Italy's Revenue Agency issued Letter No. 65/2026 clarifying that milestone payments in intra-Community supplies constitute advance payments for VAT purposes, with timing requirements triggered only when goods are ready for cross-border transport.
The ruling addressed a manufacturing company producing steam generators for a group entity, where milestone-based invoices were issued as non-taxable under Legislative Decree No. 331/1993 despite goods remaining at the Italian facility for further assembly. The taxpayer sought guidance on applying new sanction rules introduced by Legislative Decree No. 87/2024, which impose penalties when goods fail to reach their EU destination within 90 days.
Key Determinations
The Revenue Agency established that milestone payments qualify as advance payments rather than completed intra-Community supplies. The agency ruled that intra-Community supply status becomes relevant only when goods are in a condition to be shipped to another member state, not when interim payments are made for work in progress.
Under the new framework, the critical 90-day period for obtaining proof of goods' arrival in the destination member state begins from the date goods are ready for shipment, typically evidenced by transport documents such as delivery notes or CMR consignment notes. This timing differs from the invoice date used for milestone payments.
The ruling clarifies that suppliers must regularize invoices by adding VAT and making payment within 30 days if proof of cross-border delivery cannot be obtained within the 90-day window, unless goods were not yet ready for shipment when the milestone invoice was issued.
Context
The clarification addresses uncertainties created by Legislative Decree No. 87/2024, which aligned sanction rules for intra-Community supplies with existing export regulations to ensure consistent treatment across cross-border transactions. The ruling provides crucial guidance for complex manufacturing arrangements where payment schedules do not align with physical delivery timelines, particularly relevant for project-based industries with multi-year production cycles.
