To declare or not to declare?

By Gareth Horsfall - Topics: common reporting standards, Exchange of Information, Italy, Residency

That was the question of the summer 2017!

During the long hot summer of 2017 I had a number of people calling me for advice on when and which assets to declare which to date had not been declared in Italy. A troubling question indeed.

A number of people who have been living in Italy for many years had recently received letters from their banks, mainly in the UK. This letter had been asking the individuals to inform them of their TIN number: tax Identification Number (codice fiscale or National Insurance to you and I). The main question was why would they need this and what would the consequences be of not providing it.

THE COMMON REPORTING STANDARD
If you are one of those people who read my E-zines, you will know that I have written about this subject over the last few years on numerous occasions, but its worth going over the detail again now, since an automatic sharing of financial information across borders (of which the UK/USA/Italy and most developed countries are party to) will take place before the end of September 2017, if it has not happened already. The information they will receive will be backdated to 1st January 2016.

WHAT IS THE OBJECTIVE?
In short, the idea behind the CPS was modelled on a similar idea which the USA put into force before it. That was FATCA (Foreign Account Tax Compliance Act) and was designed to circumnavigate the individual to whom any tax liability may be incurred and for the banks and financial institutions with which we hold out money/assets etc, to declare these holdings directly to the relevant tax authorities.

So it no longer became the responsibility of the individual to report their money ‘correctly and honestly’. Now, this information would be reported directly.

The rest of the world has now pretty much followed suit (except notable offshore jurisdictions which are also coming under Governmental pressure to fall in line) and hence the need to get clarification on your country of tax residence and your TIN (Tax Identification Number).

WHAT INFORMATION WILL THEY SHARE ABOUT ME?
Under the Common Reporting Standard the financial information to be reported includes the name, address and tax identification number (where applicable) of the asset owner; the balance/value, interest and dividend payments and gross proceeds from the sale of financial assets.

The financial institutions that need to report include banks, custodian financial institutions, investment entities such as investment funds, certain insurance companies, trusts and foundations.

The tax authority will receive much more information than ever before. Even information it does not need. For example, there is no wealth tax in countries like the UK, Portugal, Cyprus and Malta, but the tax authorities will still receive bank account balances. If this raises any red flags they may investigate where the money came from in the first place.

IS THIS NEW?
Exchange of financial information across Europe has been going on for a long time now and can be traced back to the introduction of the European Savings Tax Directive 2005. The Common Reporting Standard is an enhancement of this.

I explain the Common Reporting Standard as follows:

Imagine a normal spreadsheet in which all tax authorities have been entering information regarding us for years. The Italian, Spanish, French and British authorities all created their own spreadsheets with their own column headings and rows. When this was exchanged with another tax authority it would first have to be interpreted before the information could be used. The CRS went one step further. In effect, all countries are now using the same spreadsheet with the same column headings and rows and the data is much easier to interpret. With the help of computers they can identify discrepancies very easily. (This is clearly a simple explanation, but helps understand the concept)

I remember well in 2012 when I was contacted by a number of UK rental property owners who had been legitimately declaring their UK property income in the UK for tax purposes. However, as residents in Italy they had not declared anything. A clear exchange of information took place and the Guardia di Finanza did a significant number of visits to these people to fine them.

SHOULD I TELL THEM?
A logical question would be, what if I don’t tell the bank or financial institution of my TIN?

The banks would refer to the country in which they have the most information about you. It logically concludes that if you have a UK address on a UK bank account, but live in Italy, and have received a letter to confirm your TIN then the bank already suspects that your tax residency has not been correctly declared. It would be up to you to prove otherwise were you subject to an investigation.

What would happen if I gave my TIN in my country of origin?
If, for example, you gave your National Insurance number in the UK, but were living in Italy, then the UK authorities would consider you a UK tax resident and tax you there. That may be your preference, but should any institution or Government suspect that this is being declared falsely then the consequences could be severe. The logical conclusion here is that if you are making payments in Italy on a regular basis and/or sending money to an Italian bank account then this information would be red flagged.

So what should you do if you are NOT ‘in regola’ yet?
From the people that I spoke with this summer, it seemed that a number were afraid of giving this information because it would highlight any money/assets which have not been declared correctly to date. The sad news is that you are probably too late. They know already, hence why you received the letter.

My advice is always the same. The past cannot be corrected but you can change your future. Hiding and hoping the problem will go away is no longer an option. The only solution is to get your financial situation ‘in regola’.

WHAT WILL I PAY?
How you declare your money and how much you will pay is another question and one that can only be calculated by a commercialista, but it does make sense to have a look at your whole financial situation and see what damage limitation you can do by planning efficiently as a tax resident in Italy. That is my specialty and I always recommend you contact me before going directly to the commercialista because there may be ways to mitigate any tax burden before you make that first tax declaration. Once the first tax declaration is in, any subsequent changes can be difficult and costly to rectify.

“Never look back unless you are planning to go that way”

Article by Gareth Horsfall

Gareth HorsfallIf you live in Italy and or have financial interests in Italy you can contact Gareth Horsfall directly on: gareth.horsfall@spectrum-ifa.com to request more information about how he may be able to help you. Alternatively you can complete the form below and a message will be sent to him. If you would like to read more about Gareth's work you can follow his blog on tax and financial planning in Italy HERE

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