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Italy Confirms Removal Of Foreign Capital Declaration Threshold

Monday, December 30, 2013

In a circular dated December 23, 2013, the Italian Revenue Agency has confirmed that individual taxpayers should now declare on their tax returns all capital held abroad, as the previous threshold of EUR10,000 (USD13,700) no longer applies.

The Agency's clarification is in line with the latest modifications introduced to ally Italian regulations with European Union (EU) law and, in particular, with the need to ensure compliance with the obligation to declare all foreign capital held to the relevant tax authorities of member countries.

The sections of individual income tax returns that collected information on transfers to and from non-residents have also been abolished, and the new taxpayer obligation has been extended to a declaration of all assets and investments held abroad and over which he or she has the "effective title" (a concept borrowed from anti-money laundering rules, which includes capital held in corporate or trust structures).

The EUR10,000 limit, under which, previously, a declaration was not required, has thereby been eliminated, and it has been specified that all individuals that exercise control over at least 25 percent of the assets of an entity are to be considered as having an "effective title."

However, for example, Italian residents who work abroad for the Government, and those who work in border areas or in neighboring countries, particularly Switzerland, are exempt from the new obligation, as long as such employment has been undertaken continuously for the majority of the tax year, and the individual repatriates all foreign assets on re-entry into Italy.

In addition, taxpayers who put all of their financial assets and wealth in the hands of an Italian financial intermediary will be absolved from all aspects of the new control procedures.

After the recent approval of the 2014 Budget, the penalty fees for failure to declare assets will be reduced to between 3 percent and 15 percent of the amount of funds undeclared (from between 1-0 percent and 50 percent previously), to which is added the risk of confiscation for the full value.

Those sanctions have been increased to between 6 percent and 30 percent when the undeclared financial and investment assets are being held in a "tax haven" jurisdiction on Italy's black list.

On the other hand, reduced sanctions, down to one-half of the above minima, are available in exceptional circumstances, and a penalty of only EUR258 is charged if the necessary declaration is presented within 90 days of its due date.