24 October 2017

Voluntary Disclosure in Italy

 

Italian law imposes on resident individuals and juridical entities the obligation to disclose assets owned abroad.

With the stated intent of facilitating and inducing the regularization by interested parties of foreign owned assets, the Italian authorities passed Law no. 1642 of December 4, 2014 generally known as “Voluntary Disclosure”. In general terms, the Law is meant to allow resident individuals and juridical entities to regularize their tax situation in respect of undisclosed foreign holdings against the disclosure of these holdings to the Italian tax authorities and the payment of any taxes due together with fines at a reduced rate. In exchange possible criminal sanctions linked to the legal violations are meant to be dropped.

The Law is effective from January 1, 2015 and there is a September 30, 2015 deadline for adhering to the procedure.

The Law was in discussion for many months before it was finally adopted in December and expectations were high that the measure would be truly beneficial to taxpayers. Unfortunately, this has not been the case.

The text, as promulgated, is vague and complicated with no clear procedural indications or instructions. No enabling regulations were issued with the Law and professionals are scrambling to figure out exactly what it means and what is covers.

What is clear is that an individual or legal entity deciding to adhere to the procedure must disclose all foreign-owned assets in respect of which it is necessary to reconstruct and document the entire history (each and every movement on the account) over at least the past four years. Only after having examined this evidence, assuming one is in a position to provide it, will the tax authorities confirm that a particular taxpayer is eligible to benefit from the procedure. In case the authorities should decide that the procedure is not available, the taxpayer will be considered liable to all civil and criminal penalties in respect of the violations “voluntarily” disclosed. In fact, one author has even preferred to speak of “involuntary exposure” in our case.

Even where the procedure is clearly available, the simulations of the amounts that would be due are such as to make the law counterproductive: in some cases it would be necessary to pay up to 90% of the amounts disclosed!

This being said, each case must be examined on its merits and there may be cases where this procedure could be advantageous. Civilly Recognized Ecclesiastical Entities (e.g., a “Casa Generalizia”) are, on their face, eligible to benefit from this procedure but a decision can be taken only with the assistance of a serious tax advisor with expertise in this question.

Whether or not one adheres to “Voluntary Disclosure”, the obligation to disclose foreign assets remains and it will become unavoidable when the decisions of the 2014 OECD Global Forum on Transparency and Exchange of Information for Tax Purposes come into full force on January 1, 2018 with respect to 2017.

You should not wait to put these questions in order in time to meet this deadline.

Please feel free to contact us by e-mail or call us at +39 06 3671 2232 in case you wish to discuss this issue in further detail.

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