Foreword

Since 2010 the OECD has invited all the member states to tackle the tax evasion also using the voluntary disclosure procedure.
To date, there are 39 members of OCSE that encourage voluntary disclosure. The following aspects are generally established:

  1. Self-disclosure from the tax payer;
  2. A penalty reduction and protection from criminal consequences.

What is voluntary disclosure

  1. Voluntary disclosure is a procedure that establishes:
  2. Self-disclosure of the Italian resident tax payer of all assets and investments held abroad (the self-disclosure must be total and not partial) and, as consequence, the loss of anonymity;
  3. The payment of all taxes regarding the assets and the investments not declared in Italy;
  4. With regard to the applicable penalties, a favorable treatment of tax payers who intend to comply with this procedure.
  5. The possibility to comply with this procedure for a unlimited period of time (in other words there isn’t any deadline).

What isn’t a voluntary disclosure?

  1. It isn’t a tax shield
  2. It isn’t a tax amnesty
  3. It doesn’t guarantee anonymity.

What Italy establishes about voluntary disclosure

On 31st July 2013, the Italian Tax Agency with circular No. 23/E, established that the UCIFI (Ufficio centrale per il contrasto agli illeciti fiscali internazionali or the Central Office to tackle the international fiscal breaches) is the appointed organization to encourage voluntary disclosure of all assets and investments held abroad by Italian residents.
A guideline will have to be issued soon to provide the clarifications necessary to make the procedure effective.

The phases of the procedure

a. Meeting with consultant

This is the preliminary phase during which the tax payer meets his consultant and provides him with all the relevant information of the assets owned abroad.
The consultant:

  • Evaluates the situation explained by the client and verifies compliance with the anti-money laundering law.
  • Verifies the possibility to use the voluntary disclosure procedure.
  • Contacts UCIFI in order to confirm compliance with the regularization procedure.

b. Preliminary investigation

The preliminary investigation has several phases:

  1. The consultant meets the relevant officer of UCIFI for the residency of the tax payer and provides the authority with all the information regarding the origin of the assets owned abroad;
  2. Once the consultant has agreed with the UCIFI how to put in place the self-disclosure, the tax payer will evaluate the opportunity to proceed with the voluntary disclosure;
  3. The compliance with the procedure implies the immediate loss of anonymity;
  4. The UCIFI issues the tax assessment notice with the indication of taxes, penalties and interest due;
  5. The tax payer pays what it is indicated in the tax assessment notice and, starting from this point, begins to declare his assets owned abroad.

The assessable fiscal periods

The fiscal periods that must be disclosed are those that can be audited pursuant to the current tax laws.
More precisely.

Investments and assets owned in countries where there is the exchange of information.

  • If the Income Tax Return has been submitted, the tax assessment notice must be issued by the end of the fourth year following the year of the submission of the Income Tax Return (until 31st December 2013 the last assessable fiscal year is 31st December 2008. From the 1st January 2014 it will be the 31st December 2009).
  • If the Income Tax Return has been omitted, the tax assessment notice must be issued by the end of the fifth year following the year in which the Income Tax Return would have been submitted (until 31st December 2013 the last assessable fiscal year is 31st December 2007. From the 1st January 2014 it will be the 31st December 2008).

Investments and assets owned in country where there is a favourable tax regulation (so called black listed countries).

  • If the Income Tax Return has been submitted, the tax assessment notice must be issued by the end of the fourth year following the year of the submission of the Income Tax Return (until 31st December 2013 the last assessable fiscal year is 31st December 2004. From the 1st January 2014 it will be the 31st December 2005).
  • If the Income Tax Return has been omitted, the tax assessment notice must be issued by the end of the fifth year following the year in which the Income Tax Return would have been submitted (until 31st December 2013 the last assessable fiscal year is 31st December 2002. From the 1st January 2014 it will be the 31st December 2003).

Taxes

Due to a lack of clarification, taxes can be calculated as follows:

  • Using the analytic method;
  • Using the presumptive method.

The analytic method requires a detailed reconstruction of all the incomes earned by the tax payer during the assessable fiscal period. Depending on the type of income earned (ie. dividend, interest etc.), taxation is applied on an ordinary basis or on a substitute basis.

The presumptive method establishes that a presumptive return is calculated on assets and on investments applying the average interest rate established by the ECB. The income is then taxed on an ordinary basis.
It is important to highlight that the compliance with voluntary disclosure requires the complete payment of all taxes and interest.

Penalties

The applicable penalties concern both the omitted or inaccurate filling out of the RW section of the Income Tax Return and the taxes due and not paid.
We believe that penalties regarding the RW section of the Income Tax Return will be imposed by the UCIFI while penalties regarding taxes not declared and not paid will be imposed by the local offices of the Tax Agency.
To date, changes in the law with regard to the applicable penalties are not considered. In any case it is possible to affirm the following:

a – The current law allows the tax payer who has received a tax assessment notice, to pay the sums requested by the Tax Agency with a reduction of the penalty for collaboration.
b – Pursuant to art. 7 par. 4 D.Lgs. 472/1997, the Tax Agency, when exceptional circumstances occur, can halve the applicable penalty.

It is important to highlight how the current law establishes that in the event of assets not declared and owned in a tax haven, all the assets are believed earned by foreign incomes that have not been subjected to taxation.

Criminal consequences

Criminal consequences of the voluntary disclosure are one of the most important issues of the entire procedure.
D. Lgs. 74/2000 establishes that, over certain thresholds, the inaccurate Income Tax Return and the omitted Income Tax Return are considered a criminal offence and for this reason the public prosecutor’s office must persecute the tax payer.
We believe that a modification of the law in order to remove the criminal aspects in the event of inaccurate Income Tax Return or in the event of omitted Income Tax Return for everyone who intends to comply with the voluntary disclosure would be quite advisable. In any case fake Income Tax Returns, fake invoicing and criminal avoidance of tax payment would still be prosecuted.

Criticality

Currently there are several critical aspects that will have to be sorted out by the Tax Agency before that tax payers could comply with the voluntary disclosure procedure. Specifically it is advisable:

  1. A change in the law in order to abolish any criminal penalties for everyone who complies with the voluntary disclosure procedure;
  2. Instructions with regard to the evidence to be provided in order to demonstrate the real return of the assets held in tax haven countries (so called black listed countries);
  3. The applicability of the benefit pursuant to art. 7, par. 4 D.Lgs. 472/1997 that establishes the possibility to reduce the penalties reduced by 50%;
  4. The situations when income coming from assets regularized can be calculated according to the analytic method or the presumptive method.

 

Voluntary Disclosure