The Presidential Decree 633/1972 in paragraphs 7 and 8 of article 74 provides for the application of the reverse charge regime to internal sales of scrap and metals, ferrous and non-ferrous.

The reverse charge

The reverse charge is an invoicing system provided for by art. 17, paragraph 5, of the Presidential Decree. 633/1972 which means that the recipient of a transfer of goods or provision of services, if a taxable person in the territory of the State, is required to pay the tax in place of the transferor or provider.
This entails for the supplier the issue of the invoice without charging VAT (with the note that this is an operation subject to reverse charge) and for the buyer the obligation to integrate this invoice by reporting the rate and the relative VAT and to note it both in the sales register and in the purchases register.
The rule is aimed at combating VAT fraud, as indicated by Directive no. 2006/69/EC of the Council and by the recent provisions with which the legislator has extended the field of application of the reverse charge to other sectors as well (see art. 1, paragraph 44, of law 27 December 2006, no. 296 - concerning the application of reverse charge in the construction sector) are particularly sensitive, preventing the possibility that the transferor collects the VAT due on the transfer from its customer without then paying the tax itself.

How reverse charge works

The application of the reverse charge regime means that:

• The supplier (executor) issues an invoice without tax charge with precise indication of the rule that provides for the application of the reverse charge (VAT operation subject to reverse charge pursuant to art.74, c.7 and 8, Presidential Decree 633/72);
• The customer (client) must integrate the invoice with the reference of the rate and the related tax and note it in the register of invoices issued (the self-invoice is recorded pursuant to art. 17 c. 6 Presidential Decree 633/72 in the sales register to make the neutral operation for VAT purposes) or in that of the considerations within the month of receipt or subsequently within 15 days of receipt; the same document, to allow the deduction of VAT, must also be noted in the purchase register.

What is written on the invoice

The supplier issues an invoice without indication of VAT "VAT operation subject to reverse charge pursuant to art.74, c.7 and 8, Presidential Decree. 633/72" and in the "Nature of operation" field of the electronic invoice issued, code N6.1 (Sale of scrap, waste and used pallets) must be indicated.

The buyer will have to integrate the invoice with VAT, recording it in both the sales and purchases register. Today he will be able to choose to fulfill the burden of integrating the invoice alternatively in one of two ways:

• integrating the invoice received on paper and then affixing the appropriate integration wording/stamp on the invoice recorded in the sales register;
• electronically integrating the invoice received, by creating and sending a separate xml file to the Exchange System, using the document type "TD16 - Invoice integration from internal reverse charge";

The supplementary invoice must be noted both in the Purchase Invoice Register and in the Sales Invoice Register. With this double registration, VAT is effectively neutralized from an accounting point of view and therefore will not have to be physically paid.

What type of goods (scrap) does it apply to?

The transfers of goods (scrap) that are relevant for the purposes of the provisions in question are both those of "new" scrap (i.e. processing waste) and "old" scrap, coming, for example, from waste collection.
The goods (scrap) that fall under the reverse charge regime are listed in paragraphs 7 and 8 of article 74 of the Presidential Decree. 26 October 1972, n. 633, that is:

• scrap, waste and scrap of ferrous metals and related works;
• semi-finished products of ferrous metals referred to in the following headings of the Common Customs Tariff in force on 31 December 2003:
  
  • a) pig iron and specular pig iron in blocks or other primary forms (see 72.01);
  • b) ferro-alloys (see 72.02);
  • c) ferrous products obtained by direct reduction of iron ores and other spongy ferrous products, into pieces, balls or similar shapes; iron of minimum purity by weight of 99.94%, in pieces, pellets or similar forms (see 72.03);
  • d) grits and powders of raw cast iron, specular cast iron, iron or steel (see 72.05);
• scrap, waste and scrap of non-ferrous metals and related works;
• semi-finished products of non-ferrous metals falling under the following headings of the Common Customs Tariff in force on 31 December 1996:
  
  • a) refined copper and copper alloys, crude (see 74.03);
  • b) unwrought nickel, including in alloy (see 75.02);
  • c) raw aluminium, including in alloy (see 76.01);
  • d) raw, refined, antimonial and alloy lead (see 78.01);
  • e) raw zinc, also in alloy (see 79.01);
  • e-bis) raw tin, also in alloy (see 80.01);
  • e-ter) copper wire with a diameter greater than 6 millimeters (wire rod) (see 7408.11);
  • e-quater) unalloyed aluminum wire with a diameter greater than 7 millimeters (wire rod) (see 7605.11);
  • e-quinquies) aluminum alloy wire with a diameter greater than 7 millimeters (wire rod) (see 7605.21);
  • e-sexies) brass bars (see 74.07.21).

Scrap processing

In circular no. 165/E of 2 August 1999, which illustrated the tax regime applicable to the transfer of scrap and other recovered materials, it was specified that the provision of services dependent on work, tender and similar contracts aimed at the transformation of scrap non-ferrous metals in non-ferrous semi-finished products, the reverse charge applies similarly to what happens for sales involving the same goods.

This is based on the principle contained in the art. 16, third paragraph, of Presidential Decree no. 633 of 1972, according to which "For the provision of services dependent on work, procurement and similar contracts which have as their object the production of goods (...) the tax is applied at the same rate that would be applicable in the case of sale of the goods produced (…)”.

The meaning of this provision is to eliminate possible distortions deriving from the application of differentiated rates for sales and services relating to goods of the same nature. This principle was also confirmed by the undersigned in circular no. 28/E of 21 June 2004.

The seventh paragraph, last sentence, of article 74 provides for the application of the reverse charge also to "(...) transfers of semi-finished ferrous metal products referred to in the following items of the customs tariff (...)". It follows that, in line with what has already been stated for non-ferrous metals in the aforementioned circular no. 165/E of 1999, pursuant to article 16, third paragraph, of the VAT decree, the reverse charge regime can also be considered applicable to processes consisting of the transformation of ferrous scrap into semi-finished ferrous products.

In summary, the reverse charge regime referred to in article 74, paragraphs seven and eight, of Presidential Decree no. 633 of 1972 applies:

1. to the sale of material delivered to the platform, provided that it qualifies as scrap (see resolution no. 385/E of 20 December 2007);
2. to the processing carried out on scrap, waste, scraps of ferrous and non-ferrous metals as well as on other materials expressly referred to in the art. 74, seventh paragraph, provided that such processing is aimed at obtaining a product that can always be classified as scrap;
3. to the transfer of the material collected and deposited on the platform, which has undergone processing that has not changed its nature as scrap (pursuant to the aforementioned art. 74, seventh paragraph), even when it qualifies as so-called scrap. “oven ready”;
4. to ancillary operations involving scrap, such as for example transport carried out "directly by the transferor... or on his behalf and at his own expense", pursuant to art. 12 of Presidential Decree n. 633 of 1972 (see circular no. 28/E of 21 June 2004).

Normative requirements:

• paragraphs 7 and 8 ex Art. 74 D.P.R. 26 October 1972, n. 633;
• circular 165/E of 2 August 1999 Revenue Agency;
• circular 28/E of 21 June 2004 Revenue Agency;
• circular 43/E of 12 May 2008 Revenue Agency;
• provision n.166579 of 20 April 2020 Revenue Agency.