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Bad debt losses and write-downs: tax deductibility, OIC 15 and year-end management

A receivable that is not collected calls for three decisions before the financial year is closed: how much to write it down (svalutazione) in the financial statements, whether and in which tax period to deduct the bad debt loss (perdita su crediti), and whether the VAT charged can be recovered through a VAT credit note (nota di variazione). The three decisions follow different rules and different dates; the most frequent challenge raised in tax audits concerns not the existence of the loss but the year of the deduction. This guide sets out the rules in force as at 9 November 2026: Articles 101, paragraphs 5 and 5-bis, and 106 of the Italian Consolidated Income Tax Act (TUIR); Article 26 of d.P.R. 633/1972; Italian accounting standards (OIC) 15 and 29; the Italian insolvency code (d.lgs. 14/2019). The consolidated tax Acts approved by d.lgs. 117/2026 and d.lgs. 10/2026 take effect on 1 January 2027 and are not considered here.

The framework: two provisions, one accounting precondition

Article 106, paragraph 1, TUIR governs the flat-rate write-down: an annual amount of 0.50 per cent of the nominal value of trade receivables, subject to an overall ceiling of 5 per cent. Article 101, paragraph 5, governs the loss, which is deductible if it results from certain and precise elements (elementi certi e precisi) or in one of the situations in which the provision treats those elements as existing by operation of law. The two provisions are linked by Article 106, paragraph 2: the loss is deductible only for the part exceeding the allowance for doubtful receivables (fondo svalutazione crediti) already deducted.

Both rest on the same precondition: recognition in the profit and loss account (Article 109, paragraph 4, TUIR). Nothing is deducted unless it has first passed through the financial statements under OIC 15, and paragraph 5-bis of Article 101 sets the opposite boundary: the deduction is no longer allowed when recognition takes place in a tax period later than the one in which, under a correct application of the accounting standards, the receivable should have been derecognised. For the purposes of the regional tax on productive activities (IRAP) the issue does not arise for corporate taxpayers (società di capitali): Article 5 of d.lgs. 446/1997 excludes item B10(d) from the tax base and provides that bad debt losses are not deductible. Under the correlation principle (Article 5, paragraph 4), the subsequent release to the profit and loss account of an allowance that was never deducted does not form part of the tax base and is a downward adjustment (variazione in diminuzione) in Schedule IC, to be checked against the IRAP instructions for the year (to be confirmed).

The flat-rate write-down: 0.50 per cent and the 5 per cent ceiling

The calculation base is the nominal value of receivables arising from the supplies of goods and services referred to in Article 85, paragraph 1, TUIR, recorded in the financial statements at the year end, limited to the part not covered by insurance. Additions to the allowance for credit risks also count towards the 0.50 per cent limit; the deduction stops when the deducted allowance reaches 5 per cent of the receivables at the year end and, if in a given year it exceeds that level because receivables have decreased, the excess is included in taxable income. The write-down for financial reporting purposes, by contrast, follows the estimated realisable value (Article 2426, paragraph 1, point 8, of the Italian Civil Code), applied to amortised cost by entities preparing full-format financial statements. The criterion need not be applied when its effects are immaterial, as a rule for receivables due within twelve months (OIC 15, paragraph 33); in abridged financial statements and in those of micro-undertakings, receivables are recorded at nominal value net of the write-down (paragraph 69). The accounting write-down normally differs from the tax write-down: the difference is an upward adjustment (variazione in aumento) in Schedule RF and is recovered when the receivable gives rise to a loss deductible under Article 101, paragraph 5, or is derecognised.

Example 1: the deductible amount

At the end of 2026 Alfa s.r.l. has trade receivables of 1,200,000 euros, of which 200,000 are insured. The allowance for doubtful receivables at 31 December 2025 is 38,000 euros, fully deducted in previous years; the write-down in the 2026 financial statements is 25,000 euros and is recorded by debiting Write-downs of receivables included in current assets (B10d) and crediting Allowance for doubtful receivables for 25,000 euros. The accounting write-down on the 200,000 euros of insured receivables is limited to the uncovered part only if there is reasonable certainty that the insurer will pay the indemnity (OIC 15, paragraph 64); otherwise the receivable is written down in full and the indemnity is recognised when it becomes certain.

1. Calculation base: 1,200,000 less 200,000 = 1,000,000 euros.
2. Maximum amount: 0.50 per cent of 1,000,000 = 5,000 euros.
3. Ceiling: 38,000 plus 5,000 = 43,000 euros, below 5 per cent of 1,000,000 (50,000 euros). The 5,000 euros is deductible in full.
4. Upward adjustment in Schedule RF: 25,000 less 5,000 = 20,000 euros.
5. Allowance at 31 December 2026: for accounting purposes 38,000 plus 25,000 = 63,000 euros; deducted 38,000 plus 5,000 = 43,000 euros; taxed portion 63,000 less 43,000 = 20,000 euros, equal to the upward adjustment.

With an opening allowance of 48,000 euros the deductible amount would have stopped at 2,000 euros (50,000 less 48,000). If in 2027 Alfa recorded a loss of 12,000 euros on a receivable, the entry would debit Allowance for doubtful receivables and credit Trade receivables for 12,000 euros (OIC 15, paragraph 65). Nothing would appear in the profit and loss account, because item B14 takes only the part exceeding the amount already written down (paragraph 26); the accounting allowance would fall from 63,000 to 51,000 euros. For tax purposes Article 106, paragraph 2, charges the loss first against the deducted allowance, which would fall from 43,000 to 31,000 euros with no adjustment in the return; the taxed portion would remain 20,000 euros. Only once the deducted allowance is exhausted would the loss affect the taxed portion and give rise to a downward adjustment, allowed if the certain and precise elements of Article 101, paragraph 5, are present. The allowance schedule, for accounting and for tax purposes, serves to track these two balances. The 20,000 euros added back to taxable income represents a deductible temporary difference: an entity preparing full-format financial statements considers whether to recognise deferred tax assets, which are allowed only where there is reasonable certainty of their recovery (OIC 25, paragraph 41); an entity that does not recognise them discloses that choice in the notes to the financial statements.

The loss: certain and precise elements

Circular 26/E of 1 August 2013 distinguishes losses arising from a valuation process from losses arising from realisation events (atti realizzativi). In the first group the Italian Revenue Agency (Agenzia delle Entrate) regards the following as sufficient: a report of an unsuccessful attachment, provided that the failure to recover is borne out by an overall and definitive appraisal of the debtor’s situation; documentary evidence that the debtor cannot be traced; for receivables of limited amount, the uneconomic nature of recovery, established when the cost of the recovery procedures equals or exceeds the receivable and demonstrated with quotations from debt collection firms. Unsuccessful enforcement against a public body is not sufficient on its own (Resolution 16/E of 23 January 2009). The second group includes outright assignment, a settlement agreement prompted by the debtor’s financial difficulties, and a waiver of the receivable. For assignments to banks or supervised financial intermediaries, resident in Italy or in States with an adequate exchange of information and independent of both assignor and assigned debtor within the meaning of Article 2359 of the Italian Civil Code, the requirements are deemed met. In all other cases the loss is deductible on two conditions: that it does not exceed the costs that recovery would have required, demonstrated by reference to average market prices for debt collection, internal costs and collection times; and that the creditor has made at least one recovery attempt, even a single reminder sent by registered post (Circular 26/E/2013, paragraph 3.2). A settlement arising from a dispute over the supply generates a non-recurring expense (sopravvenienza passiva), not a bad debt loss. A unilateral waiver risks being recharacterised as a non-deductible gift, unless its connection with the business (inerenza) is proven.

Alongside the general rule, the provision lists four situations in which the certain and precise elements exist in any event: a receivable of modest amount overdue by six months; a debtor subject to insolvency proceedings (procedure concorsuali), including equivalent foreign proceedings, or that has entered into a court-confirmed debt restructuring agreement (accordo di ristrutturazione) or published a certified plan (piano attestato); a statute-barred receivable; a receivable derecognised in application of the accounting standards. In these situations too the deduction remains conditional on recognition in the financial statements; for small receivables and for debtors in proceedings, under an agreement or under a plan, paragraph 5-bis allows recognition in a later period as well, provided it is not later than the period in which the receivable should have been derecognised under the accounting standards.

Small receivables: 2,500 or 5,000 euros and six months

A receivable is of modest amount if it does not exceed 2,500 euros, raised to 5,000 for the larger enterprises referred to in Article 27, paragraph 10, d.l. 185/2008, namely those with turnover or revenues of not less than 100 million euros. The text of the provision starts from 300 million and provides for a gradual reduction to 100 million by 31 December 2011, a threshold now fully phased in (Circular 26/E/2013, paragraph 4). The threshold is tested on the individual receivable when the items arise from separate legal relationships, even with the same debtor; if they arise from a single contractual relationship, such as a continuing supply contract (contratto di somministrazione) or the recurring premiums of an insurance policy, the test is applied to the aggregate balance of the receivables from that debtor under that relationship that are at least six months overdue (Circular 26/E/2013, paragraph 4). The amount is measured inclusive of the VAT charged to the customer and net of any partial payments received; default interest and ancillary charges are disregarded, because they are deductible independently. The second requirement is that six months have elapsed from the payment due date, to be documented with the invoice or the contract. Once the requirements are met, the loss is deducted in the period in which it is recognised in the profit and loss account, even a later one (Article 101, paragraph 5-bis); Article 13, paragraph 3, d.lgs. 147/2015 clarified, as an interpretative provision, that write-downs of these receivables not yet deducted are deducted in the year in which the receivable is derecognised.

Example 2: two invoices, a single automatic rule

Beta s.r.l., with revenues of 8 million euros, has two unpaid invoices outstanding from the same customer, arising from two separate orders and not from a continuing supply contract: one of 2,300 euros due on 15 March 2026 and one of 2,900 euros due on 30 April 2026. At 31 December 2026 both have been overdue for more than six months.

1. The 2,300 euro invoice does not exceed 2,500 euros. If Beta writes it down in full in the 2026 financial statements, the entry debits Write-downs of receivables included in current assets (B10d) and credits Allowance for doubtful receivables for 2,300 euros; the receivable remains on the books, because a write-down does not extinguish the right (OIC 15, paragraphs 59 and 71-72). For tax purposes that write-down counts as a loss deductible in 2026 without further evidence (Circular 26/E/2013, paragraph 4; Article 13, paragraph 3, d.lgs. 147/2015), once any allowance already deducted has been used. When the receivable is derecognised, whether because it becomes statute-barred or because it is waived, the allowance will be used without any further deduction. If the two invoices arose from a single continuing supply contract, the aggregate balance of 5,200 euros (2,300 plus 2,900) would exceed the threshold and the automatic rule would apply to neither.
2. The 2,900 euro invoice exceeds the threshold: the loss is deductible only with certain and precise elements, or remains partly covered by the flat-rate write-down under Article 106.
3. The VAT included in the two invoices cannot be recovered: mere non-payment is not among the conditions set by Article 26, paragraph 3-bis, d.P.R. 633/1972.

Insolvency proceedings and the instruments of the Italian insolvency code (CCII): the relevant date

Article 101, paragraph 5, still refers to bankruptcy (fallimento), court-supervised composition with creditors (concordato preventivo), compulsory administrative liquidation, extraordinary administration, agreements confirmed under Article 182-bis of the former Bankruptcy Law (l.fall.) and certified plans under Article 67, third paragraph, point (d), l.fall. Article 349 of d.lgs. 14/2019 directs that references to bankruptcy be read as references to judicial liquidation (liquidazione giudiziale). For confirmed agreements and certified plans under the code (Articles 57, 60, 61 and 56) the reference to the old provisions is read as referring to the new instruments: a reading confirmed on the debtor’s side by Article 8 of d.lgs. 186/2025, but not written into Article 101. The provision fixes the moment from which the debtor is treated as subject to proceedings: the judgment opening judicial liquidation, the order for compulsory administrative liquidation, the decree admitting the debtor to concordato preventivo, the decree confirming the agreement, the decree placing the debtor in extraordinary administration, the date of admission for foreign proceedings, and registration in the Business Register for certified plans.

For the negotiated crisis resolution procedure (composizione negoziata) the source is Article 25-bis, paragraph 5, d.lgs. 14/2019: from the publication in the Business Register of the contract or agreement concluded under Article 23, paragraph 1, points (a) and (c), and of the debt restructuring agreements under Article 23, paragraph 2, point (b), Articles 88, paragraph 4-ter, and 101, paragraph 5, TUIR and Article 26, paragraph 3-bis, d.P.R. 633/1972 apply. A creditor who is party to the agreement can rely on the publication as a certain date (data certa); a creditor who is not party to it falls back on the general rule. The simplified composition (concordato semplificato, Article 25-sexies) and the restructuring plan subject to court confirmation (piano di ristrutturazione soggetto a omologazione, Article 64-bis) remain outside the letter of the provision: Article 8 of d.lgs. 186/2025, in force from 13 December 2025, brought them in by an interpretative provision on the debtor’s side only (Article 88, paragraph 4-ter). In our view the deduction can be supported from the date of court confirmation, by analogy with concordato preventivo, but it should be treated as a position to be documented and not as an automatic rule. The minor composition (concordato minore, Article 74) and the supervised liquidation of the over-indebted debtor (liquidazione controllata, Article 268), both common among small debtors, also fall outside the letter of the provision; the supervised liquidation is a liquidation-type insolvency proceeding opened by a judgment of the court (Article 270) and we consider the deduction supportable from that date, with the same caution (to be confirmed).

The opening of the proceedings makes the loss deductible but does not fix its amount: the amount to be deducted is the estimated realisable value under OIC 15, in the light of the plan, the schedule of admitted claims (stato passivo) or the reports of the officers of the proceedings (Circular 26/E/2013, paragraph 6).

Limitation and derecognition under OIC 15

A statute-barred receivable satisfies the certain and precise elements by operation of law. Statement of legal principle (principio di diritto) No. 16 of 29 December 2021 adds that the expiry of the limitation period also marks the last period in which the loss can be deducted: because a statute-barred receivable must be derecognised (OIC 15, paragraph 72), a loss recognised in a later year is no longer deductible, as the receivable should have been derecognised in the year in which the limitation period expired. The ordinary limitation period is ten years (Article 2946 of the Italian Civil Code); shorter periods apply to many types of supply, and every written reminder interrupts the running of the period. The Revenue Agency retains the power to argue that the creditor’s inaction concealed a gift (Circular 26/E/2013, paragraph 5).

OIC 15, paragraph 71, requires derecognition when the contractual rights to the cash flows are extinguished, in whole or in part, or when title is transferred together with substantially all the risks. Paragraph 72 lists the causes of extinction: payment, expiry of the limitation period, settlement, waiver, invoicing adjustments. Paragraph 74 places the loss on an assignment with a substantial transfer of risks in item B14, for the difference between the consideration and the carrying amount of the receivable at the date of assignment, unless the contract makes it possible to identify components of a different nature, including financial components such as fees and interest, to be classified accordingly. If minimal risks remain with the assignor, a provision under OIC 31 is considered (paragraph 77). Appendix A, which forms an integral part of the standard, lists bill discounting (sconto), assignments with recourse (pro solvendo), assignments without recourse (pro soluto) that do not transfer substantially all the risks, collection mandates, pledges and assignments by way of security among the transactions that do not result in derecognition. In those cases the receivable remains on the balance sheet under the ordinary measurement rules and the advance received from the assignee is recorded as a financial liability (paragraph 75), with interest and fees recognised according to their nature (paragraph 76). The judgement on the transfer of risks takes account of all the clauses, such as repurchase obligations, fees, retained first-loss amounts (franchigie) and penalty clauses (paragraph 73). Circular 14/E of 4 June 2014 confirmed that these derecognitions are effective for tax purposes for OIC entities, excluding collection mandates, pledges, assignments by way of security and bill discounting, and warned that a transaction concealing a gift remains open to challenge.

Receivables from foreign debtors

Article 101, paragraph 5, treats equivalent foreign proceedings in States with an adequate exchange of information in the same way as domestic proceedings; the relevant moment is the date of admission. The burden of proof lies with the creditor, who must produce a translated copy of the foreign authority’s decision and evidence of the insolvency nature of the proceedings, in particular a finding by a judicial or administrative authority that the debtor is unable to pay its debts (Circular 26/E/2013, paragraph 6). For debtors resident in other States the automatic rule does not operate and the decisive argument is normally the uneconomic nature of recovery, documented with quotations from lawyers or debt collection firms in the debtor’s country. The rules on receivables of modest amount do not distinguish according to the debtor’s residence. If the supply was zero-rated for Italian VAT purposes (non imponibile), there is no VAT to recover.

VAT: the credit note under Article 26 of d.P.R. 633/1972

Article 18 of d.l. 73/2021 rewrote the rules on non-payment. Paragraph 3-bis of Article 26 allows the downward adjustment in two cases: from the date on which the customer is subject to insolvency proceedings, from the decree confirming a debt restructuring agreement or from the publication in the Business Register of a certified plan (point (a)); as a result of individual enforcement proceedings that have proved unsuccessful (point (b)). Paragraph 10-bis identifies the date of subjection to proceedings as the judgment opening judicial liquidation, the order for compulsory administrative liquidation, the decree admitting the debtor to concordato preventivo and the decree of extraordinary administration. It is no longer necessary to wait until the proceedings have closed without recovery (Circular 20/E of 29 December 2021). The rule applies to proceedings opened on or after 26 May 2021 (Article 18, paragraph 2, d.l. 73/2021, as amended by d.l. 228/2021). For individual enforcement, paragraph 12 sets out the cases in which the proceedings are in any event treated as unsuccessful: an unsuccessful garnishment of receivables owed by third parties; an unsuccessful attachment of movable property, for want of assets, because access was impossible or because the debtor could not be traced; discontinuance for excessive cost after three auctions with no bidders.

The deduction follows Article 19, paragraph 1: the credit note must be issued no later than the deadline for filing the VAT return for the year in which the triggering event occurred. Paragraph 5 relieves the insolvency proceedings of the obligation to record the corresponding upward adjustment, whereas a debtor that has entered into an agreement or published a certified plan must record it and pay the tax over (Circular 12/E of 8 April 2016, paragraph 13.2). If the consideration is paid after the credit note, the creditor issues a debit note and the debtor recovers the deduction (paragraph 5-bis). For the negotiated crisis resolution procedure, Article 25-bis, paragraph 5, CCII extends paragraph 3-bis to the publication of the contracts and agreements under Article 23. If the tax is recovered through the credit note, the deductible loss is reduced by the amount deducted. In the financial statements the recovery adjusts the loss, or the use of the allowance, if it occurs in the same year; in a later year it is non-recurring income (sopravvenienza attiva) to be recorded in A5 (OIC 12, paragraph 56).

Registration tax and assignment without recourse, in brief

The assignment of monetary receivables is outside the scope of VAT (Article 2, paragraph 3, point (a), d.P.R. 633/1972) and is subject to registration tax at 0.50 per cent under Article 6 of the Tariff, Part One, annexed to d.P.R. 131/1986 (Resolution 95/E of 17 October 2012). When the assignment, even without recourse, forms part of a financing transaction, such as factoring with an intermediary, it is a supply of services within the meaning of Article 3, paragraph 2, point 3, exempt under Article 10, paragraph 1, point 1; under the VAT/registration tax alternativity rule (alternatività) of Article 40 of d.P.R. 131/1986, registration tax is due in a fixed amount. The characterisation must be decided before signing. For direct tax purposes, the loss on an assignment to a supervised intermediary is deductible without further evidence (Circular 26/E/2013, paragraph 3.2); in all other cases proof is required that the loss does not exceed the recovery costs avoided, together with proof of at least one reminder.

Accounting aspects: OIC 15 and OIC 29

The write-down is recognised in the year in which it is probable that the receivable has lost value (OIC 15, paragraph 59). The indicators in paragraph 60 are the debtor’s financial difficulties, non-payment, concessions that would not otherwise have been granted, and the probability of insolvency proceedings. Individually significant receivables are assessed one by one; receivables that are numerous and not individually significant may be assessed on a portfolio basis, by homogeneous classes of risk and ageing (paragraphs 61-62). The allowance is used in later years to absorb realised losses (paragraph 65). There are three entries: at the year end, debit Write-downs of receivables included in current assets and credit Allowance for doubtful receivables; when the loss is realised, debit Allowance for doubtful receivables and credit Trade receivables; for the part the allowance does not cover, debit Bad debt losses and credit Trade receivables. Write-downs of receivables included in current assets go to item B10(d) (paragraph 25); realised losses, through a lower amount awarded by a court, a settlement or expiry of the limitation period, go to B14 for the part exceeding the amount of the receivable already written down (paragraph 26); the reversal of a write-down, when the reasons for it no longer apply, goes to A5 (paragraphs 25 and 68-70). For receivables recorded among financial fixed assets the items are D19(b), C17 and D18(b). The notes to the financial statements state the measurement criteria for receivables, including the choice not to apply amortised cost, and the movements in the allowance with the additions and uses of the year (Article 2427, paragraph 1, points 1 and 4, of the Italian Civil Code; OIC 15, paragraph 78; for abridged financial statements paragraphs 83-84); the allowance schedule, for accounting and for tax purposes, referred to in the section on audits originates here.

OIC 29 operates on two fronts. The opening of judicial liquidation of a customer after 31 December but before the financial statements are prepared is a subsequent event that provides evidence of conditions already existing at the year end and requires the write-down to be adjusted (paragraph 59, point (a), which still refers to bankruptcy); the same applies to a concordato or a confirmed agreement applied for after the year end, if the deterioration was already under way. An event arising after the year end, such as a sudden collapse, does not adjust the amounts and, if material, is disclosed in the notes (paragraph 59, point (b), and paragraph 61); the cut-off for taking it into account is the date on which the financial statements are prepared (paragraph 62). Updating the estimate of uncollectibility in the light of new information is a change in accounting estimate, recognised in the year in which it occurs (paragraphs 36-38); failing to recognise a loss when the information was available is an error (paragraph 44). If material, it is corrected against the opening balance of equity, as a rule in retained earnings; if not material, it is recognised in the profit and loss account of the year in which it is discovered (paragraph 48), in the item appropriate to its nature: B10(d) for a write-down and B14 for a loss (OIC 12, paragraph 76). The distinction also matters for tax purposes, because paragraph 5-bis measures the deduction window by reference to the correct application of the accounting standards.

Revenue Agency audits and documents to retain

The typical challenge does not deny the loss but shifts its year, or recharacterises the waiver as a gift, or judges the settlement uneconomic. The defence is built in advance, with a file for every significant receivable: invoice and contract; reminders and lawyers’ letters with proof of dispatch; company searches and protests (protesti); attachment reports; recovery quotations; judgments, decrees and proofs of claim filed in the proceedings; Business Register search for certified plans and agreements under the negotiated crisis resolution procedure; assignment agreement with a certain date; report on the estimated realisable value and minutes of the management body; VAT credit notes. The file is completed by the annual allowance schedule, for accounting and for tax purposes, which demonstrates that the deducted allowance was used first. The documents should be retained until the preclusive time limits for assessment have expired (Article 43 of d.P.R. 600/1973) and in any event for the ten years required by Article 2220 of the Italian Civil Code.

What to do before the year end

1. Extract the aged receivables ledger at 31 December and isolate the receivables overdue by more than six months, testing the 2,500 or 5,000 euro threshold on each receivable, or on the balance overdue by more than six months when the items arise from a single contractual relationship.
2. List the customers in insolvency proceedings, under a confirmed agreement or a published certified plan, with the relevant date and the relevant decision; estimate the realisable value on the plan or on the schedule of admitted claims.
3. Check limitation periods about to expire: interrupt the limitation period with a written reminder for receivables to be kept, and derecognise those that are statute-barred.
4. Decide on individual and portfolio write-downs under OIC 15 and minute them; calculate the deductible amount under Article 106 and the upward adjustment.
5. Issue VAT credit notes for proceedings opened during the year, by the deadline for the annual return for the year of the triggering event.
6. For assignments without recourse, fix the characterisation and the registration tax treatment before signing; keep evidence of the transfer of risks.
7. Update the allowance schedule, to be reported in the notes to the financial statements, and the file for each significant receivable.

Thresholds and deadlines are those in force as at 9 November 2026. From 1 January 2027 the numbering of the articles will change with the consolidated tax Acts and the references will need to be updated (to be confirmed).

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