Italy operates specific provisions on tax treatment of trusts. Trusts formed under foreign law are recognized and enforced in Italy pursuant to the Hague Convention on Trusts dated July 1, 1985. To the extent they have Italian assets, or Italian grantor, trustees or beneficiaries or Italian source income, foreign trusts may be subject to Italy's trust tax provisions. Under certain circumstances, trusts are disregarded and trust assets are treated as owned by the grantor or beneficiaries. This is the case when the grantor has an unconditional power to terminate or revoke the trust or when the beneficiaries have an unconditional right to claim an anticipated distribution of all or part of the trust assets at any time during the life of the trust, or when the trustee lacks actual independent power to administer the trust and is under the directions or instructions of either the grantor or the beneficiaries of the trust. When respected for tax purposes, the trust is taxed on a fiscally transparent basis or as a separate entity, depending on whether and to what extent the income of the trust is attributed to identified beneficiaries specifically mentioned in the trust agreement or separately by the grantor during the life of the trust. When a trust is taxed on a fiscally transparent basis, income of the trust is allocated to and taxed directly upon the beneficiaries. When a trust is taxed as a separate entity, the trust itself pays the corporate income tax on its own income. A trust administered in Italy or by an Italian resident trustee is treated a a resident trust and subject to tax on its world wide income. A trust administered abroad or by a foreign resident trustee is treated as a foreign trust and taxed only upon Italian source income. For more details about Italian tax treatment of trusts as it applies to trusts formed under the laws of any State of the United States or any other foreign country, we refer to this article which was recently published on Tax Notes International.
The Italian Supreme Court in its Ruling 20285 dated September 4, 2013 held that an individual taxpayer claiming to have his tax residency outside of Italy had properly discharged his burden of proof and correctly established his tax residency abroad by producing copy of his residential lease, regular payments of rent and utility bills and use of personal bank account for day to day expenses, thereby proving that his actual and real residence and domicile was located in the foreign country.
Under Italian tax law, individual tax residency is determined pursuant to highly factual tests and can be established even when there are relatively minor contacts with Italy, such as a house, frequent visits to the country, or business interests located there. Once determined, it subjects the taxpayer to worldwide taxation in Italy both for income and estate tax purposes including the obligation to report all of taxpayer's assets wherever located in the world under a form that is the equivalent of the american foreign bank account report, except that it requires reporting of non financial assets (such as cars, houses, planes, artworks, etc.) as well as financial assets and accounts. Foreign persons with interests in Italy must pay particular attention to those rules to avoid to be trapped into unintended Italian tax residency.
Under the facts of the case decided by the Supreme Court, the taxpayer - a tennis player originally resident in Italy - claimed to have moved his tax residency to Monaco, while still traveling to Italy and other countries in connection with his business interests and professional activity.
Under Italian law, Monaco is a tax haven, black listed jurisdiction and Italian taxpayers who register as residents there are presumed to be still resident in Italy for Italian tax purpose, unless they prove that their actual residence and domicile is located in that country. For this purpose, residence identifies the taxpayer's habitual and regular place of living, while domicile identifies the taxpayer's main center of personal, financial and business interests.
Italy enacted a new law that significantly amends its rules requiring Italian resident individual taxpayers to report their foreign financial investment and accounts and other assets capable of generating foreign source taxable income.
SCOPE OF REPORTING
The fist significant change reduces the scope of the reporting. it eliminates the duty to report intra year transfers relating to reportable foreign assets, previously reported through sections III and I of form RW part of Italian tax returns. As a result, any transfers of money out of Italy for the purchase of foreign reportable assets, or into Italy as a result of a liquidation or sale of a reportable foreign assets, or foreign to foreign transfers relating to changes to the portfolio of foreign reportable assets, which occurred during a tax year, need not be reported.
The second significant change reduces the amount of applicable penalties. Under the old law, penalties could be assessed from a minimum of 10 percent up to a maximum of 50 percent of the value of unreported foreign assets. Under the new rules, the penalties are reduced to 3 percent minimum and 15 percent maximum respectively. Furthermore, taxpayers can settle any audit out of court by paying a penalty equal to 1/3 of the minimum (that is to say, 1 percent of the value of unreported assets).
The new rules have retroactive effect and apply to any situation in which penalties have not been assessed and paid yet. Therefore, past violations that are no longer sanctioned under the new rules have become moot.
The duty to report extends to taxpayers who are the "beneficial owners" of the reportable foreign assets, regardless of the fact that they may not be the owner of record or hold the legal title to those assets. The new law does not define the term "beneficial owner", but refers to the definition of the term that is provided by anti money laundering legislation. Accordingly, in case of companies, any shareholder, member or partner owning more than 25 percent of the company (by vote or value) is deemed to be a beneficial owner of the underlying investments or assets owned by the company. For other entities, such as foundations and trusts, beneficial owners are deemed to be the individuals who are the final beneficiaries or recipients of the entities' assets.
The elimination of the duty to report intra year transfers and the reduction of penalties for failure to report is surely good news.
On the other side, the extension of the duty to report to the beneficial owners of a reportable foreign assets is very concerning. How taxpayers will handle their reporting obligations under the new rules is not easy to predict and will likely require further clarifications and guidance from the tax administration.
Indeed, the term beneficial owner in the context of the anti money laundering rules is very wide in scope, and its automatic use also for foreign assets reporting purposes might have unintended consequences. If applied literally, it would require any shareholder owning more than 25 percent of the stock of a company to report his or her pro rata share of all of the company's underlying assets held outside of Italy. While this might make sense in case of closely held companies or conduits that are set up for the sole purpose of holding and managing foreign financial investments and accounts, it may be completely impossible to handle in practice in case of straightforward commercial companies and other business entities engaged in trade or business.
Further guidance on this issue is absolutely necessary
Italy does not have domestic rules on trust.
However, trusts created under foreign law are recognized and enforceable in Italy pursuant to the provisions of the 1985 Hague Convention on the Law Applicable to Trusts and Their Recognition, which has been ratified and implemented and is fully effective in Italy as part of Italian legal system.
The Hague Convention was signed on July 1, 1985 and ratified in Italy with law n. 364 of October 16, 1989 and entered into force on January 1, 1992. It is aimed at harmonizing the private international laws of the contracting states relating to trusts; provides that each contracting state recognizes the existence and validity of trusts created by a written trust instrument; sets out the general characteristics of a trust and establishes rules for determining the governing law of trusts with cross-border elements.
According to the Convention, as implemented in Italy, a trust created pursuant to and governed by the law of a country that has provisions governing trusts is recognized and valid in Italy, subject only to the overarching limitation of Italian public order principles.
Purely internal trusts, with Italian grantors, Italian beneficiaries and assets located in Italy are also recognized.
With the Finance Bill for 2007 Italy enacted, for the first time, specific provisions dictating the tax treatment of trusts for Italian tax purposes. They establish general principles on tax classification and treatment of trusts in Italy for income and indirect tax purposes and have significant cross-border implications
On August 6, 2007 Italy’s tax administration issued Circular n. 48/E that provides administrative guidance on the interpretation and application of the new tax provisions on trust. Circular 48/E clarifies the tax treatment of trusts both for income tax and transfer (indirect) tax purposes.
Subsequently, Italy’s tax administration issued additional interpretative guidance by way of Circular n. 61/E issued on December 27, 2010.
Generally, for a trust to exist as a legal and tax entity separate from the grantor, the trustee and its beneficiaries, there must be a real and effective legal separation of the trust’s assets from both the estate of the grantor and the beneficiaries of the trust and the trustee must be granted with real powers of administration of the trust, acting independently from and not being under the direct or indirect control of the grantor or beneficiaries of the trust.
Once it is positively established that a trust actually exists, as a general rule, for income tax purposes trusts are classified as separate taxable entities and taxed as corporations.
However, trusts with income beneficiaries that are identified and named in the trust agreement are treated as fiscally transparent entities - that is, income is attributed to the beneficiaries as provided for in the trust agreement, regardless of whether and how the trust distributes its funds, and the beneficiaries are taxed directly on their share of trust’s income. This fiscally transparent treatment applies also in the event that after the initial creation of the trust, the trustee determines the income beneficiaries of the trust pursuant to the authority granted in the trust agreement.
A trust is resident in Italy for tax purposes if its place of management or place of activity is located in Italy. Trusts formed in jurisdictions that do not allow exchange of information with Italy are treated as residents and subject to worldwide taxation in Italy, if certain connections with Italy exist (for example, if any grantor or beneficiary is Italian), unless taxpayers provide sufficient evidence that they are resident (that is, effectively managed) outside of Italy.
Trusts must keep tax books to compute their taxable income (taxed upon the trust in case of fiscally non transparent trusts, or passed through to and taxed upon the beneficiaries in case of fiscally transparent trusts).
A gratuitous transfer of assets to a trust is subject to gift or estate tax. The tax is charged at reduced rates (4 and 6 per cent) if beneficiaries named in the trust agreement or determined by the trustee at any time thereafter are close family members. Otherwise, the regular rate for trusts with no identified beneficiaries or beneficiaries that are not close family members or charitable trust is 8 per cent.
US Tax Administration Issued Final Regulations on FATCA Implementing International Tax Reporting and Compliance
On January 17, 2013 the IRS issued final regulations providing rules on information reporting by foreign financial institutions (FFIs) and withholding on certain payments to FFIs and other foreign entities.
Under the Foreign Account Tax Compliance Act of 2009 (FATCA), enacted as part of the Hiring Incentives to Restore Employment Act of 2010, P.L. 111-147, U.S. withholding agents are required to withhold tax on certain payments to foreign financial institutions (FFIs) that do not agree to report certain information to the IRS regarding their U.S. accounts and on certain payments to certain nonfinancial foreign entities (NFFEs) that do not provide information on their substantial U.S. owners to withholding agents.
The regulations finalize the proposed rules issued last February, making a number of changes in response to comments. As a result, the 389-page proposed regulations have become 544-page final rules, with a lengthy discussion of which comments prompted changes from the proposed regulations.
One area of simplification in the final regulations is the integration of model intergovernmental agreements into the reporting requirements of the regulations. There are two types of intergovernmental agreements: reciprocal agreements and nonreciprocal agreements, which are called Model 1 IGAs and Model 2 IGAs. A jurisdiction signing a Model 1 IGA agrees to adopt rules to identify and report information to the IRS that meets the standards in the Model 1 IGA. FFIs that are in Model 1 IGA jurisdictions report the information about U.S. accounts required by FATCA to their respective governments, which then exchange this information with the IRS. FFIs in Model 2 IGA jurisdictions must comply with the FATCA regulations except to the extent the relevant IGA provides otherwise.
The IRS announced that, to date, seven countries have entered into model agreements with the United States: Norway, Spain, Mexico, the United Kingdom, Ireland, Denmark, and Switzerland. Discussions with more than 50 countries are ongoing, and more agreements are expected to be signed in the near future.
In recognition of the burden that complying with FATCA entails, the final regulations, among many other things:
- Phase in over an extended transition period the timelines for withholding, due diligence, and reporting and align them with the IGAs.
- Expand and clarify the types of payments subject to withholding, particularly for certain grandfathered obligations that are not subject to the rules and certain payments made by NFFEs.
- Expand and clarify the treatment of certain low-risk institutions, such as government entities and retirement funds, provide that certain investment entities may be subject to being reported on by FFIs with which they hold accounts rather than being required to register as FFIs with the IRS, and clarify the type of passive investment entity that financial institutions must identify and report.
- Streamline the compliance and registration requirements for groups of financial institutions, including commonly managed investment funds.
The regulations have become effective when published in the Federal Register (scheduled for Jan. 28, 2013).
Reciprocal Inter Governmental Agreement Will Introduce Automatic and Reciprocal US-Italy Disclosure and Exchange of Information For Tax Purposes
The Foreign Account Tax Compliance Act (FATCA) was enacted by the United States Congress in March 2010 and became effective on January 1, 2013. It is intended to assist US efforts to improve international compliance with US tax laws and will impose certain due diligence and reporting obligations on foreign (non-US) financial institutions which hold financial accounts for US customers. Under the new law, foreign financial institutions will provide to the U.S. tax administration automatic information about their US customers' financial accounts.
On 26 July 2012, the U.S. Department of the Treasury published a Model Inter Governmental Agreement which will form the basis of bilateral IGAs with jurisdictions that wish to adopt this alternative means for their financial institutions to comply with FATCA while minimizing compliance burdens.
Italy joined the U.S. with a groups of other countries in a Joint Statement announcing that Italy will enter into and use the reciprocal agreement with the United States to implement FATCA and enact a system of reciprocal automatic exchange of information pursuant to which:
- Italian banks and financial institutions will provide the US tax administration with information about Italian banking and financial accounts held by U.S. customers with Italian banks in Italy,
- U.S. banks and financial institutions will provide Italy's tax authorities with information about US banking and financial accounts and investments held by Italian customers with US banks in the United States.
The Model IGA follows the U.S. Department of the Treasury and Internal Revenue Service's release of proposed FATCA regulations, and the simultaneous announcement of an intergovernmental alternative to FATCA implementation, on 8 February 2012.
On January 17, 2013 the Treasury Department and the Internal Revenue Services issued the set of Final Regulations implementing the information reporting and back up withholding tax provisions of FATCA, with far reaching implications for U.S. taxpayers with Italian bank and financial accounts, as well as Italian taxpayers with US bank and financial accounts, in addition to foreign financial institutions as well as US banks as explained above.
Italian resident taxpayers are required to report to the Italian tax administration their foreign financial investments and assets, which can generate foreign-source income subject to tax in Italy. They report their foreign investments by filling out a special part of their annual income tax return referred to as form RW. Taxpayers who are not otherwise required to file an income tax return (e.g., those who earn only salary income reported on form 730 equivalent to form W-2 in the United States) must file a full return just for the purpose of reporting their foreign investments on Part RW.
Italian international tax reporting through form RW is very extensive in scope and accompanied by very harsh penalties with very limited opportunities to rectify past mistakes or failures. It includes personal assets other than financial investments (e.g. personal residences, boats, jewelry, artworks). One section of form RW is used to report the value of the reportable assets at the end of the taxable year. Two separate sections are used to report outbound, inbound and foreign transfers of money or other assets relating to foreign assets subject to reporting (i.e. additional investments and disinvestments through purchases, sales or transfers of reportable assets).
Reporting may be particularly complicated when foreign investments and assets are held through trusts or other foreign entities. Depending on the tax classification and treatment of the entity or trust the taxpayer may be exempt from reporting, required to report his or her own interest in the trust or entity itself, or required to report his or her own undivided ownership interest in the underlying assets held through the entity, with totally different results.
The duty to report revolves around several fundamental tax concepts: tax residency of the taxpayer, ownership of the asset, and tax nature of the asset and associated income.
Italian tax residency rules are far reaching and often based on technical and heavily factual tests. As a result, many non-Italian nationals who spend significant time in Italy for personal or business purposes or have personal, investments or business interests in Italy should act very carefully, especially now that the Italian tax agency is stepping up its enforcement actions in the effort of collecting additional revenue.
Indeed, if it turns out that they should be treated as resident of Italy for Italian tax purposes, they would automatically face the issue of not having reported their non-Italian assets, with all potential penalties associated with it, in addition to the main issue of having failed to file and their tax returns and to pay any taxes due.
International tax reporting rules are very technical and complex to administer. Italy’s tax administration issued a general guidance on international tax reporting of foreign assets and investments with Circular n. 45 of September 13, 2010.Continue Reading...
In data 17 Maggio 2012 presso l'Università degli Studi di Roma Tre, nel contesto del master per Giuristi e Consulenti di Impresa gestito dal Prof. Tinelli, lo studio MQR&A ha riferito sul tema "Aspetti internazionali della fiscalità americana di interesse per gli investitori esteri".
La relazione, sia pure sintetica, ha inteso offire un breve excursus sui principi fondamentali di diritto fiscale internazionale americano applicabili agli investimenti e alle attività estere negli Stati uniti.
Gli Stati Uniti costituiscono tuttora il maggiore mercato del mondo di destinazione di attività e investimenti internazionali e attraggono costantemente imprenditori, professionisti, personale d'azienda e investitori esteri. La conoscenza del regime fiscale applicabile a questa categoria di soggetti ed attività è cruciale, in un contesto sempre più difficile e complesso di crescente globalizzazione e maggiore attenzione da parte delle amministrazioni fiscali.
Recent legislation enacted by the Italian government to improve Italy's budget and stem the sovereign debt crisis introduced a new tax on real estate properties located outside of Italy. The tax is charged at the rate of 0.76%, calculated on the purchase price of the property as appearing from the purchase documents or alternatively on the fair market value of the property. A tax credit is granted, reducing or offsetting the Italian tax due, for any property taxes paid to the country in which the property is located. Individual taxpayers residing in Italy for tax purposes are liable for the tax. This include foreign nationals who work and live in Italy and file Italian individual tax returns as Italian residents. Based on the language of the statute, properties owned or managed through offshore or foreign entities are not subject to the tax. Taxpayers who directly own rental or investment properties outside of Italy are encouraged to restructure their investment and own and actively manage those properties through a foreign owing or managing entity to avoid the application of the tax.
Trusts are very important tools for family and succession planning. Italy enacted specific provisions on the tax treatment of trusts for income tax and indirect (transfer) tax purposes. However, Italy does not have specific legislation on trusts, and trusts for Italian clients or Italian assets must be formed and operated in accordance with the legislation of a foreign country that contemplates rules on trusts. Among the most reliable and sophisticated legislations on trusts are those of the States of the United States, including Delaware and New York. Every time the settler, beneficiaries and trust assets sit in different countries (Italy and abroad) the coordination of the tax treatment in Italy and in the foreign country poses daunting issues but also offers interesting planning opportunities. Below we refer you to a recent article appeared on Italia-Oggi in which we provide our perspective on our experience in forming and managing trusts for Italian clients:
Il trust è uno strumento molto importante per un'efficace pianificazione familiare e successoria. L'Italia ha adottato una specifica normativa fiscale sul trust ai fini delle imposte dirette ed indirette, ma non ha una legislazione civilistica in materia e i trust per clienti italiani devono necessariamente essere costituiti in base alla normativa di uno stato estero che contempli questo istituto. Tra le varie legislazioni si segnalano, per affidabilità e grado di elaborazione, quelle degli stati degli USA, tra cui Delaware e New York. Ogni qualvolta costituente, beneficiari e beni del trust si trovano in stati diversi (in Italia e all'estero), il coordinamento tra il trattamento fiscale del trust in Italia e quello applicabile nel paese estero richiede particolare attenzione nella messa a punto di questo strumento, ma nel contempo offre formidabili opportunità di pianificazione. Segnaliamo di seguito un recente interessante articolo in materia apparso su Italia-Oggi, con un nostro contributo e punto di vista relativo alla nostra esperienza in materia di costituzione e gestione di trust USA per nostri clienti:
An interview on Marco Q Rossi & Associati has been published today on the Italian financial newspaper ITALIA OGGI. We attach below the file with the full account: www.lawrossi.com/images/stories/docs/MQR_Italia_Oggi.pdf
Secondo quanto riportato di recente su Bloomberg, diverse banche svizzere sarebbero in procinto di siglare un accordo con il fisco americano a chiusura di un contenzioso in materia di evasione fiscale. In forza dell'accordo le banche si disporrebbero a pagare una somma in via transattiva e fornire al fisco americano le informazioni sui propri clienti cittadini o residenti americani. L'accordo chiuderebbe una procedura civile avviata nei confronti di 11 banche svizzere responsabili, a detta del fisco americano, di avere aiutato i contribuenti americani a evadere le imposte. In base alla normativa fiscale USA, coloro che sono soggetti ad imposta sui redditi negli USA - tra cui cittadini americani residenti in Italia, tassati in base alla cittadinanza, e cittadini italiani residenti negli Stati Uniti, tassati in base alla residenza - sono tenuti a dichiarare conti e investimenti detenuti al di fuori degli USA mediante un apposito modulo (Foreign Bank Account Report, in acronimo FBAR) equivalente in sostanza al modulo RW del Modello Unico italiano, e a dichiarare i redditi derivanti dai predetti conti ed investimenti. Eventuali imposte estere danno diritto ad un credito di imposta ad eliminazione della doppia imposizione. Negli ultimi tre anni gli Stati Uniti hanno adottato due programmi di incentivazione a riportare conti e depositi esteri con somme non dichiarate beneficiando di sconti sulle sanzioni dovute. Anche a prescindere da questi programmi, il sistema fiscale USA consente in generale di presentare dichiarazioni tardive che correggono errori o mancanze pregresse e in caso di buona fede è possibile evitare sanzioni. L'attenzione dell'amministrazione fiscale e la pressione sulle banche estere sono molto forti e si sta registrando un trend sempre più marcato verso forme di trasparenza e rilascio di informazioni a fini fiscali che stanno inducendo molti contribuenti a mettersi in regola con il fisco.
Article 2 of the bill on tax federalism under discussion in Parliament would introduce new provisions on taxation of Italian real estate income for individual taxpayers. Under current law, real estate income (both foreign and domestic) is reported on individual taxpayer's annual income tax return and is taxed as ordinary income at graduated rates. Under the new provisions, domestic real estate income would be subject to withholding tax at the flat rate of 20 per cent. The withholding tax would be a final tax. As the bill is currently drafted, the new flat tax would not apply to foreign source real estate income, which would still be part of total income subject to tax on a net basis. To the extent that the different taxation system leads to a harsher taxation of foreign real estate income compared to domestic real estate income, the new provisions could be challenged as invalid under the non discrimination and freedom of movement of capital principles of EU tax law. For foreign investors in Italian real estate, the new provisions would be beneficial because they would grant a lower tax rate under domestic law - the new flat 20 percent tax - than the tax rate currently commonly granted under tax treaties - 30 per cent.
Con la Risoluzione n. 142/E del 30 dicembre 2010 l'Agenzia delle Entrate ha chiarito che anche il diritto di nuda proprietà, relativo ad attività estere di natura finanziaria ed altri ed investimenti esteri attraverso cui possono essere conseguiti redditi di fonte estera imponibili in Italia, va riportato nel modulo RW della dichiarazione dei redditi.
A sostegno del proprio chiarimento, l'Agenzia ha richiamato la Circolare 45/E del 13 Settembre 2010 in cui, con interpretazione innovativa rispetto al regime precedente, si è ritenuto che le attività estere di natura finanziaria e gli altri investimenti esteri suscettibili di produrre redditi di fonte estera imponibili in Italia debbano essere riportati sul modulo RW, non soltanto quando essi effettivamente producono redditi imponibili in Italia, ma anche nell'ipotesi in cui la produzione dei predetti redditi sia soltanto astratta o potenziale. Questo è il caso, evidentemente, del diritto di nuda proprietà, che potrebbe essere ceduto a terzi separatamente dal diritto di usufrutto, e generare in questo modo una plusvalenza imponibile, oppure espandersi al momento dell'estinzione del diritto di usufrutto con possibilità di cessione o locazione dell'intero bene a terzi.
Il diritto di nuda proprietà va dichiarato in base al costo storico ad esso attribuito nell'atto costitutivo del medesimo, senza necessità di aggiornamento annuale. La risoluzione non precisa ma in caso di acquisto del diritto per successione per causa di morte, è ragionevole ritenere che si debba guardare al costo di acquisto del bene nella sua totalità, in capo al de cuius, ed attribuirne una quota proporzionale al diritto di nuda proprietà in ipotesi trasferito separatamente al diritto di usufrutto.
Il titolare del diritto di usufrutto per parte sua deve riportare sul modulo RW il valore del proprio diritto sussistente sul medesimo bene.
I dirigenti ed il personale d'impresa assegnati a filiali USA di imprese italiane sono esposti a rilevanti problematiche di fiscalita' internazionale. Una di queste riguarda il trattamento fiscale di prestazioni di natura previdenziale o pensionistica privata, erogate in forma periodica o in un'unica soluzione (quali liquidazione e trattamento di fine rapporto), ricevute dal lavoratore dopo il rientro in Italia a fronte della cessazione del rapporto di lavoro presso la filiale americana. A questo riguardo la nuova convenzione Italia-USA contro le doppie imposizioni, entrata in vigore il 1 gennaio 2010, innovando rispetto alla precedente convenzione del 1984 stabilisce (all'articolo 18, paragrafo 3) che nel caso in cui il beneficiario del trattamento pensionistico abbia trasferito la sua residenza in Italia dopo l'esaurimento del rapporto di lavoro presso la filiale negli USA, le erogazioni ricevute dopo il rientro in Italia ma maturate in relazione al rapporto di lavoro con la filiale negli USA sono imponibili esclusivamentre negli USA. Secondo la normativa fiscale interna americana, tuttavia, parte di tali erogazioni potrebbero essere esenti da imposta, nel caso in cui si riferiscano a prestazioni lavorative svolte al di fuori del territorio degli Stati Uniti, sebbene relativamente ad un rapporto di lavoro condotto alle dipendenze di una societa' americana. In Italia, il diritto al percepimento di tali somme potrebbe dovere essere dichiarato sul modulo RW. In generale, in situazioni simili, prima del rientro in Italia e' opportuno verificare quali saranno i flussi di reddito che avranno luogo successivamente al cambio di residenza, al fine di determinarne in anticipo il relativo regime fiscale con obiettivo quello della ottimizzazione dell'imposizione ed eventualmente del massimo risparmio di imposta e di assicurare l'adempimento di tutti gli obblighi dichiarativi dovuti.
On December 27, 2010 Italy's Tax Administration issued Circular n. 61/E which provides additional clarifications on Italian tax treatment of trusts.
In one of its paragraphs Circular 61/E purports to clarify when a trust can be respected as such or should be disregarded for (legal and) tax purposes. In particular, it expanded the examples of situations in which a trust can be considered abusive and is disregarded as a mere conduit or fictitious intermediary between the person of the settlor and the trust assets. That shows the administration's willingness to contrast the use of trusts in abusive situations or for tax avoidance purposes.
The minimum requirements for a trust to be respected for tax purposes are the real transfer of the assets to the trust and the real power of the trustee to administer, manage and dispose of the assets of the trust in accordance with the trust agreement and the applicable law.
Any provisions of the trust agreement that limit such power, or the mere circumstance that the trustee is under the influence or control of the settlor when it comes to the administration of the trust, may jeopardize the trust with the consequence that the settlor is still considered as the real owner of the assets and income of the trust.
Both the drafting of the provisions of the trust and the way in which the trust is actually administered are pivotal and needs proper attention and care.
Il giorno 30 Settembre scade il termine per la presentazione della dichiarazione annuale dei redditi delle persone fisiche per l'anno 2009. Contestualmente alla presentazione della dichiarazione annuale dei redditi i contribuenti residenti in Italia che detengono investimenti all'estero devono compilare il modulo RW. Inoltre, nello stesso termine è possibile presentare la dichiarazione integrativa relativa all'anno 2008 e sanare eventuali violazioni degli obblighi di compilazione del modulo RW per il 2008 secondo il meccanismo del ravvedimento operoso con il beneficio della riduzione della sanzione ad 1/10 del minino pari all'1% degli importi non dichiarati.Continue Reading...
By way of a ministerial decree issued on July 27, 2010 Italy removed Malta and Cyprus from the black list for the purposes of the application of Italian controlled foreign companies rules and provisions on tax residency of individuals. As a result of the removal, Italian owned foreign companies established in Malta and Cyprus are no longer subject to Italian CFC rules, and Italian individuals who move to Malta or Cyprus are no longer presumed to be resident in Italy for tax purposes unless they prove the contrary (the burden to prove that the move is fictitious and tax residency remained in Italy is upon the tax administration). Finally, Cyprus has been inserted in the white list for the purposes of the application of the portfolio income exemption exempting foreign source portfolio investment income from Italian 12.5 percent withholding or substituted tax.
Italy's Supreme Court in ruling n. 12295 of May 19, 2010 rules in favor of the tax administration in a case in which the tax administration challenged the foreign tax residency of an Italian taxpayer and assessed taxes and penalties of about 6 billion lire on a total amount of 4 billion lire of unreported income. The taxpayer maintained the position that he had established his tax residency in Monaco and received several payments through a Dutch holding company to which he had assigned his right to use his professional image for advertising and sponsoring contracts. The tax administration argued that the taxpayer while transfering his registered address in Monaco had maintained his actual domicile in Italy, where he had most of his personal, professional and economic ties (including a house, bank accounts, memberships in local clubs). The Supreme Court accepted the tax administration's position, holding that when Italy remains the taxpayer's center of main interests, Italy is taxpayer's tax residency despite the registered address has been move abroad. Italy now applies a provision according to which, when a taxpayer establishes his or her registered residency in a low tax jurisdiction, the taxpayer bears the burden to prove that the foreign residency is also the place in which the taxpayer regularly lives and maintains the main center of his or her interest.
The list of customers of the Swiss branch of the UK bank HSBC, prepared by former HSBC employee Mr. Hervé Falciani and offered to governments engaged in investigations on unreported foreign bank accounts and tax evasion conducts, has been delivered by the French prosecutor to the Italian prosecutors and tax officials for investigation on Italian bank account holders.
The list is said to contain 120,000 names, out of which 7,000 names are Italian customers of the bank with potentially unreported bank accounts.
Under Italian law, failing to report foreign investments carries a penalty of 10 to 50 percent of the value of the unreported investments. Furthermore, the assets on the account are presumed to constitute unreported taxable income, and penalties for failure to report foreign taxable income from unreported foreign accounts range from 240 to 480 percent of the tax due.
Italy enacted an amnesty for the repatriation of undeclared foreign assets which elapsed on April 30, 2010. Under the tax amnesty program taxpayers had the opportunity to declared their foreign assets and repatriate them into Italy without any tax or penalty by paying a substituted tax of 5 to 7 percent.
Various foreign banks with branches in Italy that act as intermediaries for the purposes of tax refund applications filed on behalf of nonresident persons received a notice from the Italian tax agency in charge with the refund procedure announcing the application of stricter controls in the processing of the tax refunds. The tax office will require specific information about the beneficial owners of the refund in order to avoid abuses and treaty shopping. The banks shall have to provide the complete personal information about the final beneficiaries of the refunds, including their foreign and Italian taxpayer identifications numbers. In case of trusts or funds, the tax agency will require the taxpayer identification number issued in the residence state as well as in Italy both to entity and its legal representative. As a consequence, if the trust or fund is a fiscally transparent entity that does not have a taxpayer identification number in its own country, the bank may need to provide the information about the final investors or the grantors or beneficiaries of the trust. The new approach follows recent audits that resulted in the denial of the refund of dividend tax credits to various banks that engaged in dividend washing transaction (for a total amount of about 4.2 billion euro).
Marco Rossi of Marco Q. Rossi & Associati spoke at the 3rd Annual Pacific Rim Conference of STEP - Society of Trust and Estate Practitioners (www.step.org) that took place in Santa Monica, CA on May 6 & 7.
The Conference focused on planning for United States citizens or United States resident individuals with assets located abroad, development of structures for individuals to hold personal residences abroad, investments in United States real estate held by foreign persons, international enforcement initiatives and planning for multinational families and their businesses (Early Bird - Preliminary Program.pdf).
Marco Rossi illustrated the latest Italian tax amnesty program (Italy's offshore tax amnesty and tax enforcement.pdf), spoke about international tax enforcement in Italy and focused on inbound and outbound planning opportunities through the use of trusts in the light of the new Italian provisions on taxation of trusts in a cross border context (Italian taxation of trusts.pdf).
In connection with the enactment and operation of its (third) tax shield (a special program of voluntary disclosure of foreign investments and earnings), due to elapse on April 30, 2010, Italy is reinforcing its rules on reporting foreign assets on Italian tax returns.
With Circular n. 43/E of October 10, 2009, Italy's tax administration adopted a new guideline according to which all foreign assets must be reported on the special R-W section of the Italian tax return, including those assets which currently do not generate any foreign source earnings taxable in Italy, but are potentially able to generate such earnings in the future.
On February 1, the Italian tax administration approved the new income tax return forms for 2010 (for individuals and unincorporated business) and issued instructions for the preparation of the return that confirm the above guideline.
As a result, from tax year 2010 all assets held abroad must be declared on the Italian tax return, including personal assets which do not produce any income such as foreign vacation homes, yachts, jewelery, art collectibles. Previously, only foreign assets which actually generated foreign source income taxable in Italy (such as foreign bank accounts and financial instruments) had to be reported.
Italian parliament passed a new law which extends the statute of limitation for assessment of taxes due on income arising from foreign investments and controlled foreign companies.
The general statute of limitation period is five years from the year in which the return is filed. The special statute of limitation for income from foreign assets and controlled foreign companies is extended to nine years.
The new measure is part of the package of measures which includes and extension of deadlines for the tax amnesty and voluntary disclosure of undeclared foreign assets to February 28, 2010 (with tax of six percent) and April 30, 2010 (with the tax increased to seven percent).
On December 17, 2009 the Italian Government passed a decree which extends the deadlines for the Italian voluntary disclosure program.
The new deadlines are February 28, 2010 and April 30, 2010. Taxpayers who repatriate or regularize their undeclared foreign assets within February 28, 2010 pay a 6 percent flat tax on the fair market value of the repatriated or regularized assets. Taxpayers who repatriate or regularize their undeclared foreign assets within March 31, 2010 pay a flat 7 percent tax.
According to the latest statistics, foreign assets in excess of E 100 billion have been declared pursuant to the current voluntary disclosure program enacted in September this year.
In connection with the unreported foreign assets disclosure program, new penalties have been enacted for failure to report foreign investments. The new penalties are equal to minimum of 200 to a maximum of 400 percent of the unpaid tax on unreported foreign investments and 50 percent of the fair market value of the unreported foreign assets.
Also, any foreign asset which has not be reported is deemed to be unreported income subject to tax.
In connection with the enactment of its own tax amnesty (which permits the repatriation or regularization of undeclared foreign investments with the payment of a very generous 5% flat tax on the fair market value of the undeclared assets), Italy is cracking down on tax havens, especially those across the border such as Switzerland, Liechtenstein and San Marino. Current estimates of the Italian tax administration suggest that more than 35 percent of Italian investments in Switzerland are being repatriated under the amnesty, and more are expected to come and sit permanently in Italy after the repatriation procedure (for which the deadline is set at December 15).
Recently, it has been reported that Italian tax agents under cover visited several Swiss banks taking pictures of clients coming in and out the banks, and have increased the controls at the border for Italians moving in and out of Switzerland.
As a result of Italy's strong action, Switzerland is now working on a revised proposal to the EU for the enactment of a new back withholding in exchange for Swiss banks customers privacy. Under the new proposal, Switzerland would negotiate with each EU member state a new back up withholding tax, that could be as high as 30 percent and would apply on savings from Swiss accounts of residents of other EU Member States. The proceeds from the withholding tax would go to the resident state of the Swiss bank account holder. In exchange for the back-up withholding, Swiss banks would not be forced to give up the bank secrecy and reveal the names of their customers.
Italy's reaction to the proposal has been rather skeptical so far. The approach of the Italian government is that first the tax amnesty procedure is completed, and then the due consideration will be given to any possible solution to the problem of those Italian individual investors who have decided to keep their undeclared funds offshore. A new provision in the Italian tax code now presumes that any money kept offshore comes from undeclared income for which Italian taxes are due, and the penalty has been increased to up to 400 percent of the amount of unpaid taxes.
Liechtenstein, on the other side, is negotiating a new exchange of tax information treaty with Italy, after several other similar treaties have been signed with a number of other EU Member States.
The new tax amnesty recently enacted by the Italian parliament took effect on Sept. 15. Taxpayers have time until April 15, 2010 to apply.
The amnesty applies to individuals and pass through entities which held undeclared foreign accounts and investments outside of Italy as of December 31, 2008.
Taxpayers can declare (and leave abroad) or repatriate the foreign accounts and investments and avoid any applicable tax and civil penalties by paying a tax at a flat rate of 5% on the amount of the reported foreign accounts or investments.
To apply for the amnesty, taxpayers shall file a form with a bank or other Italian qualified financial intermediary, on which they will report the assets that they want to declare or repatriate. The bank or financial intermediary, in turn, will file the form with the payment of the tax with the tax administration. The form does not contain any personal information on the filing taxpayer. Therefore, the amnesty is completely anonymous.
Any future audits on the amounts that are reported on the form is not allowed and administrative penalties for the violation of the rules on reporting cross-border transfer of assets and foreign investments are permanently forgiven.
Similar amnesties enacted in 2001 and 2003 generated a repatriation of 59.8 and 14.9 billion euros, with a tax revenue of 1,4 and 0.6 billion euro (at 2.5 and 4% tax rate), with 56 and 51% of the declared money coming from Switzerland. The estimated amount of declared or repatriated foreign assets that is expected from the new amnesty is 60-90 billion euro with a tax revenue of 3-45 billion euros.
The Italian government is working at a bill which would enact a new tax amnesty. The bill should be introduced to the Parliament as early as next week.
Based on certain anticipations on the contents of the new bill, undeclared foreign earnings that are reported and repatriated would be subject to 10% flat tax. Unreported foreign earnings that are reported but reinvested or kept abroad would be subject to a higher tax. In either case, the tax would apply in lieu of any other taxes due on the undeclared earnings and would definitely settle the taxpayer's position.
A similar amnesty was enacted in 2001-2022, together with tougher rules on failure to report foreign bank accounts and other foreign investments that can generate foreign income taxable in Italy. That tax amnesty had a limited success and in general foreign earnings remained significantly unreported.
On December 4, 2008 Italy's tax administration issued resolution n. 471/E of December 4, 2008, in which it ruled on the change of tax residency of individuals during a tax year.
According to the ruling, if a foreign individual who is resident in Italy for tax purposes returns to his or her home country and terminates his or her residency in Italy during the second half of a year, his or her Italian tax residency continues through the end of that year and he or she continues to be taxable in Italy as resident on his or her worldwide income until the end of that year.
The ruling clarifies that the potential double taxation that arises in the above circumstances cannot be resolved under the tie breaker rules of a tax treaty between Italy and the taxpayer's home country, pursuant to which the tax residency of the taxpayer for that year is allocated between Italy and the taxpayer's home country and taxpayer is treated as partly resident in Italy and partly non resident in Italy (for the second part of the year, in which he left Italy and moved back to his or her home country) unless that tax treaty contains specific provisions that provide for the part time residency.
As a consequence, the only remedy to double taxation might be to claim the foreign tax credit granted in Italy for the taxes charges in the home country on income from sources within that country.
Ruling 471/E highlights the need of a careful planning before moving away from Italy to a foreign country during a tax year, in order to avoid a potential extended exposure to Italian taxation.