Why it exists
A deduction presupposes that the administration can verify three things: who paid, to whom, and for which eligible works. The dedicated transfer is the instrument making those three verifiable.
An ordinary bank transfer does not carry that information in structured form. The dedicated transfer does, which is why it is the instrument required for building deductions.
A rule follows that is worth stating at once: compliance of the payment is not a matter of form but the very condition of the deduction. A payment correct in substance but made with non compliant instruments puts the benefit at risk.
The data required
The transfer must contain three categories of information. Omitting a single category compromises the verification.
| Item | Content |
|---|---|
| Reference line | Reference to the statutory provision founding the deduction claimed |
| Payer | Tax code of the person intending to claim the deduction |
| Payee | Tax code or VAT number of the recipient of the payment |
Two points on the second row, which produces the greatest number of errors. They concern which tax code to state and the case of several claimants.
The tax code to state is that of the person who will claim, not necessarily that of the holder of the account the transfer comes from. If a cohabiting family member intends to claim, it is their tax code that must appear.
Where several claimants deduct in proportion to the expenditure each has incurred, all their tax codes must be stated. Omitting one of them compromises that person's position.
On the reference line, the statutory reference must correspond to the deduction claimed. Banks generally provide dedicated forms guiding completion, but responsibility for the content remains with whoever instructs the payment.
The withholding
One technical aspect should be known because it affects the relationship with the contractor. It concerns the withholding applied by the bank.
On transfers dedicated to building deductions the bank applies a withholding on the amount credited, which it pays to the treasury on behalf of the recipient. The rate of the withholding should be checked against the text in force.
The contractor receiving the payment therefore receives less than the face amount, and recovers the difference in its tax return as a payment on account of its own taxes. It is worth explaining to the contractor before the first payment.
Two practical consequences.
The first concerns communication with the contractor: a supplier unfamiliar with the mechanism may query a credit lower than the invoice. It is a point to clarify at contract stage.
The second concerns misuse of the instrument. Using the dedicated transfer for payments carrying no entitlement to a deduction produces a withholding that is not due and a pointless obligation for the supplier.
The most frequent errors
Four errors account for almost all problem cases. Three concern the data and one the instrument used.
Stating the wrong tax code, typically that of the account holder rather than that of the person claiming. The check should be made on the first transfer rather than the last.
Omitting the reference line or citing a statutory reference not matching the deduction claimed. The reference line should be prepared before the payment is ordered.
Using a non compliant instrument, such as cash, cheques or ordinary transfers. No alternative form of proof cures the use of an instrument not permitted.
Misalignment between the invoice and the payer, which breaks the documentary chain on which the deduction rests. It is the least remediable of the four.
The remedies available
This is the section that matters, because the widespread perception is that an error on the transfer is irremediable. It is not always so.
On a transfer made with a compliant instrument but with incomplete or incorrect data, the revenue administration's practice has recognised the possibility of curing the position through a substitute declaration issued by the recipient of the payment, attesting that it received the sums and included them in its accounts for the purposes of determining its income. The declaration should be obtained and kept in the file.
The remedy is not general and its availability depends on the nature of the error. It is worth checking with the client's tax adviser.
On a payment made with a non compliant instrument the route is different and more onerous: repeating the payment with the correct instrument, where still possible within the relevant tax year. Repeating it entails the first payment being returned.
The operational point is one of timing. An error identified during the works is almost always manageable; the same error identified on audit, years later, is much less so.
What to keep under control
Three actions eliminate almost all the risk, and take a few minutes. They concern identifying the claimant, the first transfer and the file.
Identifying the claimant before the first payment, and aligning the invoice and the payer with that choice. The choice should be put in writing.
Checking the first transfer before the others replicate it, because once set the error repeats across the whole chain of payments. An error corrected on the first payment does not propagate.
Retaining the receipts for every transfer together with the corresponding invoices, so that the correspondence can be verified without reconstruction. The file should be built progressively rather than at the end.
One observation on the professional's role. Payment does not belong to their sphere, but flagging the mechanism does, because they are present at the start of the site, when the choice is made. A warning given at that moment is worth more than any later assistance.
Note: the information in this page relates to Italy and is current as at the date of publication. The data required, the rate of withholding and the remedies available are specified by the revenue administration's practice: the text in force should be checked before any operational use.