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Tax Reporting in Italy

By Gareth Horsfall - Topics: common reporting standards, Italy, Tax in Italy
This article is published on: 4th June 2021

04.06.21

Excuses that will not fly with the Agenzia delle Entrate

You wouldn’t believe it, but I started venturing out last week. I actually visited some clients and spent time with people, in the flesh, who exist outside my social bubble! It really was quite a bizarre experience because the first thing that hit me was that apart from the fist bumping and/ or deliberate distancing, that the relationship had not changed one iota. It was business as usual, which I found odd at first because after everything we have been going through I assumed that maybe that things would have changed a bit. I am now totally convinced that it will be business as usual once this phase passes!

So I am going to let life take steps to getting back to normal and move onto important financial matters. This article is entitled ‘Excuses that will not fly’ because since tax reporting time is upon us again, I thought I would look at the most common excuses that I have heard over the years when it comes to reporting taxes correctly…and I have heard a few! I also want to cover the Common Reporting Standard again, what it is and why it is very important that you get the tax reporting right every time.

Excuses, excuses
I have to be honest and say that I have heard probably every excuse possible for not having made tax declarations in Italy, and whilst in many cases I do actually feel quite sorry for the person, because it is a genuine mistake mainly due to lack of knowledge, excuses will not fly with the Agenzia delle Entrate (AdE), no matter what your intentions were.

tax reporting Italy

So here are the top excuses that the Agenzia delle Entrate do not care about.

1. I didn’t know I had to.
This has to be at No 1 because it is the most common one I have heard over the years. Needless to say the AdE has no interest in whether you knew you had to do something or not. It is your responsibility to get informed, and failure to take the right advice or do the right thing means you are liable for all back taxes if they catch up with you.

2. I am not a tax resident.
I have written about this many times in the past. If you are registered as resident in Italy, i.e. you have registered at the comune and are registered at the Anagrafe, then you are more than likely, in the eyes of the AdE, going to be considered fiscally tax resident as well. Just because you live in another country for more than 183 days per calendar year and your main work and/or family interest are outside Italy, it does not matter to the tax authorities. You have registered to say you are resident and therefore they can legitimately come after you for taxes.

I was recently contacted by someone who said that she had been registered as resident in Italy since 2007, when she bought a house, but the home had only ever been used as a holiday home (she was informed by the estate agent that if she registered as resident then she would only have to pay 2% VAT on the purchase rather than 9%). However, the registration meant that she was also fiscally tax resident. The tax authorities have recently contacted her to ask for all back taxes in the last 5 years on her worldwide incomes, assets and gains.

The only way to resolve this now is to put a case forward to demonstrate than she was UK tax resident and falls under the double taxation treaty. That will likely mean lawyers and accountants needing to get involved and an extensive negotiation with the AdE and the UK tax authorities. In addition, they can legitimately ask for all the taxes to be paid whilst the situation is resolved.

One simple rule to remember is that if you want to simply own a holiday home and have no intention of becoming a fiscal tax resident in Italy then do NOT, under any circumstances, register as resident at your comune!

**A small note here, just to say that because of Brexit a number of Brits asked me about taking residency, pre 31 December 2020 as a way of getting around the travel restrictions imposed by the EU for non-EU citizens: 90 days in 180 day travel in the Schengen area. The answer is very simply that it is not possible unless you want to be on the radar for taxes as well. It is an all or nothing situation!**

3. I am covered by the double taxation treaty (DTA) between my country and Italy, and therefore considered non-resident.
This is one that I also hear often and stems from a misunderstanding of the DTA. The tie-breaker clause in the DTA states that where two states cannot agree on the residence of an individual then a number of criteria will be applied to determine the residency of the said person.

This might seem cut and dried, but if you register as resident in Italy but maintain your family/work/social and business interests in another country it DOES NOT mean that you automatically fall under your home country rule. In reality Italy, as any other country, could ask you to pay your taxes for your time registered as resident. You would be expected to pay and then deal with the respective tax authorities to reach a ruling as to exactly where your actual residence lay in those years. The important part to note is that, if asked, you would be expected to pay your outstanding taxes and then claim them back! Better to plan your residency carefully before a permanent move or a simple house purchase.

4. My commercialista told me not to declare it.
This is another well-worn example of getting informed before you decide a course of action. The simple rule with the commercialista is that whatever they ‘advise’ must be written down either in an email or on headed paper and signed. The excuse that they told you not to do it, which you later find out not to be correct, will not pass AdE inspection. In addition, if it isn’t written down then you have no come back against the commercialista if they have advised you incorrectly. All commercilisati have to hold professional insurance in the case of them giving bad advise, but no evidence, no claim!

Commercialisti are in general good at what they do, but you may find that your local firm is more knowledgeable about running a local agriturismo business than how to advise ‘stranieri’ with their overseas tax declaration. I now speak and intermediate with my clients’ commercialisti to ensure a) they know what products they are dealing with and b) how they should be declared. Most commercialisti are willing and want to learn and very frequently tell me something I was not aware of either.

One quick rule: If your commercialista tells you that you don’t have to declare something then go and find another one. Everything needs to be declared in Italy!

5. I pay tax already on my house in the country where it is located. Why I should pay the Italians as well?
I can’t recount how many times I have heard this one and whilst I understand the feelings around paying taxes in one state and then having to declare them again in Italy, these are the rules. Property is a fixed asset, and by fixed I mean physically fixed to the ground (unless it’s a caravan!) and therefore you must, by law, declare the asset and income from it in the country where it is located, first. Once you have been through that process you then need to declare it in Italy in the same way. If there is a double taxation treaty between Italy and the country in which the property is located, and it covers property specifically, then you should be able to claim a tax credit for any tax paid. You will therefore end up only paying tax in Italy at Italian rates.

I often hear people tell me that their commercialista has said that they cannot deduct expenses in Italy. This is correct. If your property is located in the UK, for example, then you cannot deduct any UK generated expenses ‘directly’ in your Italian tax return. However, this misses the point that they can still be deducted. You can and should still apply allowable expenses in the UK (in this example). In Italy, you report the UK income generated after UK allowable expenses.

6. I don’t want to declare that for tax in Italy, it was a gift.
This is one I don’t hear so often but it comes up every now and again. You may have received a gift from someone or received an inheritance as part of the distribution from an estate and obviously taxes may need to have been paid in the state where the estate is administered. Once you receive the money then it needs to be declared in Italy in whatever form you choose to hold it, annually. The gift/inheritance will not be taxed again as Italy respects the fact that taxes have already been paid on the gift/inheritance. Therefore, not declaring the monies you receive doesn’t make any sense and would be merely seen as a deliberate attempt to hide money from the tax authorities.

7. My ‘stranieri’ friends have been living in Italy for years and none of them pay tax in Italy.
These excuses are not in any particular order because if they were then this one would be nearer the top of the list. It’s a common one and makes me sigh with despair every time I hear it. It is also my favourite!

The chances are that your friends are not doing what they should be doing and it is only a matter of time before they get picked up by the tax authorities. I know there are plenty of people who are living in Italy, and have been for many years, without having made any declaration to the Italian state. I don’t think I need to say that this is 100% illegal and is advice that should not be followed!

For EU nationals, taking the risk of hiding under the EU Freedom of movement directive seems to be an option that some are happy to take. They remain resident in their home country but live in Italy all year round. Admittedly, I think they would be hard to find, but then they are not registered in the Italian system, are unable to buy a car or claim on the state for medical or other benefits.

Those people who are registered as resident, but also failing to declare themselves as fiscally tax resident in Italy are in a much more precarious situation and given the recent example, (as highlighted above in excuse No 2), then it is not a position that I would want to be putting myself into.

For non-EU nationals, then it is cut and dried. If you obtain a Permesso di Soggiorno to remain in Italy for over 6 months a year, then you are fiscally tax resident. If you fail to declare your taxes in Italy, and are subsequently contacted by the Agenzia delle Entrate, then you can’t say that you weren’t warned.

I think that finishes the list of excuses. Clearly it is not a definitive list. I am sure there are more but these are the most frequent that I hear. I hope that they provide you with some direction if you are wondering about what or how to declare in Italy. I have a very simple mantra which I stick to which may also help you:

IF IN DOUBT DECLARE THE ACCOUNT!

common reporting standard

The Common Reporting Standard

In this next part I want to go over some old ground, but which will put what I have written above into context and show why getting your declaration right in Italy is becoming more and more important.

I remember well, during the spring back in 2014/15 when I was contacted by a large number of people who had recently been contacted by the Agenzia delle Entrate (AdE) for unreported assets in their Italian tax return, or in a high number of cases, failure to even submit an Italian tax return for income/assets that they held overseas.

This is now happening again but with more rigour!

This is all coming about because of The Common Reporting Standard and Automatic Exchange of Information (AEOI).

These are international agreements that were developed by the 34 member states of the Organization for Economic Cooperation and Development (of which Italy was one) via its permanent “Global Tax Forum”. AEOI was designed to help combat cross-border tax evasion by individuals who were not reporting and paying applicable taxes on assets held through non-domestic financial institutions, whether these assets are held in the name of the individual or through certain offshore entities such as companies, trusts, foundations, partnerships and similar. It is primarily focused on individuals and “passive” income (i.e. dividends, interest, capital gains, etc.). It came into force in 2017 but information was backdated to the 1st January 2016.

How does Italy know if I have assets abroad?
Have you been contacted in the last few years to provide your TIN. (Tax Identification Number) to your overseas bank and/or financial institution? I have, on numerous occasions! If you a resident in Italy this number is your codice fiscale in the UK it would be your National Insurance number and in the US, your social security number, to name a few.

It is now a legal requirement to provide your TIN number on any financial contracts that you adhere to, be it banks accounts, investment portfolios, insurance policies, or other financial instruments. I have a small investment account with Hargreaves Lansdown in the UK and was recently contacted by them to update my codice fiscale. Through an error in their systems they had failed to pick up on the fact that I had given it some years ago, but they were refusing to allow me access to my account if I did not provide it again. It got resolved, but it shows you how seriously this is now being taken when financial institutions will block access to your accounts if you don’t provide them with the information needed to share information with the correct tax authorities.

data privacy

What information will they share about me?
Under the Common Reporting Standard the financial information 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, custodians, 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 and even simple bank account balances showing money coming in and out can raise red flags and the AdE can choose to investigate where the source of the money came from.

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 remember that 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 because they didn’t know they had to. A clear exchange of information took place and the Guardia di Finanza did a significant number of visits to these people to fine them.

***This is also happening again this year! We are seeing the AdE issuing letters for unreported income going back as far as 2015/2016***

***The Covid crisis has sharpened the eyes of the tax authorities as they are now searching desperately for more tax revenue lost through the pandemic. We have seen AdE activity rise since the start of the year and even seemingly small mistakes on tax returns or undeclared assets are being investigated***

Low hanging fruit!
Remember that with the kind of information that the tax authorities are receiving from one another, we really are the lowest hanging fruit to pick from. Easy pickings! So, 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 not 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 to regularise your situation is a question that can only be answered by a commercialista, but it does make sense to have a look at your whole financial situation beforehand to see what damage limitation you can do by planning efficiently as a tax resident in Italy.

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

The Changing Financial World

By Alan Watson - Topics: common reporting standards, France, Investments, ISAs
This article is published on: 18th October 2019

18.10.19

It was December 15th 1996; my wife and I were happy to be in Morzine and were enjoying dinner at hotel Les Airelles. Jean-Claude, the owner, was very attentive – we were his only guests! Heavy snow was falling, so the drive back to our home in Le Biot was a slow one, spotting just one other vehicle parked suspiciously in St Jean D’Aulps, the Gendarmes, who looked bemused that a Dutch plated car should mess up the untouched snow cover.

During Christmas I worked as usual in my IFA business covering Europe, but it was a stress free time; international clients had little to bother them, the main concern being market direction. The FCA did not exist; tax people were only after the big fish; even the Financial Ombudsman, for complaints, was years from formation; regulation was unheard of; QROPS transfers were an age away. The Isle of Man, Guernsey, Jersey, and of course Switzerland were the favourite hiding centres. Clients were happy to deposit large sums resulting from their global company contracts. Banks happily took in and paid out in cash, accepted transfers from third parties, and asked minimal questions to new arrivals in the beautiful French Alps; they were simply hungry for this amazing new flow of business. The financial world was a relaxed place, where large sums of “tax free” money could be transferred to the Notaries, who would inform the local land sellers that they had become wealthy; keys were given, dreams were realised and that much expanded supermarket just out of town saw the wine shelves emptying like never before. Travel businesses sprung up with sexy names like, “Utah snow and sun”, and their chalets were full the whole winter. The French tax people started to scratch their heads. Not only were local people driving back and forth through the Swiss border every day, but now a new irritation had arrived in town and some serious checking was necessary. The French Fisc. suddenly had many more employees, serious computer power, and somebody could apparently speak ENGLISH !

It’s now October 2019, my wife and I still love to eat in Morzine, but things have changed. Conversations with my clients all over the Rhone Alpes region take on a very different and focused tone. A global directive of information exchange requirements has shaken up the old world called CRS, “Common Reporting Standard”, which means the UK will exchange all financial, bank account, insurance policy and investment account information with France. Even that renowned haven of Swiss Private Bankers are happy to flood Europe’s tax offices with full financial disclosure information on former residents and clients. If that’s not enough, I regularly hear of clients being pestered by cold calling IFAs based in Paris, the south of France, even Dubai. The pleasure of being seen on social media! But now the approach is somewhat different, we have tight European regulation, or do we?

Making life changing investment decisions is a delicate operation. If somebody tells you they are part of XX group in Gibraltar, but due to “flexible” European financial regulation, they can passport, operate in France – beware: if things go wrong the UK, FCA or French regulator Orias will be unable to help you. A fully regulated French company holds the correct licenses and your chosen adviser should know French rules and regulations, preferably from many years experience in the region. Some individuals choose to keep a leg in the old country, just in case, but this half-half decision could cost you dearly. “Is a UK ISA tax efficient in France?” “My money is 100% Sterling, so impossible to move it over here.”

Your chosen IFA should know a great deal. Test their knowledge on markets, tax issues, currency movements/history, inheritance. Can they introduce you to competent local professionals? Moving from one country to another is a big step. Do make sure all fits into place, you should enjoy this wonderful region for years to come.

Common Reporting Standard – Italy

By Gareth Horsfall - Topics: common reporting standards, Italy, Tax
This article is published on: 2nd May 2018

02.05.18

You will be aware that since January 2016 the Common Reporting Standard has now been in effect. This is an OECD agreed standard for most nations around the world to automatically report tax and financial information of individuals, to one another, on a regular basis. This circumvents the historical need for the individual to accurately report their financial information on a tax return to ensure that the relevant level of tax revenue is collected. Now, this information is reported directly to the tax authorities and the information declared in your tax return needs to ‘tally’ with that which the authorities, theoretically, already know.

So, were you one of the 30,000 at the start of 2018? I was !
You may wonder what this relates to? In January 2018 it is reported that the Agenzia delle Entrate sent out up to 30,000 letters to people whom they knew had money held overseas, to ask them to report accurately the money they held outside Italy and to ensure a ‘ dichiarazione integrativa’ was completed before the next tax filing date in order to correct any discrepancies. I was the lucky recipient of one of those letters.

In regola
Thankfully my overseas financial affairs have always been ‘in regola’ with the Italian authorities. However, the letter prompted me to take a closer look to ensure I had not missed anything. Indeed, it turned out that I had missed a grand total of £500 from my last Italian tax return.

However, this does beg the question whether the Agenzia delle Entrate knew about this or whether it just sent a generic letter ( all the letters were the same and generic in nature) to put the cat amongst the pigeons, to coin a phrase. I am of the mind that it is the latter, but am I willing to take the risk? Absolutely not.

Are you paying more than you need to be?
My experience over the years has been, that in most cases, you may be paying more than you need to. There are a number of financial planning opportunities, to protect, reduce, and avoid certain taxes in Italy, that few take advantage of unless you undertake a closer look at your full financial affairs whilst living in Italy.

If you have any questions about the content in this E-zine or others then you can contact me on gareth.horsfall@spectrum-ifa.com or on cell: +39 333 649 2356

IF IN DOUBT, DECLARE THE ACCOUNT

By Gareth Horsfall - Topics: Automatic Exchange of Information, common reporting standards, Italy
This article is published on: 22nd January 2018

22.01.18

The start of the year presents many challenges for me. The start of 2018 presents an interesting challenge that I am not used to. My quandary reminds me of my days at the school swimming pool. The water was always cold. The question was do I jump in and get it over with in one go or do I ease myself into the water gently and take it slower?

The question for me regarding my articles is always what can I write? However, the start of 2018 seems to be an exceptional year in that I have lots of ideas but the biggest question in my mind is how do I ease ‘you’ into these topics?

Well, I can tell you that in my schooldays I was always the jumper. I enjoyed (maybe the use of the word ‘enjoyed’ is a little strong but it was better than the other option for me) throwing myself in and then warming up through vigorous exercise. So it looks as though you are following me in as you read on……

LET’S TALK ABOUT BANK ACCOUNTS
I know that in 2017 you may have received a request from your non Italian bank asking you to provide a T.I.N. for International sharing of tax information purposes. The TIN being the Tax Identification Number or codice fiscale for Italian tax residents. This has caused a lot of concern as bank accounts abroad have often been left undeclared by Italian tax residents for a variety of reasons.

One of the reasons I often hear is that the balance is so low that a declaration is not required in Italy. This could be correct but in this E-zine I want to clarify this law to ensure that you don’t fall under the spotlight with the Italian tax authorities.

So what exactly is the law in Italy regarding the minimal balance which requires a foreign held bank account to be declared?
The law articolo 2, comma 4-bis, del D.L. n. 4/2014, convertito in Legge n. 50/2014, modificato dalla Legge n. 186/2014 states that there is a requirement to monitor foreign held accounts whose maximum total balance in the tax period exceeds €15000. (remember you need to convert to euro if your bank account is in another currency)

This means that if you have a foreign held account that in a calendar year has never exceeded €15000, you are NOT required to comply with the discipline of monitoring. If it has. then the Quadro RW should be completed.

IT’S NOT THAT SIMPLE
However, this is where the confusion begins because this implies that if the balance of the account does not exceed €15000 in the calendar year then no declaration is required. However, the obligation to complete the Quadro RW (declaration of foreign held assets) exists in relation to the average value of deposits into the same bank account, consequently bringing in a new measure of a minimum of €5000 in annual deposits.

e.g. if I were receiving a pension income of £1000 a month into my UK bank account and had outgoings of £900 pm, the balance of my account would never exceed the €15000 in any year, but it would exceed the annual deposit of €5000. (my income payments would be £12000 in the year). Those income payments could be subject to income tax. A declaration of the account should be made.

A CLEAR DISTINCTION EXISTS BETWEEN THE MINIMUM ANNUAL BALANCE OF €15000 AND THE ANNUAL DEPOSITS OF €5000
e.g. I have a dormant account in the UK and the balance is £3000. The account does not receive deposits but earns interest. I must declare the interest in Italy, but the balance of the account has never exceeded €15000 and the deposits do not exceed €5000. Do I still have to declare the account? Well, actually you do! Your commercialista should note it for monitoring purposes but it would not be taxed. However, there is still a requirement to monitor it on the Quadro RW.

CLEAR AS MUD?
My motto is, and has always been:

IF IN DOUBT DECLARE THE ACCOUNT
The best way to look at this is to consider the consequences of declaring versus the sanctions for not doing so.

THE COST OF DECLARATION
If you declare the account the fixed tax on the account is €34.20pa (not including any tax on income payments, interest, or VAT liable payments).

THE SANCTIONS FOR NON DECLARATION
If you don’t declare the account and you are discovered then the sanctions could range from 3-15% of the account balance if it is not a black list country.

If the country is black listed then the sanction is doubled. (6-30%)

IS IT WORTH THE RISK?
For the sake of €34.20 per annum it is probably worth declaring the account.

I would add that I have recently seen 5 letters from the Agenzia delle Entrate sent to different people living in Italy stating that under the Common Reporting Standard International share of tax information agreement, that the agenzia is aware that these people have assets and income payments from foreign financial institutions and that they are investigating why these have not been declared on the individuals tax return.

So, finally, we are left without a doubt that this financial and tax information is now being shared, as if we were ever in doubt.

I fully expect that in the coming months and years that the systems that tax authorities have in place to analyse the financial information they are now receiving will become increasingly more sophisticated and it will eventually be an automatic process should any information that we have declared on our tax returns NOT match with that which they receive from foreign financial institutions. Certainly I don’t foresee a return to the old days when the responsibility was only ours. That same responsibility has now been taken away from us and the automatic share of financial and tax information will only get more sophisticated moving forward.

On that thought, I will leave you will my simple message.

If you haven’t started any financial planning as an Italian tax resident, then start now. You might end up paying more than you need to!

Will Brexit affect your plans to move to France?

By Derek Winsland - Topics: Automatic Exchange of Information, BREXIT, common reporting standards, France, Residency
This article is published on: 4th October 2017

04.10.17

The performance of the UK government’s Brexit negotiators, Theresa May included, is giving rise to concerns amongst UK businesses, EU nationals living in UK and, of course, us living and working in the EU. Sterling continues to react daily to the actions and reactions on both sides of the negotiating table, and the general uncertainty that this causes conveys itself to people’s decision-making.

Over the last 15 months or so, I have been approached by a number of prospective new clients, most of whom are asking the same questions: “How will Brexit affect our plans to move to France” and “How will Brexit impact our desire to remain in France”. The honest answer to this (at the time of writing), is no-one yet knows and until something concrete comes out of the negotiations, this will remain the situation. My own belief is that some compromise will be cobbled together to allow some continued freedom of movement in exchange for access to the single market.

What we do know is that if you have aspirations to live in France, you will become resident for tax here and there is nothing more certain than taxes (apart from death of course). As a French tax resident, there are a number of different taxes you will become subject to. This is no different to the position in UK, indeed comparisons undertaken on behalf of a number of prospective ‘movers’ to France has shown only minor differences in tax payable for those people. The proviso used though was that those people put their financial house in order before moving to, and becoming resident in, France.

My Limoux colleague, Sue Regan in her last article, pointed out the pitfalls in assuming UK-based investments would serve the same purpose in France, and that the tax treatment of those investments in UK would transfer across the Channel to France. This is not the case, in fact holding and maintaining UK investments can and do result in nasty tax shocks for those ex-pats who wrongly believe investments like ISAs would be tax exempt in France.

Also, with the introduction of Common Reporting Standards, financial information is being shared across borders, so considering oneself to be hidden from the tax-man in France, whilst holding bank accounts and investments in UK, is delusory. If you have recently received a letter from your UK bank asking you to confirm your address, this is Common Reporting Standards in action; your bank will pass the information on to HMRC who in turn will share it with their French counterparts.

It is better to acknowledge that the ways of the past will not continue to hold true and that work needs to be done if you want to live in France and this includes re-structuring assets to make them French tax-efficient. The simplest way to approach this is to invite an independent financial adviser to carry out a financial review of your circumstances. He or she will put together a report of recommendations, to ensure your move to France will not result in tax shocks further down the line. All you have to do then, of course, is act on the recommendations.

If you feel you could be affected by this, or have personal or financial circumstances that you feel may benefit from a financial planning review, please contact me direct on the number below. You can also contact me by email at derek.winsland@spectrum-ifa.com or call our office in Limoux to make an appointment. Alternatively, I conduct a drop-in clinic most Fridays (holidays excepting), when you can pop in to speak to me. Our office telephone number is 04 68 31 14 10.

I look forward to seeing you soon.

To declare or not to declare?

By Gareth Horsfall - Topics: common reporting standards, Exchange of Information, Italy, Residency
This article is published on: 20th September 2017

20.09.17

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”

Common Reporting Standards

By Derek Winsland - Topics: common reporting standards, Exchange of Information, France, International Bank Accounts, Le Tour de Finance, Residency
This article is published on: 27th July 2017

27.07.17

Over the last few weeks, I’ve witnessed the application of the Common Reporting Standards initiative in action. Firstly, from my bank HSBC requesting information to be transmitted to the tax authorities both here in France as well as in UK. This week, I received an email from a client who has also received a letter again from HSBC enquiring about his residency.

It’s clear that the sharing of financial information between tax authorities of different countries is now in full swing. Annual reporting by every financial institution into its own tax authority was introduced in January 2016 and I’m seeing more and more examples of this in operation. For the tax authorities, residency is the main focus – where has the individual declared residency, and where are that person’s assets held.

We’re at the stage now where that information is being studied by local tax offices and enquiry letters being sent. But what information is being shared? Overseas bank accounts are the most common example, hence HSBC and others enquiring about an account holder’s residency status. Other examples include investment bonds held overseas, ISA accounts, unit trust and investment trust portfolios, share accounts, premium bonds…. the list goes on.

With investments held outside of an insurance-based investment bond, any change of fund either through switching or closure could be liable to capital gains in the hands of the investor, so your local tax office is sure to be interested in learning about this. Income drawn from certain, non-EU jurisdiction investment bonds are viewed very differently here in France. And remember, ISAs carry no tax advantages here, so any switches, partial encashments, or sales of funds made by a UK financial adviser or investment manager could have repercussions for the investor resident in France.

If you’re tax resident in France, you are obliged to list all overseas investments and accounts on your annual tax declaration; non-disclosure can result in fines ranging from €1,500 per account up to €10,000 depending on where the account is held. These fines are also per year of non-disclosure.

Quite often we see situations where doing nothing has proved to be an expensive mistake so if ever there was a time to get your financial affairs in order, it is now before the Fisc comes calling. If you’re resident in France, your local tax office can look back through previous years as well, so long forgotten ISAs cashed in can potentially appear on its radar.

If you would like information on how best to re-organise your investments to make them tax-compliant, we are staging the latest in our series of popular Tour de Finance events in the Limoux area on Friday 6th October. Open to everyone, the event, held at Domaine Gayda in Brugairolles is now in its ninth year. Always a popular event, you are urged to order tickets well in advance. There will be a series of short presentations during the morning, culminating with lunch and an opportunity to sample the local wines. If you would like to attend, please email me for your tickets, numbers are limited, so I urge you not to delay.

Subjects covered during the morning include:
Brexit
Financial Markets
Assurance Vie
Pensions/QROPS
French Tax Issues
Currency Exchange

If you have personal or financial circumstances that you feel may benefit from a financial planning review, please contact me direct on the number below. You can also contact me by email at derek.winsland@spectrum-ifa.com or call our office in Limoux to make an appointment. Alternatively, I conduct a drop-in clinic most Fridays (holidays excepting), when you can pop in to speak to me. Our office telephone number is 04 68 31 14 10.