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Tax settlements in a crisis: when tax debts can be reduced

Tax settlement in the negotiated crisis procedure, incentive measures, cram-down in debt restructuring agreements and early warnings: thresholds and examples.

Tax debts can be paid in instalments even outside the Codice della crisi (the Italian Business Crisis and Insolvency Code); they can be reduced, VAT included, only within one of its procedures. In the composizione negoziata (negotiated crisis settlement), the settlement agreement has no minimum percentages but requires the signature of the tax office; in debt restructuring agreements, the court may approve the agreement even over the tax authorities’ refusal, under the conditions of Article 63, if the tax authorities receive at least 50 or 60 per cent of the taxes, excluding penalties and interest.

The framework

The composizione negoziata (Legislative Decree no. 14 of 12 January 2019, CCII, Codice della crisi d’impresa e dell’insolvenza) lasts 180 days; it may continue for no more than a further 180 days if the entrepreneur or the parties so request and the expert agrees, or if applications or measures are pending before the court (Article 17, paragraph 7). For negotiations started with an application filed after 28 September 2024, the date on which Legislative Decree no. 136 of 13 September 2024 came into force (Article 56, paragraph 2), the entrepreneur may propose to the tax agencies and to the Agenzia delle entrate-Riscossione (the Italian tax collection agency) the partial or deferred payment of taxes and related charges (Article 23, paragraph 2-bis); from 12 August 2026, also to regions and local authorities (Article 4 of Legislative Decree no. 147 of 7 August 2026). Taxes constituting own resources of the European Union, as well as INPS (social security) and INAIL (workplace accident insurance) contributions, remain excluded. VAT can be reduced: Circular no. 5/E of 16 July 2026 allows this if the attestation shows that the tax authorities obtain more than they would in liquidazione giudiziale (judicial liquidation, the Italian bankruptcy procedure).

Two reports are required: an independent professional attests that the proposal is more advantageous than judicial liquidation, and the statutory auditor (or a designated auditor) attests that the data are complete and accurate; according to the Agenzia delle entrate (the Italian Revenue Agency), the same person cannot sign both. The agreement is signed by the director of the tax office, with the concurring opinion of the regional directorate; it takes effect upon filing with the court and is performed after the court’s decree. It is terminated automatically in the event of judicial or controlled liquidation (liquidazione controllata), a finding of insolvency, or if a payment is more than sixty days late.

The incentive measures (Article 25-bis) are: interest at the statutory rate during the negotiations, if they end with a solution under Article 23, paragraph 1 or paragraph 2, letter b); penalties reduced to the minimum where the payment deadline in the tax office’s notice expires after the application; prior penalties and interest halved in the solutions under Article 23, paragraph 2; up to 72 monthly instalments, or 120 in cases of serious hardship, for taxes not yet entered on the tax roll, after publication of the contract or agreement under Article 23, paragraph 1, letters a) and c), with an application also signed by the expert.

In debt restructuring agreements (accordi di ristrutturazione dei debiti), Article 63 allows court approval without the public creditors’ consent where that consent is decisive for reaching 60 per cent of the claims (Article 57, paragraph 1) or the reduced threshold under Article 60, provided that the agreement is not a liquidation agreement and the tax authorities do not receive less than in liquidation. If the other participating creditors represent at least one quarter of the claims, the public creditor must receive at least 50 per cent of the tax, excluding penalties and interest; otherwise at least 60 per cent, over no more than ten years. Deferral interest at the statutory rate is added. Cram-down approval is excluded if, in the previous five years, a settlement of the same kind was terminated, or if the debt owed to the tax authorities and to social security and insurance bodies is at least 80 per cent of the total and arises mainly from non-payment in at least five tax periods or, for at least one third, from fraudulent breaches (paragraph 6).

The first warning often comes from the public creditors (Article 25-novies): INPS writes when contributions are more than ninety days overdue and exceed both 30 per cent of those due in the previous year and 15,000 euro, for businesses with employees or quasi-employees, or 5,000 euro for businesses without; INAIL when premiums are more than ninety days overdue and unpaid for more than 5,000 euro; the Agenzia delle entrate when the VAT from periodic settlements that is overdue and unpaid exceeds 5,000 euro and amounts to at least 10 per cent of the previous year’s turnover (with turnover of 300,000 euro, 18,000 euro is not enough), and in any case when it exceeds 20,000 euro; the Agenzia delle entrate-Riscossione when amounts entrusted for collection and more than ninety days overdue exceed 100,000 euro for sole proprietorships, 200,000 for partnerships and 500,000 for other companies.

What changes in practice

An srl (limited liability company) owes 500,000 euro: 300,000 to the Agenzia delle entrate (220,000 of VAT and withholding taxes, 50,000 of penalties, 30,000 of interest), 130,000 to the banks and 70,000 to suppliers. The tax authorities account for 60 per cent and the srl has no INPS or INAIL arrears, which would otherwise be added: it remains below the 80 per cent threshold that may exclude cram-down approval.

In the composizione negoziata there is no statutory minimum: if the attesting professional estimates that the Treasury would collect 60,000 euro in liquidation, offering 120,000 over five years is defensible, but without the tax office’s signature there is no agreement.

In a debt restructuring agreement with the participating banks (26 per cent of the claims), the court may approve even without the Agenzia delle entrate if it receives at least 110,000 euro, 50 per cent of 220,000, plus statutory deferral interest. Without the banks, 132,000 euro is needed over no more than ten years. Non-participating suppliers must be paid in full within 120 days of court approval, or of the due date if later (Article 57, paragraph 3). If the agreement concludes a composizione negoziata, penalties and interest prior to the application fall to 25,000 and 15,000 euro. For the settlement agreement in the composizione negoziata (paragraph 2-bis), it is not settled that the halving applies: Article 25-bis refers only to paragraph 2 and Circular 5/E links it to the instruments in that paragraph. Anyone who wants it should request it expressly in the proposal, knowing that the tax office may refuse.

Practical steps

• As soon as unpaid VAT, contributions or premiums approach the thresholds, the entrepreneur, with the adviser, reconstructs debts and cash flows for the following six months: the Agenzia delle entrate’s warning arrives together with the notice of irregularity and in any case no later than 150 days after the deadline for filing the quarterly periodic VAT settlement report; INPS, INAIL and the Agenzia delle entrate-Riscossione send their warning within sixty days of the thresholds being exceeded (Article 25-novies, paragraph 2).
• The entrepreneur immediately appoints the auditor and the attesting professional, two different people, and requests in good time the certificates of tax and social security debts and the position with the Agenzia delle entrate-Riscossione for the application (Article 17, paragraph 3); in the meantime, it is sufficient to declare that they were requested at least ten days before the application (paragraph 3-bis).
• The entrepreneur submits the proposal early to the competent office of the Agenzia delle entrate: according to Circular 5/E, a proposal submitted close to the end of the negotiations may be impossible to examine.
• The entrepreneur continues to pay existing instalment plans until the agreement takes effect, requests the incentive measures in writing and keeps the reports, the agreement, the decree and the receipts.

Mistakes to avoid

• Requesting, in the composizione negoziata, a reduction of INPS or INAIL contributions: these are dealt with in debt restructuring agreements or in the concordato preventivo (composition with creditors).
• Calculating the 50 or 60 per cent on the debt including penalties and interest: the base is the tax alone.
• Counting on cram-down approval after a settlement terminated in the last five years, or with debts owed largely to the tax authorities and social security bodies arising from repeated non-payment.
• Paying an instalment more than sixty days late: the agreement is terminated automatically.

References

Legislative Decree no. 14 of 12 January 2019, Articles 17, paragraphs 3, 3-bis and 7

23, paragraphs 2 and 2-bis

25-bis

25-novies, paragraphs 1 and 2

57, paragraphs 1 and 3

60

63

Legislative Decree no. 136 of 13 September 2024, Article 56, paragraph 2

Legislative Decree no. 147 of 7 August 2026, Article 4

Agenzia delle entrate, Circular no. 5/E of 16 July 2026, chapter 3