RW section following the reform of L. 97/2013 (European Law 2013).

1. Foreword

The RW section of the Income Tax Return was first introduced with DL n. 167/1990 in order to carry out the so called “monitoraggio fiscale” (fiscal control of investments held abroad).
For this reason the compilation of this section by those that are resident in Italy is required only for information purposes; in fact this section is not used for the identification of the taxable base or calculation of taxes.
With the recent approval of the European Law 2013 (L. 97/2013), the Parliament has significantly modified the rules with regard to the monitoraggio fiscale rules and consequently with regard to the RW section.

2. Cancellation of part I and part III of the RW section

One of the main changes enacted by L. 97/2013 is the cancellation of part I and part III from the RW section.
For this reason, starting from 2013, all the foreign transfers won’t be monitored and contributors will have to declare only the financial investments or other assets held abroad.
It is important to highlight that section II now encompasses all investments held during the year (rather than as of 31st December).
In fact the new art. 4 DL 167/1990 requires that all investments and assets held abroad and which are capable of producing income in Italy in any “fiscal period” (rather than at “the end of the fiscal period”) must be declared. The entities involved are: private individuals, non-commercial entities, società semplici (ie. partnerships not allowed to carry out business).

3. Cancellation of the € 10,000 threshold below which RW section was not mandatory.

The European Law 2013, has cancelled the € 10,000 threshold under which declarations were not required. Now the fiscal monitoring activity refers to investments or assets held abroad without any limit.

Financial investments or assets managed by investment companies are excluded from the RW section. In the same manner, agreements drawn up with the intervention of investment companies are also excluded if incomes and all other transactions are subject to withholding tax by the same investment companies.

4. Extension of the obligation to disclose the beneficial owner

The aforementioned European Law has also extended the obligation of disclosure to resident individuals that are beneficial owners of investments or assets held abroad even if they are not the formal owners.
In order to define who the beneficial owner is, the law refers to the anti-money laundering law and more precisely to the definition provided by art. 2 of the Technical Annex D.Lgs. 231/2001. Pursuant to D.Lgs. 231/2001 a beneficial owner is:

1. If a Company:

  • Private individual (or individuals) who, ultimately, controls an entity through the ownership or the direct or indirect control of the capital or of the votes relevant for the shareholders meeting. This rule does not apply in the case of a listed company under the control of the European Community law or to similar international standards.
    The concept of control takes effect when the percentage is not less than 25% of the capital.
  • Private individual (or individuals) that in any case controls the management of an entity.

2. If a foundation or trust that manages and distributes funds:

  • If the future beneficiaries have been already determined, the private individual or the private individuals who are the beneficiaries of no less than 25% of an entity.
  • If the private individuals who will be the beneficiaries of the entity have not been determined, the private individuals in the interest of which the entity has been incorporated or has been run;
  • The private individual or the private individuals who exercise their control over 25% or more of the assets of an entity.

5. The new penalties

The European Law 2013 has reduced the penalties with regard to fiscal monitoring.
More precisely the breach of the disclosure of the assets held abroad has now a fine of from 3% to 15% of the value of the assets not disclosed (instead of the old penalty from 10% to 50%). If these assets were held in a country considered a tax haven, the penalty is from 6% to 30% of the value of the assets not disclosed.
The rule that established the confiscation of assets of equal value has been deleted.
In the event that the taxpayer submits to the Tax Agency the RW section within 90 days from the due date, the limited penalty of € 258 is applied.
The same penalty is applied also in the event of submission to the Tax Agency of a supplementary tax return.

6. The European law 2013 and investment companies.

The European law 2013 introduced new and important duties for banks and investment companies.

6.1. Transactions to be communicated

The new rules establish that investment companies as well banks must communicate to the Tax Agency the flow of the foreign payments equal to or more than € 15,000 related to transactions carried out on behalf of or for resident or non-resident private individuals, non-trading entities, non-trading partnerships.
Fractional transactions are relevant for the amount exceeding the € 15,000 threshold.
The rules to be followed for the transmission will be established by a specific decision of the Commissioner of the Tax Agency.

6.2 Withholding taxes and substitute taxes.

The European Law 2013 established that all income from investments held abroad and from financial investments are subject to a withholding tax or to a substitute tax of income tax applied by resident investment companies in charge of managing, safekeeping and administration those investments. The withholding tax or the substitute tax of income tax is also applied by investment companies when they intervene in the collection of cash movements or of income from investments held abroad.
In consideration of the new obligations of the investment companies, taxpayers have the duty to provide investment companies, which intervene in the collection of their income, with all the information needed to determine the exact taxable income. If this does not happen, the withholding tax will be applied to the entire sum transferred by the investment companies.

6.3 New powers for UCIFI and for the Guardia di Finanza (tax police).

The new rules establish that the Ufficio Specializzato nelle Indagini Finanziarie Internazionali (or the Specialized Office for the International Financial Assessments) and the Guardia di Finanza (or the tax police), with the authorization of the High Commissioner of the Tax Agency or with the authorization of the Supreme Commander of the Guardia di Finanza (or other delegated authority), and derogating any current law, will be able to ask:

  1. Investment companies to provide information with regard to a specific period of time with all transactions carried out abroad and included in the Archivio Unico Informatico (or anti-money laundering database). This request might also be made by category of taxpayer.
  2. Everyone subject to the anti-money laundering law (chartered professionals included), the identity of the beneficial owners with regard to specific transactions carried out abroad.

6.4 Penalties for investments companies

The European Law 2013 changed also the penalties system for investment companies with regard to any possible violation of the rules established by the new law. Specifically a penalty between 10% to 25% of the amount of the transaction not notified to the authority will be applied. The previous law established only a 25% penalty.

6.5 Entry into force of the new rules

The new rules have been in force since 4th September 2013. The Tax Agency will have to define the new RW section with a specific act.

Important Income Tax Return changes for investors in Italy.