At the end of last year the Italian Parliament passed legislation introducing an Italian tax on foreign properties (“IVIE” or “Imposta sul Valore Immobili Esteri“) and on foreign financial assets (“IVAFE” or “Imposta sul valore delle Attivita` Finanziarie detenute all` Estero“) held by taxpayers (whatever their nationality) resident in Italy. So for instance, British citizens who elected to be resident in Italy, will be affected. These taxes are now due and payable by the 9th July 2012 and, because of their novelty and extra-territorial impact, are bound to cause problems.
Under Italian tax legislation foreign income of Italian residents was and currently is taxed. However this is the first time that the Italian legislator attempts to tax foreign assets on a specific individual basis.
A circular recently issued by the Italian Revenue has provided some clarification. However, by their own admission, such clarification is the result of an analysis conducted by the Italian Revenue, without any contacts / consultation with foreign tax authorities. It is expressly left to the Italian resident taxpayer to argue that in particular instances IVIE is to be calculated in a different way. This will, however, put a substantial burden on all taxpayers affected.
IVIE is levied at the rate of 0.76% on the value of foreign properties held by Italian resident taxpayers, whether they are Italian nationals or foreigners (whatever their nationality and involvement with Italy). The discriminating factor is actual tax residence in Italy, established in accordance with Italian law.
Such foreign property value is to be calculated considering the purchase price paid, or the value as determined by any applicable foreign legislation. Where the foreign property was inherited, the value for the purposes of Inheritance Tax may be used.
The Italian Revenue Circular provides additional clarification with reference to foreign properties within the European Union and the European Economic Area. The problem is that the Italian tax authorities continue to think in terms of Italian property law, when dealing with foreign properties.
This is likely to cause problems.
With special reference to Common Law countries for instance, the recent circular of the Italian Revenue says that IVIE tax will be payable by leaseholders and will not be payable by freeholders. This tax is due in Italy even if the foreign property is held by the Italian resident taxpayer through a company, a trustee or an intermediary.
In the case of properties held by Italian resident taxpayers in the United Kingdom, the Italian Revenue directs that IVIE tax is levied on the Council Tax value of the relevant United Kingdom property. The problem here is that Council Tax is levied by Valuation Bands. These are not individual specific values, but ranges of values.
Is IVIE going to be calculated on the lower value, the average value or the highest value of the particular Valuation Band ? It is not clear.
IVIE will not be payable where the amount of tax actually payable for a foreign property is less than Euro 200. Effectively, foreign properties worth less than Euro 26,381 are therefore, exempted.
From the amount of IVIE tax calculated as above, it will be possible to deduct similar “capital” taxes paid abroad. However, it is clear from the indication provided so far by the Italian Revenue, that Council Tax cannot be deducted fromIVIE tax levied on properties in the United Kingdom.
This would clearly point to an amount of duplication of tax, which because of the novelty of IVIE is unlikely to be mitigated by the existing double taxation treaties ratified by Italy.
Some reduction of tax / mitigation is provided for employees of the Italian State or of international organisations recognised by Italy. Tax reductions similar to the reductions applicable to the new IMU tax (Read article) will apply on condition, of course, that the relevant taxpayers do not already own another property in Italy.
IVIE will also affect a number of foreign owners of Italian properties, who in the past, in order to mitigate their exposure to Italian Registration Tax, formally elected to become tax resident in Italy at the time they bought a property in Italy. All their foreign properties will now be taxable in Italy and this is bound to be very expensive.
IVIE is now due and payable by the 9th July 2012. This Italian tax can also be paid between the 10th July 2012 and the 20th August 2012, but interest at the rate of 0.40% must be added. After the 20th August 2012 penalties will apply.
These penalties are established to deter Italian Income Tax evaders and are substantial.
Claudio Del Giudice – Copyrights reserved – 3rd July 2012