The Italian Government has recently introduced a voluntary disclosure program (see Law Decree no. 4 of January 28, 2014) to enable non-compliant taxpayers to come forward and declare wealth held out of Italy in violation of Italian exchange control regulations, i.e., in breach of the duty to report in the annual tax return the holding of any foreign asset of financial nature or investments abroad.
Law Decree needs to be converted into law by the Italian Parliament by 30 March 2014 and it is subject to being amended, even significantly, through the parliamentary debate. Therefore, the features of the program below described may very well change.
Subjects qualifying for the voluntary disclosure program are individuals and non-commercial entities and partnerships (the "Subjects") that are fiscally resident of Italy and who committed up to 31 December 2013 violations of Italian exchange control regulations.
The participation in the program implies that the Subjects make full disclosure of the wealth abroad and of the hidden income related to such foreign holdings. The 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 though 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. Such information has to be provided with respect to all fiscal years in relation to which the statute of limitation for the application of penalties for violations of the exchange control regulations have not expired yet. It has to be noted that 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 Decree does not provide for any reduction of the monetary penalties for the previous tax underpayments, but just a confirmation of the mitigation of the penalties commonly available to those taxpayers who do not file an appeal again the tax assessment or reach an out-of-court of settlement with the tax authorities (reduction to 1/6 or to 1/3 of the penalties).
The Law Decree 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 30 September 2015.
Implementing regulations concerning modalities of the procedure will have to be issued by the Italian tax authorities.
Subjects are not entitled to take advantage from 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 also on the side of criminal violations, to the extent the criminal offences relate to the taxable amount having a connection to the foreign holdings. In particular, completion of the voluntary disclosure process makes Subjects no longer punishable for the tax crimes of "unfaithful tax return" and "failure to file the tax return", while it becomes a mitigating factor for the crimes of "fraudulent returns based on false invoices or records" and "fraudulent returns based on other manipulations", the penalties of which are reduced by an half.
Additional benefit of the voluntary disclosure process is the reduction of the penalties applicable for the violations of the exchange control regulations. Penalties will be reduced to one half (i.e., 1.5 percent or 3 percent when the undeclared funds are held in low-tax jurisdictions identified in two decrees of the Ministry of Economy and Finance) of the value of the undeclared assets and investments, where (i) the assets or investments are transferred to Italy or to a EU or EEA country included in the list of countries which fulfill the exchange of information requirements; (ii) the assets or investments were or are held in Italy or in the above said countries; or (iii) the Subject files an authorization to the foreign financial intermediary to provide to the Italian tax authorities, under their request, all information and data concerning the assets and investments, duly counter-signed by the same financial intermediary. In cases different from the above, penalties will be applied at the minimum rate reduced by 25 percent (i.e., 2.25 percent and 4.5 percent when the undeclared funds are held in low-tax jurisdictions). Pursuant to the mitigation mechanism available under general rules, the Subjects are entitled to settle the penalties for the concerned fiscal years, calculated and inflicted by the tax authorities pursuant to the above rules, by paying 1/3 of the relevant amount.
In conclusion, differently from the similar tax amnesties launched in Italy over the last decade (known as "Scudo Fiscale"), the program allows to settle the undisclosed holding of foreign assets and the related tax liabilities in return of limited concessions over criminal liabilities and monetary penalties for breaches of exchange control regulations, while no concessions are granted over unpaid taxes and related penalties and interest payable and over the period of back years for which unpaid taxes will be demanded and committed violations will be punished.