Something that bugs me

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May 9, 2007 · Filed Under Life in Italy

This gets on my goat, so to speak. What? Well, being registered for IVA (UK - VAT, Italy - IVA) I have to pay VAT to the Italian VAT man. OK, this is normal, no problem, standard business practice. Except, the time it takes Italian companies (don’t even mention local or central government…) to get round to paying means that you end up paying out VAT before you get paid. This is not all that fair in my opinion. I don’t think I should become liable for the payment of VAT until I have received payment on the invoices I have submitted.

Either the government here should do something useful for a change and change the law to ensure that invoices are settled within the period in which the VAT becomes payable or those submitting invoices should not have to pay out VAT until they have been paid. You never know, doing something sensible like this may even reduce tax fiddling.

By the way, you may have heard that Italy has managed to reduce its debt. Prodi seems very happy, as you would expect, only nobody seems to know what exactly Prodi and his minions have done to have obtained the reductions. Could it be that Berluco’s boys were more effective financial managers? Perish the thought. Not. So Prodi gets to bathe in what should possibly have been Berlusco’s glory. Just shows to go - if the politicos do nothing, things become magically better; which begs the question - Why do we need so many of these people? Or am I just being naive? Probably.

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Comments

3 Responses to “Something that bugs me”

Fast Eddie on May 11th, 2007 6:21 pm

Totally understand your frustration, but I think the only solution is to try (somehow!) to encourage prompt payment. The alternative (only paying over IVA when invoices are settled) would be wide open to abuse….

As someone with 10 years of experience in Finance departments of Italian subsidiaries of foreign multinationals, I’m well aware of the late payment culture here. In my companies Italy was always reliably the backmarker in terms of DSO (days sales outstanding) statistics when benchmarked with other European subsidiaries. Which meant I spent lots of time justifying this to my bosses at head office, having to plead “It’s not our fault, Italy is just like that”. Which sounds very lame, particularly when you have to repeat the same refrain about a whole host of aspects of doing business here which to foreign eyes seem frankly byzantine.

The only way to do it, IMHO, is positively to encourage the charging of interessi di mora, late payment interest. Easier said than done, but ultimately the only way that this regrettable feature of Italian commercial life will ever change.
Alex on May 11th, 2007 7:15 pm

Eddie,
Glad I am not alone in this, but I didn’t think I would be. And you are right, only handing over IVA after invoices would be open to abuse, and this being Italy….

This does leave the second option, which would be to ensure companies settle debts within the IVA trimestre, although this would create problems depending on whether firms have elected to pay IVA monthly or quarterly.

I have tried various variations on a theme to try to avoid being caught for IVA before cash flows. The best thing seems to be to time your invoices carefully - hand them in at the start of the IVA quarter and hope that the money comes in in time to hand over the IVA. This works to an extent, but not always…

I am aware of the interessi di mora, but its appplication does not seem to be a widespread practice here, although I could be wrong about this. By attempting to charging interest, at best I think I would be paid the sum shown on the invoice and would have to sue for the interest, which would not be worthwhile or, worst case scenario, I think I may end up losing or angering (or both) clients.

This leaves the ‘encouraging prompt payment’ option, although I’m not too sure how I could go about encouraging clients to pay promptly - especially when I’m not the only supplier and being a small business, I carry little weight.

Thanks for your suggestions, and I will give the interest option some more thought and maybe try testing the water before implementing such a system.

Oh, and by the way, I asked for a cappuccino alla Genovese in a bar here in Milan and they looked at me funnily!!! I explained and got a sort of laugh, but I think they just thought I was trying to be clever!

All the best,

Alex
Alex on May 24th, 2007 4:02 pm

Eddie,

Have you had any luck with the pre-fattura system? I’m looking into it, as I know it is used. However, as I understand it companies are under no obligation to accept these things. You just have to ask and see what the reaction is. I shall be mentioning it tomorrow in a meeting I’m having with my biggest client. I don’t hold out much hope though.