A clutch of UK multinationals stand to receive around €500m (£418m) in VAT rebates from the Italian government after KPMG complained to the European Commission about unacceptable delays in handing over the refunds.

Gary Harley, head of indirect tax at KPMG in the UK said: 'This is Italian VAT that the businesses involved have paid to their suppliers, who in turn have paid across the VAT to the Italian authorities. The affected businesses are due this VAT back in the form of a refund as they are in a net VAT repayment position. Taxpayers are currently suffering a significant cashflow penalty through Italy failing to refund VAT receivables for many years.'

There has never been any dispute that the Italian tax authorities should be paying the refunds, and the current decision does not in any way change European VAT rules. However, the Commission has acknowledged that Italy has failed to meet reasonable time limits for payment, given that most VAT repayments elsewhere in the EU are made in a matter of months.

The group of around a dozen businesses represented by KMPG includes automotive and pharmaceutical manufacturers, telecoms operators and service companies. Some have been waiting for their VAT refunds since 2007.

Following the Commission's infraction proceedings the Italian government has set aside €1bn (£840m) for VAT repayments to large businesses. KPMG says there are likely to be several billion euros of rebates owing, meaning that this fund is likely to be just the first step in paying back all that is due.

Harley said: 'The Italian authorities are not disputing that the refunds are owed but they impose onerous audit processes and bank guarantee requirements upon taxpayers that are seeking approval for repayments of VAT. It seems that pressure from the EC will prompt a number of the refunds due, but we would encourage businesses to proactively seek their refunds now.'