Previously, the law also allowed principals and contractors to refrain from making payment to their counterparts where the latter failed to produce special letters and certifications attesting that VAT and withholding taxes had correctly been accounted for and paid. A penalty of 5,000 to 200,000 euros (EUR) could be imposed on principals where payments were made without such documentation being provided in advance.
This regime greatly impacted the contract work industry; it especially resulted in a generalized block of payments from principals and contractors to contractors and subcontractors respectively, thus worsening the already difficult financial positions of small construction businesses.
To force the legislator to remove such burdens and obstacles for smoother execution of payments, the National Associations of Italian Manufacturing Corporations (Confindustria) filed a complaint with the EU Commission. The Confindustria claimed that it is against EU principles for a law to give taxpayers control over whether other taxpayers comply with their tax obligations, when responsibility should be on the tax administration only.
With this in mind, and to avoid an infraction procedure against Italy, the government removed the joint liability with respect to VAT, still leaving the responsibility in place for withholding tax obligations.