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THE ITALIAN TAX AMNESTY ON UNDECLARED FOREIGN ASSETS

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The introduction of new Italian legislation increasing (sometimes doubling) the sanctions for tax evasion related to illegal export of funds and undeclared foreign assets, has also been the opportunity to introduce a second tax amnesty in Italy, after the earlier, 2001 disclosure facility.

This legislation applies to Italian residents under current tax legislation, whether Italian nationals or foreign nationals, domiciled in Italy or abroad.

Under current tax legislation, individuals, partnerships and similar bodies (Societa` di persone e associazioni equiparate) resident in Italy are required to list in their Italian annual tax return (Dichiarazione dei Redditi) any holding of foreign funds / assets (outside Italy) exceeding Euro 10,000 and to declare any foreign income arising therefrom.

This is in addition to the exchange control regulations limiting the way in which funds in excess of Euro 10,000 can be taken out of the country.

It has frequently been the case that funds have been illegally exported out of Italy, and have never been taxed. The current tax amnesty (nicknamed "Scudo Fiscale ") addresses this situation, by providing a special way to regularize the situation in a simple but highly confidential way.

The details of the tax amnesty disclosures lodged with Italian banks and authorized financial institutions are confidential and will not be disclosed to third parties nor to the Italian Revenue, however should the matter come to the attention of the authorities, the repentant taxpayer will be able to avoid any sanctions, by exhibiting the papers proving his compliance with this new legislation.

1) "Scudo fiscale" (Tax shield) the new amnesty.

This amnesty relates to tax evasion / assets taken out of Italy up to 31st December 2008. It will not apply to taxpayers whose affairs are being investigated, nor where tax assessments, sanctions and penalties have already been issued.

The legislation is aptly called "Extraordinary tax on the repatriation of foreign financial and patrimonial assets " (Imposta straordinaria sul rimpatrio di attivita` finanziarie e patrimoniali detenute fuori del territorio dello Stato), and will only be available for the period between the 15th September and the 15th December 2009.

Considering the practical difficulties that may be involved in implementing some of these provisions, it is a very short window of opportunity.

Basically, the taxpayer is required to lodge a confidential report (Dichiarazione riservata) with an Italian bank, financial institution or authorised management company, listing full details of the foreign assets (the same details which should have been declared in the omitted annual tax returns) in question.

At the same time, the taxpayer must also pay the special amnesty tax, which is levied at the rate of 50% on an annual deemed income of 2% for the relevant foreign assets in the last 5 years. No deductions for losses or expenses / charges are allowed. Basically the payment required is 5% of the value of the undeclared foreign assets.

The bank, financial institution or authorised management company will then pay this sum over to the Italian Revenue without disclosing any details and will deliver a stamped receipt to the repentant taxpayer, which is both a certificate of compliance with the new legislation and evidence of payment of tax. This document will prevent any further enquiries and shield the taxpayer from any future assessments / penalties. This is why this legislation is called "tax shield" (Scudo fiscale).

2) "Repatriation" or "Regularization" ?

This however is not the end of the story. At the same time, the repentant taxpayer must take back into Italy his foreign undeclared assets, and this is where the difficulties and delays are likely to arise. Under the new legislation the foreign assets may be "repatriated" or "regularized".

Repatriation (Rimpatrio) is available for all assets, from all countries of the world. Basically the funds, shares, securities, jewellery etc must legally be taken back into Italy. By complying with current exchange controls, the resident taxpayer may even, himself, bring his assets back into Italy himself.

Alternatively, it is possible to have "juridical repatriation" (Rimpatrio giuridico), where the foreign assets are formally placed in the custody / under the control of, or management of authorised Italian banks, financial institutions or management companies who at the same time should receive the repentant taxpayer`s confidential report (Dichiarazione riservata).

Where the foreign assets are in a European Union member State and in a very restricted number of other States which fully co-operate with the Italian Authorities in tax matters, it will be possible "to regularize" (Regolarizzare) the foreign assets. This will effectively mean that the assets will not have to be taken back into Italy, nor any changes be made, but simply disclosed / listed in the Dichiarazione Riservata. Greater details (sometimes a full sworn valuation) will have to be added to the confidential report (Dichiarazione Riservata). This procedure will be particularly useful in the case of foreign properties / land, yachts and ships, valuable paintings, sculptures and other artistic assets.

Complex rules apply to trusts and controlled foreign companies.

3) The wider context.

Although this legislation has been condemned as "condoning" tax evasion, and undermining the rule of law, it must be seen in the context of the effort made by the Italian authorities to collect revenue in a deep recession.

The same legislation marks a substantial effort to prevent future tax evasion. It introduces a general presumption that any undeclared foreign assets originate from tax evasion, and must be treated accordingly.

Penalties for failure to report foreign income and undeclared foreign assets are increased to between 200 and 480 times the tax actually evaded. New heavier measures have been introduced against tax havens. Meanwhile the Italian tax courts have introduced a very wide definition of "abuse of rights" which will discourage tax avoidance as well as tax evasion.

A very delicate balance is struck with anti-money laundering provisions, in the sense that only specific tax offences are excused. Italian banks, financial intermediaries and management companies are required to report suspect applications / matters.

This new legislation originates from a wish to draw a line under a regrettable past, and to give a chance of rehabilitation to situations which have developed over a protracted time, a chance which may not come up again.

Dr Claudio Del Giudice - 24.11.2009

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