Remote Work in Italy, Taxation and Fiscal Residence, Pandemic or NOT
Italy is not a country for Digital Nomads, neither Italian nor with any other passport
#FISCAL RESIDENCE #ITALY and #REMOTEWORKING carried out in ITALY for Italian or FOREIGN citizens, the #taxHungry country and ever-growing dinosaur
After #Spain the Italian tax authorities considered NOT relevant the interpretations provided twice by the #OECD leaders about international treaties and tax residence during the #pandemic.
It follows that individuals, both for their individual and corporate purposes, if they hold corporate positions relevant to the #corporate tax residence, if they spend more than #183 days in Italy are #taxresidents in Italy without ifs and buts and subject to #worldwidetaxation.
If they spend less than 183 days in Italy, in the presence of certain conditions provided for by the bilateral agreements, art 15 paragraph 2, the income of the #employee is produced in #Italy and is taxed there.
One of the problems highlighted by the recent pandemic and the opportunities that have emerged with the development of #smartworking or #WfH, for expatriates and not, is the issue of where to pay taxes and where to be considered tax residents.
An Italian citizen who has emigrated to another country, where he is regularly resident and registered with Aire, if during the months of the pandemic he returned to his country and worked remotely from Italy, where should he pay taxes?
Or an Italian resident who decided to move to a foreign country to work remotely or, conversely, a citizen of another country who moves to work remotely in Italy, where will he be considered resident?
During the pandemic, many people found themselves unable to comply with the time criterion of 183 days in the country of residence, finding themselves spending more than 6 months in another country, perhaps even forced by sudden border closures.
Despite the fact that the #OECD has issued #recommendations to the States to consider neutral the actual prolonged stay in a State, given the exceptionality of the pandemic situation with the closure of borders and travel bans, inviting them not to recall the tax residence to subjects who have spent more than 6 months in a country without explicit intention to reside there permanently, some States have expressly supported these recommendations while others have expressly stated the contrary and some have not expressed themselves on the matter.
The recommendations provided by the OECD, however, are unfortunately only indicative and not binding on the member states.
Spain, in fact, announced immediately in August 2020 that all individuals who spent more than 183 days in its territory in the tax year would be treated as residents in the country for tax purposes, even if their stay was constrained by travel restrictions.
Other states have expressed adherence to the OECD recommendations.
Italy has not taken a position on this issue, putting all Aire-registered expatriates who have spent or will spend more than 183 days in Italy at risk of having their tax residence in Italy recalled and having all income earned abroad taxed.
A recent appeal to the Revenue Agency seems to go along these lines, but even points out that a subordinate work service carried out in the country from a remote location, even if with a presence of less than 183 days, is in any case taxed in Italy as income produced in Italy.
Let’s take a look at some useful details of the interpellation on the subject of the tax treatment of salaries for employees paid to residents and non-residents who, due to the epidemiological emergency, carry out their work activity in Italy, in smart working, instead of in the foreign country where they were posted
The appeal was requested by an Italian multinational company with regard to some of its employees, on secondment to its Chinese subsidiary, who in 2020 spent some more than 183 days in Italy and others less than 183 days, working in smart working mode before being able to return to China again.
The multinational has pointed out that ”the OECD has suggested to the member countries not to consider the temporary situations caused by such “force majeure”, referring exclusively to the behaviors that would have been kept in a scenario of normality, without giving relevance to the deviations dictated by the emergency and the constraints on mobility imposed by governments. The analogous case is that of a person who works in a foreign country and returns temporarily to his former “home” country. In this case, the OECD observes that “it is unlikely that a person who is forced to remain in his or her country of origin for temporary and exceptional reasons, such as the Covid-19 crisis, will acquire residency there again despite having worked for some time in a foreign country”.
Therefore, in the opinion of the OECD, “since the COVID-19 crisis is an exceptional circumstance, in the short term the tax administrations and the competent authorities will have to consider, for the purposes of assessing residence, a period of time that is not affected by exceptional events such as this, but which is ‘normal’ for the person”.
The Italian tax authorities have stipulated precise administrative agreements with Austria, France and Switzerland, in line with what is suggested by the OECD, i.e. with the bordering States where cross-border mobility is greater, with precise provisions for the workers involved.
In fact, the Agency reiterates: “These workers habitually carry out their activity in the other contracting state but, due to health measures caused by the Covid-19 emergency, are forced or urged temporarily to work in the state of residence or, in the case of cross-border workers, even to remain in the state where they carry out their work activity without returning on a daily basis to the state of residence.
The guidelines contained in the analysis carried out by the OECD Secretariat have
have been accepted by Italy, at present, solely on the basis and within the limits of the above-mentioned administrative agreements, under conditions of reciprocity.
The Agency believes, however, that similar effects CANNOT be applied to other States with which precise agreements have not been signed. ”Therefore, it is of the opinion that the above-mentioned friendly agreements stipulated by our country with Austria, France and Switzerland cannot have effects also towards other States with which Italy has stipulated Conventions to avoid double taxation.
The Revenue Agency is clear on this point: if you have stayed for more than 184 days in Italy you are required to pay taxes in Italy and you are subject to worldwide taxation without any excuse of force majeure events, obviously taking into account any double taxation conventions in force.
The Agency also adds that, even if one has stayed in Italy for less than 183 days, it is necessary to take into account how the relationship was carried out and the location of the employer, because in the case of the interpellation the remuneration of employees working remotely in Italy was considered by the Agency as paid by an employer resident in Italy and, therefore, considered subject to taxation both in the foreign country and in Italy.
In the interpellation it is stated: ”More precisely, the above-mentioned paragraph 2 of Article 15 provides that “remuneration which a resident of a Contracting State receives in consideration of an employment exercised in the other Contracting State shall be taxable only in the said first State if:
a) the recipient stays in the other State for a period or periods not exceeding a total of 183 days.
(a) the recipient stays in the other State for a period or periods not exceeding a total of 183 days in the calendar year concerned; and
(b) the remuneration is paid by or on behalf of an employer who is not a resident of the other State; and
is not a resident of the other state; and
(c) the burden of the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other state”.
Given that in the case in point the remuneration is paid by an employer resident in Italy, the condition set out in the aforementioned letter b) is not deemed to have been met and, consequently, the remuneration in question is taxable in both countries.
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