Voluntary disclosure provisions extended to foreigners with tax residence in Italy

Italian tax residents who have assets outside Italy that have not been reported for tax purposes in previous tax years now have a second chance to regularize their tax position in relation to those assets under the extension of the previous deadline for voluntary disclosure from 24 October 2016 (Decree Law no. 193/2016).

This also applies to any income arising from them as well as income which may have been concealed from the Italian tax authorities through financial movements abroad.

The voluntary disclosure provisions apply to those people who despite not having Italian citizenship have, now or in the past, their tax residence in Italy. Italian tax residence is determined under article 2 of the Consolidated Tax Code (TUIR). It applies when, for the majority of the tax period, the taxpayer is: a) enrolled in the register of the resident population or, b) has residency in Italy as set out in the civil code or c) domiciled in Italy. In these cases, the taxpayer is regarded as tax resident in Italy with the obligation to declare assets held abroad or in the country of origin or provenance to the Italian tax authorities.

It should be noted that, in the case of voluntary disclosure, it is essential to check the residency status of the taxpayer both in the past (that is, the tax years when he or she failed to properly disclose) and at present (i.e at the time of the presentation of the voluntary disclosure).

This step is important because it will determine whether the person needs to submit a full (voluntary international declaration that may include the voluntary national declaration) or partial (national voluntary declaration only) declaration. The international voluntary declaration regularizes both assets and the income earned abroad as well as income earned in Italy, while the national declaration only regularizes Italian income.

If a natural person has dual citizenship this also inevitably impacts on the issue of voluntary disclosure. In Italy dual citizenship is acquired in a number of different ways namely through birth to, adoption by or marriage to an Italian citizen. Foreigners can also become Italian citizens if they reside in Italy for at least 10 years and have sufficient income to ensure their economic self-sufficiency. Obviously dual citizenship can also be acquired by Italian citizens on the basis of the rules of the granting country. However, dual citizenship is not always conclusive of tax residency in Italy or abroad (think, for example, of the “resident but not domicilied” category).

In general, in cases of doubt, or when the position on tax residence is not clear, it is necessary to approach the problem step by step. From a national point of view, Ministerial Circular no. 304 of 12 February 1997 is a starting point. The Ministry’s approach is more pragmatic and informal than the checks for foreign nationals or non-residents of their tax residence. So much so that with respect to the first criterion listed in article 2 of the Consolidated Tax Code (listing in the resident’s register), it expressly provides that registration with the AIRE “does not determine domicile or residence in Italy.”

The above-mentioned circular, in relation to non-residents, confirms in fact, that “establishing domicile or residency in Italy is sufficient for the integration of the tax residence.” The Circular, therefore, defines residency (second element of article 2 of the Consolidated Tax Code) as the place where the person has his or her domicile (dimora): domicile means the place where the taxpayer decides to live and, in general, shows conclusive evidence of their wish to live there.

This means that the tax residency is not necessarily lost “for short or prolonged absences due to the particular demands of modern life (study, work, health or leisure)” as clearly set out by the Supreme Court in its judgment no. 435 of 12 September 1973. This was reiterated in judgment no. 1738 of 14 March 1986 of the Supreme Court, which held that a place will remain a domicile “as long as it is kept as a home, [the taxpayer] returns there whenever possible and shows an intention to keep it as the centre of his family and social relationships.”

These judgments, then, refer to a legal concept of domicile identified as the place where the affairs and interests of a taxpayer are carried on regardless of actual physical presence in that place.

More recently the CTR of Milan in judgment 3665/2015 described domicile (third element of article 2 of the Consolidated Tax Code) as “the place where a person keeps the centre of his interests, meaning not only from an economic and asset perspective, but also from a moral and family one.” Domicile, continues the judgment, “consists mainly of a legal situation, characterized by the will of the person to establish, in that place, the headquarters of his or her moral and social relationships, as well as economic interests” (this has been confirmed recently in the famous judgment no. 392 of 18 January 2016 of the CTP in Milan, section no. 15).

These guidelines have also been confirmed at the international level by two rulings of the European Court Justice (judgments in the Ryborg Case C-297/1989 of 23 April 1991 and the Louloudakis Case C-262/99 of 12 July 2001) in which it categorically confirmed “residence” to mean “the professional and personal connection between a person and a particular place for the duration of that connection.”

Both rulings conclude that “residence” “must be regarded as the place where a person has established his or her permanent centre of interests.” This definition hinges on the international conventions against double taxation based on the OECD model where article 4 repeats the concept of a “pragmatic” tax residence anchoring it to the criterion of “vital centre of interests.”

It remains a complex framework in which to take advantage of the new season of voluntary disclosure available for foreign citizens.

di: Stefano Mazzocchi and Roberto Viscomi

Fonte: il sole 24 ore