On December 4, 2014, the Italian Parliament approved a law launching another voluntary disclosure program (the "Law") to enable non-compliant taxpayers to come forward and declare wealth held outside of Italy in violation of Italian exchange control regulations, i.e. in breach of the duty to report in their annual tax return the holding of any foreign asset of a financial nature or investments abroad.
The voluntary disclosure program substantially reflects the voluntary disclosure program run in the first months of 2014 by operation of a Decree of the Italian Government which was not converted into law by the Parliament.
Italian taxpayers qualifying for the voluntary disclosure program are individuals and non-commercial entities and partnerships ("Subjects") who are fiscally resident in Italy and who on or prior to September 30, 2014 committed violations of Italian exchange control regulations.
Participation in the program requires that Subjects fully disclose their identity and their wealth abroad as well as the unpaid taxes over the past years still open to assessment, even if not related to such foreign holdings. The program implies collection of the full amount of previously unpaid taxes and related interest. It offers, as an incentive for the disclosure, relief from the administrative penalties and relief from prosecution for tax crimes.
Subjects wishing to take advantage of the Voluntary Disclosure have to:
- file a request with the Tax Authorities. Such request must disclose all investment and financial assets held abroad, even indirectly and through interposed persons, and provide the relevant documents and information pertaining to the creation or acquisition of the foreign holdings and the income deriving from disposal or exploitation of such foreign holdings, together with all documents and information necessary for the determination of the possible higher tax basis of the income tax and related local surcharges, substitutive taxes, IRAP, social security contributions, VAT and withholding taxes, not connected to foreign holdings, with respect to all fiscal years in relation to which, at the date of filing of the request of voluntary disclosure, the statute of limitation for the application of penalties for violations of the exchange control regulations have not yet expired. It has to be noted that the length of such statute of limitation is doubled when the assets are held in countries having a privileged tax treatment and included in the lists set by two Decrees of the Ministry of Economy and Finance;
- pay the taxes, interest and penalties which will be requested by the Tax Authorities following the review of the taxpayer's disclosure application. The Law provides also that whoever produces false documentation or information during the procedure is liable to imprisonment from 18 months to 6 years.
Taxpayers are not allowed to file more than one voluntary disclosure request. The formalities to take advantage of the voluntary disclosure process will have to be started by September 30, 2015.
Implementing regulations concerning modalities of the procedure will have to be issued by the Italian tax authorities within 30 days from the entry into force of the Law.
Subjects are not entitled to take advantage of the voluntary disclosure process if the tax administration has already started actions leading to a possible tax assessment (such as on-site audit, request of documents or information, etc.).
The voluntary disclosure produces positive effects on the side of criminal violations, to the extent the criminal offences relate to the taxable amounts, taxes and withholding taxes which are objects of the voluntary disclosure . In particular, completion of the voluntary disclosure process makes Subjects no longer punishable for the tax crimes of "unfaithful tax return", "failure to file the tax return", "fraudulent returns based on false invoices or records", "fraudulent returns based on other manipulations", "failure to pay VAT" and "failure to pay certified withholding taxes". In addition, Subjects are no longer punishable for the crime of money laundering if the criminal offence has been committed in relation to the above tax crimes. The Law introduced the crime of self-money laundering. Criminal offences resulting in self-money laundering committed on or prior to September 30, 2015, will be not punishable to the extent they relate to assets which are the object of the voluntary disclosure.
An additional benefit of participation in voluntary disclosure program is the significant reduction of the penalties for the violations of tax and exchange control regulations. The amount of the penalties to be actually inflicted will vary depending on the country of location of the undeclared assets (White-List countries, countries currently included in the Black-lists which will sign with Italy within 60 days from the entry in force of the Law a treaty which will guarantee an actual exchange of information covering also the data of the period running from the execution of the treaty and its date of entry in force, or Black-List countries without the above treaty), on the country of location of the assets after the application for the voluntary disclosure and on other factors. However, as a general rule, penalties will be applied in the minimum amount set by the law reduced by 1/4. In addition, pursuant to the mitigation mechanisms available under general rules, Subjects will be entitled to settle the penalties, as calculated and imposed by the tax authorities for the tax violations and for the exchange control violations, by paying, respectively, 1/6 or 1/3 of the relevant amount.
In conclusion, in contrast to similar tax amnesties launched in Italy over the last decade (known as "Scudo Fiscale"), the program allows Subjects to settle the undisclosed holding of foreign assets and the related tax liabilities in return of concessions over criminal liabilities and monetary penalties for breaches of tax and exchange control regulations, while no concessions are granted over unpaid taxes and related interest and over the period of back years for which unpaid taxes will be demanded and committed violations will be punished.
Finally, a significant novelty of the Law, compared with the law decree temporarily into force at the beginning of 2014, is the extension of the program also to those individuals and entities not concerned by exchange control violations, which will allow all taxpayers (individuals, partnerships, companies, commercial and non-commercial entities) to deal with past tax violations, irrespective of the connection with undeclared foreign holdings. Such an extension of the subjective scope of application allows such taxpayers an overall and complete regularization in those situations where the creation of the foreign holdings by an Italian resident individual originates from the tax evasion committed by an Italian company connected to the same individual.