislative Decree 74/2000 or for the crimes of false corporate communications, money laundering, self-laundering and use of money, goods or utilities of illicit origin;
starting of their business activity in the FY before the application for CPB;

for ISA subjects:

achievement, in the FY before the CPB, of income (in whole or in part) exempt, excluded or not competing with the tax base to an extent greater than 40 percent of the income arisen by business activity carried out;
application of flat-rate regime according to Law 190/2014 in the first FY covered by the CPB;
carrying out of mergers, demergers, transfers or, for companies of persons/professional associations, changes to the corporate structure in the first tax period covered by the composition.

CPB Procedure

The proposals of Italian Tax Authority are based on the data:

provided by taxpayers with the submission:

of framework P of the ISA Model 2024 for ISA subjects;
of the LM framework of the Form PF 2024 for flat-rate taxpayers;

shown in the income tax returns and ISA forms of previous periods;
reported in their own databases.

In any case, the taxpayer can only accept or reject the proposal by 31.10.2024 without the chance to modify them.

In case of proposal acceptance, for the FYs covered by CPB, the taxpayer:

undertakes to declare the amounts agreed in the income tax and IRAP returns relating to the FYs covered by CPB. In fact, in any case, the submission of income tax, IRAP and ISA returns is mandatory;
has to comply with ordinary accounting obligations;
can benefit of the provisions mentioned in art. 9-bis paragraph 11 of Legislative Decree 50/2017 regardless of the tax reliability score achieved;
may not be the subject of pure analytical, analytical-inductive or presumptive and inductive investigations;
may be subject to inspections or checks that could lead to the revocation of the CPB (making the inductive and analytical assessments visible, in this case);
can apply a flat tax calculated on a taxable basis equal to the difference, if positive, between:

taxable income from business activity proposed by Italian Tax Authority;
taxable income from business activity for the FY before the agreement with Italian Tax Authority (i.e. income for the FY2023).

The flat tax is calculated by applying to above described taxable base a rate equal to:

3 per cent for taxpayers on a flat-rate basis within the first 5 years of starting the business ("start-up" phase);
10 per cent for taxpayers on a flat-rate basis who have left the "start-up" phase and for ISA subjects who have a tax reliability score of 8, 9 or 10;
12 per cent for ISA subjects with a tax reliability score of 6 or 7;
15 per cent for ISA subjects with a tax reliability score of 5 or lower.
The flat tax must be paid within the deadline for payment of the income taxes balance (i.e. 30.06 of following years for solar taxpayers).

The CPB is valid two years for ISA subjects (i.e. it is valid for the FYs 2024 and 2025) and every year for flat-rate taxpayers. At the end of the agreed period, the Italian Tax Authority will make a further proposal, relating to the following two-year period, if the taxpayer will meet the requirements to apply the CPB.

Establishment of tax advances

For the first FY of CPB, a tax mark-up has been provided in case of advances calculation with historical method.

In particular, the mark up is equal to 10 per cent² of the difference, if positive, between:

taxable income from business activity proposed by Italian Tax Authority;
taxable income from business activity for the FY before the agreement with Italian Tax Authority (i.e. income for the FY2023) adjusted from extraordinary components.

Likewise, the IRAP advance must be increased with a mark-up equal to 3 per cent of the difference, if positive, between:

the agreed net production value;
the value of net production declared for the previous FY adjusted by the components already considered for direct taxes.

The above-described mark-up must be paid within the deadline for the payment of the second advances for FY2024 (i.e. 02.12.2024).

On the other hand, with reference to the tax periods covered by CPB, the tax advances is based on agreed income according to the ordinary rules.

Termination or revocation of CPB

The CPB loses its effectiveness starting from the FY in which the following circumstances occur:

modification, during the two FYs covered by the agreement, of the activity compared to that carried out in the tax period preceding the two-year period itself, unless the new activity is subject to the application of the same ISA;
termination of the activity;
adherence to the flat-rate regime ex. L. 190/2014;
involvement in merger, demerger, transfer operations, or changes to the corporate structure of partnerships/associations;
declared revenues or fees exceed the limit of Euro 7,746,853.50 for ISA taxpayers or Euro 150,000 for taxpayers in the flat-rate regime;
verification of exceptional circumstances that result in lower actual incomes or a lower actual net production value exceeding 30 per cent compared to that covered by the agreement.

Conversely, the causes of revocation impact both FYs covered by the CPB regardless of the period in which the violation occurred. The revocation causes are:

the emergence following an assessment of undeclared activities or the non-existence or non-deductibility of declared liabilities for an amount exceeding 30 per cent of the declared revenues for the FYs covered by the agreement or the previous one;
the submission of an amended tax return that determines a different quantification of incomes compared to those on which the acceptance of the CPB proposal was based;
the indication in the tax return of data not corresponding to those communicated for the purpose of defining the CPB proposal;
the verification of an exclusion cause;
the non-payment of taxes resulting from adherence to the CPB emerged following the automated controls referred to in art. 36-bis of the DPR 600/73;
the commission of one of the relevant violations provided for by art. 22 of Legislative Decree no. 13 of 12.02.2024

[1] Taxpayers excluded by ISAs cannot apply the CPB according to D.Lgs.13/2024.

[2] For taxpayers on a flat-rate basis, the increase is equal to 3 percent in the event of application of the substitute tax reduced to 5 percent for start-up activities..