Article 1 of Law Decree no. 4 of January 24, 2014 (the "Decree") introduced a voluntary disclosure procedure (the "Procedure") with the purpose of promoting the disclosure of unreported assets held abroad for tax purposes. While the Decree was not adopted into law within the requisite period under Italian law, the Finance Commission is preparing a draft bill which includes much of the Procedure introduced in the Decree.
Under the Italian tax system, Italian tax resident individuals are required to report in a special section of their annual tax return (the "RW Section") the value of their financial assets held abroad at the end of each financial year. In the RW Section, Italian tax residents must generally report all investments held abroad, including financial interests such as shares, bonds, securities issued by non-Italian entities, and bank deposits held by foreign credit institutions.
Stock options issued by nonresident companies must be reported only if (i) they can be exercised; and (ii) their exercise price is lower than the fair market value of the underlying shares. A failure to comply with these obligations can result in penalties ranging from 3 to 15% of the value of the undisclosed assets (penalties are doubled if such assets are held in black-listed countries).
Pursuant to the Procedure, individuals who have previously failed to file, or incorrectly completed, an RW Section could benefit from a reduction in the administrative penalties and from an exclusion of criminal liability for nonfraudulent conduct by disclosing to the Tax Authorities any previously unreported (or incorrectly reported) financial assets as well as the related taxable income, if any. The Procedure required the taxpayer to pay: (i) taxes, if any, due on income not reported for Italian tax purposes that has been used to acquire the financial assets previously unreported (or incorrectly reported), plus interest; (ii) taxes due on income arising from unreported assets held abroad, plus interest; and (iii) reduced administrative penalties relating to the failure to file or the incorrect filling of the RW Section and the failure to pay taxes, if any.
Under the draft bill, amendments to the Procedure are being discussed, which include requiring the taxpayer to pay 50% of the tax due, plus administrative penalties, rather than the full amount of the tax, and a reduction in the statute of limitations in certain cases once the voluntary disclosure process has begun. Additional guidance is expected.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.