Accounting error from wrong classification in financial statements: clarifications by the Italian Tax Authority

Corrective items for a classification error that resulted in the incorrect timing of negative income components become relevant in the year in which the correction is made in accordance with Article 83 paragraph 1 of the TUIR. This is what the Revenue Agency clarified in its response to interpellation No. 63 of March 4, 2025, thereby avoiding the need to file a supplementary return.

The aforementioned interpellation dealt with a company engaged in the business of transporting goods on behalf of third parties that had purchased two used semi-trailers in FY X. The cost of these semi-trailers should have been capitalized as property, plant and equipment. Nevertheless, the company had mistakenly fully recognized the cost of the semi-trailers in the income statement. Thus, the cost of the assets had been fully deducted for IRES and IRAP purposes in tax year X instead of being allocated over the entire useful life according to the depreciation schedule.

Applying OIC 29, the company had then rectified the error in the financial statements for year X+1 by recognizing the semi-trailers under property, plant and equipment and the related depreciation charge in year X with an impact on the opening balance of equity. From the fiscal standpoint, the Revenue Agency gave a favorable opinion to the solution proposed by the petitioning company, which provided for the correction of the error with an upward adjustment, equal to the difference between the purchase cost and the depreciation charge relating to year X, directly in the IRES and IRAP returns relating to year X+1 without the need to file supplementary returns.  

Thus, even in the case of classification errors, it is possible to apply the discipline of correcting accounting errors under Article 83, paragraph 1 of the TUIR. In fact, the time allocation criteria provided by the accounting standards also apply for tax purposes in relation to items accounted for as a result of the process of correcting accounting errors. In a nutshell, the principle of enhanced derivation allows for the tax relevance of income components imputed in the financial statements in the year in which the correction of the error is made without the need to file a supplementary return relating to the tax period in which the error is made.

Regardless, it should be remembered that the discipline of accounting errors operates only for entities that submit their financial statements to statutory audit.

In relation to this requirement, the Revenue Agency confirmed the stand of AIDC Conduct Standard No. 221/2023 by clarifying that the audited financial statements must be those for the fiscal year in which the error is corrected and not the fiscal year in which the error was made.