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Voluntary disclosure in italy for capital, international and domestic income tax compliance

Voluntary disclosure in italy for capital, international and domestic income tax compliance

This article aims to illustrate the introduction of the voluntary disclosure procedure into the Italian system in order to enable non-compliant taxpayers to come forward and declare capital and income held in Italy and abroad in breach of the duty to report and pay tax in their annual income tax return. The introduction of voluntary disclosure is part of a wider political legislative strategy which has been developed in the last fifteen years in response to the financial crisis which hit sovereign debt and the changing face of international finance. Voluntary disclosure aims to combat international fiscal crimes and recover a large amount of taxes which have been evaded over the years. These strategies are the culmination of choices made by the legislator which had previously neglected the fight against international fiscal evasion by almost constantly favouring amnesties and tax shields allowing taxpayers to remedy income tax evaded over the years in complete anonymity whilst benefitting from lower tax rates. This only served to highlight the state’s complete lack of ability to perform its supervisory duties and underlined Italy’s shortcomings on the international stage with regards to the exchange of information which was further suffocated by the existence, in some foreign states, of banking secrecy blocking the identification of “undisciplined” taxpayers who had taken capital abroad without declaring the same in their own countries, in clear breach of regulations on fiscal monitoring. Italy, faced with this changing international situation was forced to draw up a strategic plan to intensify the exchange of information and introduce the voluntary disclosure system and the crime of money-laundering.

On 15th December 2014 Law no.186 brought the voluntary disclosure procedure into force for the first time in Italy. This legislation allowed taxpayers to voluntarily adhere to said collaboration and render their position compliant by the deadline of 31st December 2015. Legislative Decree no. 193 dated 22nd October 2016 re-opened the terms of the previous procedure and permitted taxpayers to participate in the collaboration by the deadline of 31st July 2017.

This article, after a brief recap on the changing international situation, will illustrate the main aspects of voluntary disclosure in Italy, including the new aspects introduced by Legislative Decree no. 193 dated 22nd October 2016. This brochure will also fully describe the tax periods laid down within the procedure, tax penalties, benefits, formalities, the cost of the procedure and finally Legalitax’s approach when assisting clients to illustrate the procedure and ensure that it is completed correctly and is able to achieve the desired effects.

The international context and the demise of banking secrecy
The worldwide financial crisis has affected not only businesses and families over the last fifteen years, but above all sovereign debt, forcing countries to adopt a global, coordinated approach to combatting domestic fiscal crime and plan to recover large amounts of taxes which have been evaded over the years.
The driving force behind the change in international fiscal matters, which, as a knock-on effect saw the demise of banking secrecy, was OECD, an organisation which is constantly at the forefront of pushing for improvement and ensuring inter-government cooperation in order to combat international tax elusion and tax evasion. OECD, in collaboration with the G20 countries and the EU, drew up the new multilateral Standard Form, inspired by the bilateral regulations contained in FATCA (Foreign Account Tax Compliance Act), promoted by the United States of America and aimed at favouring an automatic exchange of information between non-US financial intermediates and the Internal Revenue Services on finances held by US Persons, which was already operating in Italy. The new multilateral Standard Form aimed to automatically exchange information (also known as the CRS – Common Reporting Standard) that financial authorities were obliged to provide foreign financial authorities for the countries in which their clients were resident. At present 101 countries have undertaken to adhere to the automatic exchange of information pursuant to the Common Reporting Standard; 54 of the same (the so-called early adopters), including Italy, have also undertaken to implement the new standard as of 2017, using financial year 2016 as the first year of reference – while the other 47 – including Switzerland, The United Arab Emirates, Monaco and The Bahamas shall commence said exchange in 2018 for the 2017 financial year.


Countries undertaking to adopt the first exchange of information as of 2017 (2016 fiscal year) – source: OCSE, July 2016
Anguilla, Argentina, Barbados, Belgium, Bermuda, British Virgin Islands, Bulgaria, Cayman Islands, Colombia, Croatia, Curaçao, Cyprus, Czech Republic, Denmark, Estonia, Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Greenland, Guernsey, Hungary, Iceland, India, Ireland, Isle of Man, Italy, Jersey, Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mexico, Montserrat, Netherlands, Niue, Norway, Poland, Portugal, Romania, San Marino, Seychelles, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Trinidad and Tobago, Turks and Caicos Islands, United Kingdom
Countries undertaking to adopt the first exchange of information as of 2018 (2017 fiscal year) – source: OCSE, July 2016
Albania, Andorra, Antigua and Barbuda, Aruba, Australia, Austria, The Bahamas, Bahrain, Belize, Brazil, Brunei Darussalam, Canada, Chile, China, Cook Islands, Costa Rica, Dominica, Ghana, Grenada, Hong Kong (China), Indonesia, Israel, Japan, Kuwait, Lebanon, Marshall Islands, Macao (China), Malaysia, Mauritius, Monaco, Nauru, New Zealand, Panama, Qatar, Russia, Saint Kitts and Nevis, Samoa, Saint Lucia, Saint Vincent and the Grenadines, Saudi Arabia, Singapore, Sint Maarten, Switzerland, Turkey, United Arab Emirates, Uruguay, Vanuatu

The previously mentioned automatic exchange of information therefore hails the end of banking secrecy in these countries and continues to close in on the countries where privacy is still safeguarded, despite the geopolitical risks compared to the countries which were historically safer and favoured by Italians. These barriers can only stay in place for so long and sooner or later international pressure will manage to break down the last bastion of banking secrecy. Within the EU, the European Commission, following on from OECD’s tradition, proposed the implementation of EU directive no. 2014/107/EU which broadens the powers of EU directive no. 2011/16/EU on administrative cooperation in the fiscal sector, so that, as of 2017 member states undertake to adopt the Common Reporting Standard.

Italian strategy against international tax evasion
As a result of the changing international situation Italy also developed a parallel domestic strategy aimed at combatting tax elusion and tax evasion leading to an automatic exchange of information:
•    The introduction of voluntary disclosure, the final step of the strategy with which the state aims to recover a large amount of unpaid taxes which have been evaded over the years and re-admit important resources to the economy provides the tax payer with a ‘last chance’ to become tax compliant (for capital and investments held both in Italy and abroad which are in breach of Italian fiscal monitoring regulations) before being assessed by the Italian Revenue Agency. Taxpayers can remedy their international position via international voluntary disclosure and their domestic position via national voluntary disclosure and furthermore can benefit from a significant reduction in tax penalties and criminal law /coverage, including protection from some but not all aspects of the new crime of “self-money laundering”.
•    The introduction of the crime of self-money laundering which is already present in many other foreign legal systems;
•    The signature of bi-lateral agreements with well-known tax havens including Switzerland, the Principality of Monaco and Lichtenstein which allowed the exchange of information by request (and was immediately applicable) so the financial authority was empowered to ask specific questions about assets or income held in these states, in the period between the signature and the entry into force of the agreement.

Voluntary Disclosure in Italy
The international and national voluntary disclosure introduced into our legislation can be viewed as a kind of olive branch between the state and “undisciplined” taxpayers based on trust, collaboration and good faith in exchange for payment by the taxpayer of a lump sum with significant relaxation on tax and criminal penalties. There is a huge gap between this procedure and the fiscal shield as this one is based on the three principles of spontaneity, accuracy and completeness.

Characteristics of the procedure
The most important characteristics of the procedure are: its irretractable nature, its uniqueness, the spontaneity, completeness and accuracy. Statements made during application can not be retracted or subject to conditions: the same cannot be subject to the fact that the results are deemed acceptable by the taxpayer nor can they be submitted more than once, directly or indirectly or by proxy.

Subjective context
Voluntary disclosure procedures are mainly aimed at taxpayers (legal persons, limited partnerships and their equivalents and non-commercial entities and trusts) with investments or financial activities abroad in breach of fiscal monitoring regulations (involving the omission or unfaithful filling in of the ‘RW’ section of the income tax return: the so-called “international voluntary disclosure”). Furthermore the voluntary collaboration procedure is also available to businesses to rectify any eventual breach of fiscal regulations committed in Italy (the so-called “national voluntary disclosure”). Therefore the procedure can be validly requested by the following:
•    Taxpayers, including those who are not listed on the resident population’s records, but who have, in any case, their domicile or residence there pursuant to what is set forth in the civil code of the territory of the country for the majority of the tax period (such as sportsmen and sportswomen or foreign artists)
•    The so-called “shell trusts”;
•    Taxpayers with assets abroad which are not formally held by them but a foreign entity or foreign trust which is interposed;
•    Italian citizens who, even though the same are registered on the Registry of Italians Resident Abroad (AIRE), have kept their domicile or who, actually, continue to habitually reside in Italy (the so-called fictitious Italians resident abroad);
•    Italian taxpayers who have “shielded” their relations via a foreign bank, attributing the same to a company located in a black list country, or “disguised” as a foreign insurance policy, reserving the right to handle the same directly in his or her role as special prosecutor or indirectly via an intermediate of his or her choice;
•    Heirs of investments and financial assets which were held abroad by deceased persons and which are in breach of fiscal monitoring obligations;
•    Person/s who have been delegated to carry out transactions on a current account even though no transactions have been made.
Anyone who has adhered to the previous version can not participate in this version of voluntary disclosure.

Objective context
The objective context of this procedure is very broad and concerns all investments and financial activity which should have been declared in the ‘RW’ section of the income tax return. For example, the following may be rendered compliant; bank accounts, financial instruments such as participations, bonds, shares in unit funds and derivatives, insurance policies, jewellery, property, works of art, boats and any other moveable assets held abroad and/or recorded on foreign public registers.
If the collaboration concerns cash or securities to the bearer, the taxpayer shall:
•    Issue a statement attesting that the securities to the bearer do not derive from any source which may be considered an offence other than tax offences;
•    Ensure that any eventual safety deposit box in which the securities in question are held can be opened or an inventory can be recorded in the presence of a notary public who can certify the contents of the same;
•    Ensure that the cash amount is paid in to an account and/or securities are entrusted with a financial intermediary who is authorised to make a compulsory record and hold the same until the conclusion of the voluntary disclosure procedure.

Reasons for which taxpayers may not apply for Voluntary Disclosure
Persons who have been formally notified that tax assessments or criminal investigations are underway as a result of a breach of fiscal regulations concerning the matters contained in tax compliance procedures can not apply for voluntary disclosure. Prevention from applying for voluntary disclosure remains in force should the above-mentioned activities and conditions regard the objective context of the procedure. Neither statements concerning assessment of taxes deriving from tax returns submitted by taxpayers (under ex art. 36 bis Presidential Decree no. 600 dated 1973) nor notices of formal verifications of the same statements (ex art. 36 ter) shall be classed inadmissible. The only reason why a taxpayer may not apply for voluntary disclosure regards the fiscal year to be verified. However, it is possible to apply for voluntary disclosure for other years even if they concern the same matter to be investigated.
Finally, taxpayers who adhered to the previous version can not apply for the new procedure.

Ordinary Regime
Ordinary regime provides, in particular, that taxable amounts and taxes in reference to each investment and each asset must be analytically determined according to the regulations in force for the tax period of reference.

Flat-rate regime of income generated by financial assets held abroad
The application of the flat-rate regime is an option compared to the ordinary regime that can only be used when the average amount of financial assets at the end of each tax period for which voluntary disclosure is requested does not exceed 2 million Euros. The flat-rate regime option provides that income is quantified by applying 5 per cent to the amount of financial assets, which is promptly deducted at the end of each year. Tax due on income assessed via this rate shall be calculated by applying a tax rate of 27 per cent. The above-mentioned flat-rate regime aims to simplify the calculation of the tax base.

Fiscal years laid down for the procedure
Fiscal years laid down for monitoring purposes
The fiscal years laid down for voluntary disclosure in reference to breaches of fiscal monitoring law (breaches to the RW section of the tax return form), depend on the country in which the assets are held. If the assets are held in countries which are not on the black list, there are seven periods from 2009 to 2015, (please note the express provision to extend the assessment deadline until 31 December 2018 for those assessments due on 1st January 2015 – and therefore the year 2010 – are limited to the assessment of income and assets included in this procedure). However if the assets are held in a blacklisted country there are twelve annual periods and the terms are doubled from 2004 to 2015. In this case, the periods to be defined may be reduced to seven – and therefore the terms are both doubled – if all three of the following pre-requisites can be fulfilled:
•    The blacklisted country in which investments and financial assets were or are held drew up an agreement allowing an effective exchange of information.
•    The taxpayer who started the procedure and wishes to maintain the assets in the blacklisted country, which are the subject of the voluntary disclosure, must provide its foreign financial intermediary with an authorisation to send the Italian financial authorities all data concerning the assets which are the subject of the procedure (the so-called waiver) and enclose a copy of said waiver which has been countersigned by the foreign financial intermediary.
•    If the taxpayer transfers the assets, which are subject to voluntary disclosure, after the procedure has begun to another intermediary outside Italy or the European Union or the EEC, said intermediary must be authorised to provide financial data regarding the voluntary disclosure to the financial authorities starting from the tax period underway when the transfer occurs.

In light of the above, taxpayers with financial assets in Switzerland, Liechtenstein or the Principality of Monaco (who signed agreements on 23rd February, 26th February 2015 and 2nd March 2015 respectively) are entitled to have the annual assessment periods for fiscal monitoring halved as is the case for assets held in Luxemburg, Singapore and San Marino, as they are fully recognised as not being on the black list as of the end of 2014. Please find below a summary of the fiscal years to be rendered compliant according to the country in which the assets were held.

Fiscal years for income tax purposes
There are six fiscal years, from 2010 to 2016 which may be rendered compliant via voluntary disclosure for breaches of unfaithful income tax returns or VAT returns for non-blacklisted countries, (please note the express provision to extend the assessment deadline until 31 December 2018 for those assessments due on 1st January 2015 – and therefore the year 2010 – are limited to the assessment of income and assets included in this procedure) while breaches concerning failure to submit income tax/VAT returns have seven tax periods from 2009 to 2015. If the assets are held in a blacklisted country the tax years are doubled compared to the above-mentioned terms (from 2006 to 2015 for unfaithful income tax/VAT returns and from 2004 to 2015 for breaches concerning failure to submit income tax/VAT returns). In the latter case the fiscal years may be halved should the three pre-requisites set forth above be fulfilled for monitoring purposes.

Please find below a summary of the fiscal years to be rendered compliant according to the country in which the assets are held.


Penalties and benefits of the procedure
Completion of the voluntary disclosure procedure allows participants to benefit from reduced tax penalties for both tax monitoring on failure to submit returns or unfaithful returns on increased taxable amounts.

Criminal penalties
Completion of the voluntary disclosure procedure means participants can not be punished for the following crimes:
•    Omission to pay certified withholding tax;
•    Omission to pay VAT;
•    Fraudulent returns;
•    Unfaithful returns;
•    Omission to provide return;
•    Money-laundering /self-money laundering of income deriving from the above-mentioned crimes.

Self-money laundering crimes
The introduction of the crime of self-money laundering, which is already present in many foreign legislations, was directly provided for in the voluntary disclosure provision as it was deemed that this was the ideal way to complete the procedure. Protection from being accused of self-money laundering is one of the main reasons why, alongside the possibility of being discovered via the exchange of information, taxpayers were thought to be encouraged to apply for voluntary disclosure.
Said provision provides that punishment can be issued in the form of a custodial sentence of between 2 and 8 years further to a fine ranging from Euro 5000 to Euro 25,000 for persons who commit said crimes including those tax crimes which are no longer punishable due to the terms having elapsed, should the perpetrator undertake, replace or transfer the same into economic, financial, entrepreneurial or speculative activity, cash, goods or any other benefit as a result of the crime having been committed, in order to effectively shield the fact that the same originated from criminal actions. Punishment is increased when crimes are committed in banking or financial activity or other professional services.

Tax penalties

Failure to submit/unfaithful filling in of ‘RW’ section of income tax return form
The penalties imposed for failure to submit or unfaithful filling in of the income tax return form for fiscal monitoring purposes vary on the basis of the location in which they were committed. Please find below a summary:
•    From 3% to 15% of the amounts which were not declared, as shown at the end of each tax period for countries which are not on the black list;
•    From 6% to 30% of the amounts which were not declared for assets held in countries on the black list (up until 2007 the penalties were from 5% to 25%).

Benefits for monitoring purposes
The new voluntary disclosure procedure, compared to the previous one allows the taxpayer to self-assess taxes, penalties and interest due creating two situations:

  1. If the taxpayer opts for self-assessment a minimum penalty rate is applied (equal to 3 or 5 – 6% of the undeclared amounts) which can be reduced by half for assets which are (i) brought back into Italy or other white list countries, (ii) are held in Italy or white list countries (or iii) are held abroad with a specific waiver provided to an intermediary who can transmit any eventual data to the Italian financial authorities. The penalties applied to these three cases are halved and therefore equal to 1.5 or 2.5 – 3% of the amounts which were not declared (table 4); If, however none of the three above-mentioned cases occur, the reduction in penalty for self-assessment is equal to 25%, as per the ordinary reduction for simply having applied for the procedure. In this case the minimum penalty is equal to 75% of that normally set forth and consequently equal to 2.25 or 3.75-4.5% of the amounts which were not declared.
  2. If the taxpayer does not opt for the self-assessment option and waits for the Fiscal Authority to issue a formal notice of assessment for penalties, the same shall be equal to 60% of the minimum (instead of 50%) should at least one of the three above-mentioned situations be present (table 5) and 85% of the minimum (instead of 75%) in all other cases.

Finally, penalties for breaches of income tax return obligations for fiscal monitoring purposes, which have already been reduced as above, shall be further reduced to a third, in both the above-mentioned cases, following adhesion by the taxpayer following receipt of the formal notice of deed of assessment sent by the Italian Revenue Agency (Please see tables 6 and 7).


With reference to assets assessed by the new voluntary disclosure procedure, applicants are exempt from submitting the RW part on fiscal monitoring for the 2016 tax year. In the previous version taxpayers still had submit part RW for the 2014 tax year.

Failure to submit/unfaithful IRPEF (personal income tax), IRES (corporate income tax) IRAP (regional tax on production) and VAT returns
Both national and international voluntary disclosure procedures provide the opportunity to render compliant not only the breaches committed under fiscal monitoring law but also breaches on increased taxable amounts, with regards to taxes and relative additional rates, substitute tax on income taxes, regional tax on production as well as VAT and withholding taxes for all fiscal years for which, upon presentation of the request, assessment terms have not elapsed. Tax penalties for unfaithful tax returns (IRPEF, IRES, IRAP and VAT) range from a minimum of 100 per cent to a maximum of 200 per cent while failure to submit a tax return (IRPEF, IRES, IRAP and VAT) ranges from a minimum of 120 per cent to a maximum of 240 per cent. Said penalties double should assets be held in blacklisted countries (from 200% to 400% and from 240% to 480% respectively).

Benefits for IRPEF, IRES, IRAP and VAT purposes
Penalties applied for breaches of payments on increased taxable amounts can also be reduced if the taxpayer self-assesses the amount to be paid instead of having the same calculated by the Financial Authorities. More specifically by providing voluntary disclosure the taxpayer can benefit from the application of a 75% reduction of minimum tax penalty rates (equal to a penalty of 100% increased by a third should the assets be held in a blacklisted country) in such a way that the reduced penalty is equal to 100% (75% of 133%). If taxpayers decide not to avail of the faculty to self-assess the increased taxable amounts and sanctions, a penalty on the reduction in sanctions is applied equal to a minimum of 75% instead of 85%. The above-mentioned penalties, in both cases, which have been reduced as described above, may also benefit from a further reduction by one-sixth should the taxpayer participate in the discussion sent by the Financial Authorities.
Please find below four tables summarising the measures concerning unfaithful or omitted tax returns:


Should the taxpayer make an error during self-assessment, the same shall be subject to an increase on the difference due. Said increase shall be equal to 10% if the deviation is more than 10% of the amount to be paid for income subject to withholding tax or substitute tax (and relative penalties) and 30% of amounts to be paid in all other cases. The same increase shall be equal to 3% should the difference due be less than the above-mentioned deviation. If, however, payment made following self-assessment is in excess of that calculated by the Financial Authorities, taxpayers have the right to ask for said amount to be set-off or reimbursed.

Requirements of the procedure
Voluntary disclosure begins when an on-line application (drawn up by a professional) is submitted to the Italian Revenue Agency by 31st July 2017. Any amendments to the application must occur by 31st July 2017.
Voluntary disclosure can not be made anonymously. Those who wish to render assets held abroad compliant must “report themselves” and provide the Italian Financial Authorities with all the necessary documentation in order to reconstruct its tax record in reference to investments and capital held abroad during the tax year to be assessed.
Application to be admitted to the voluntary disclosure procedure can be made immediately by using the application forms drafted for the first voluntary disclosure procedure, as the new form will not be issued until Decree Law no. 193/2016 is converted into law and the Director of the Italian Financial Authority issues new regulations.

The cost of the procedure
Voluntary disclosure procedures differ in terms of taxes, penalties and interest according to certain factors such as, by way of example: the tax year in which the assets were formed, the country in which the assets are held abroad and the number of years to be assessed depending on the country in which the assets are held.
The amount due for taxes, penalties and interest can be settled in a lump sum payment by 30th September 2017 or in three monthly instalments – the first of which must be made by 30th September 2017.
Please find below an example of the cost of the procedure (based on self-assessment) for a hypothetical assessment based on reductions set forth by the regulations in force. Said example considers assets held abroad in white list or black list countries with agreements, before the tax periods which can be assessed (from 2010 onwards) and as such can not be taxed as taxable income in Italy and must be considered, in terms of cost, as further IRPEF tax (marginal rate of 43% for income over 75.000 Euro).

Disadvantages of the procedure
The reasons that could hold back a number of taxpayers from adhering to the voluntary disclosure procedure are that it is rather complex with a number of unresolved concerns and doubts. One of the most important concerns is that after taxpayers have adhered to the voluntary disclosure procedure further tax assessments will follow. The risk of further assessments is a particular concern for more complex assets and those companies with multiple offshoots. In these cases professional advice is essential so all documents can be correctly assessed and that all concerns can be resolved.

By Roberto Salin

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