This month sees the return of Gareth Horsfall of the Spectrum IFA Group, where he provides his clients with an in depth understanding of the cross over between local and International tax planning structures.
Over to Gareth:
The subject of tax never seems far away at the moment. In fact it appears almost unavoidable. In this article I would like to provide a little information that I have gleaned from a number of commercialisti and, more recently, a new connection I have made with another English-speaking office. I will refrain from going back over the number of taxes that have been imposed, the deadlines for declaration and the penalties and fines for not doing so. (See: The Latest Taxes on Foreign Held Assets for Italian Residents.) What I would prefer to concentrate here is on in the implications of making and not making the declaration.
It seems still to be commonplace that a number of expatriates are adopting the ‘Ostrich position’. For those of you who are unfamiliar with it, it is the head-in-the-sand approach, hoping things will go away.
The sad truth is that it is very unlikely that they will go away, but more likely that the Italian tax authorities will become smarter and more efficient at tracking down those who are flaunting the system either by genuine or deliberate mistake.
So what to do? Of course the correct advice is to become ‘in regola’(legal). There is no shadow of a doubt that this is the right thing to do.
But what does this mean for those people who have been living in Italy for a number of years, who have never made a declaration and who now fear that putting their heads above the parapet are just asking for trouble.
The stark reality is that to sanitize your current position in Italy and leave the past unaccounted for, or leave it undeclared completely, is a decision to which will lead to, living with uncertainty. You will never know when or if there might be a knock on the door.
However, we do have some experiences that can guide us to what the outcomes might be.
The information that I have understood to date is that the Guardia di Finanza (Finance Police) are active (we all know this). They have a clear mandate to stamp out tax evasion. They know about transfers of money. Since the introduction of the European Savings Tax Directive in 2005 they have the information from other European countries about funds that are being transferred into Italy. Equally they will know about Italian residents transferring monies, but outside the Italian state.
This will be communicated by other state tax authorities. So the movement of funds is being tracked.
If these funds are not reported for tax purposes then it is very likely that mismatch warnings signs will be thrown up at the Finanza offices. Equally they can punch a button and determine who is resident in Italy and who has not made a tax declaration. It is that simple these days.
So what if you go ahead and start to report all your assets and income from now and leave out the past unreported years? The likelihood (and this is no guarantee) is that the Finanza will overlook you.
They seem to be focused on specific events (i.e. transfers of money that have not yet been reported) but not on the bigger picture. They could start to investigate back tax issues but this could take much longer and be expensive for them. Why start exploring difficult cases that might not prove to be fruitful when they can go for the low hanging fruit: easy pickings on which they have all the information they need? You may get away with making your first declaration and never be contacted about the past, because the details are now in the system.
The other option is not to make any declaration at all. This, in my opinion, is the riskiest option. If a letter is received from the Finanza, then you can almost guarantee that they are going to be more interested in the bigger picture than they would have been had you suddenly appeared ‘on the books’.
From what I have seen to date, those who have received letters from the Finanza are subject to much greater scrutiny than those people who merely get started down the in regola path.
The views expressed here are those of Gareth Horsfall. They are not necessarily shared by Italian Reflections, the Spectrum IFA Group or any other financial institution, named or implied. They are subject to change at any time based on market and other conditions. This is not an offer or solicitation for the purchase or sale of any security and should not be construed as such. References to specific securities are for illustrative or informational purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities.