Italian Citizen (AIRE) Tax and Penalty help please

DIYhelp76

Hello, 

Hope someone might be able to help. My partner is an Italian national who, since around 2014, has lived and worked in the UK.

He owns no assets in Italy.

He owns (subject to a mortgage) a small flat in the UK and all his earnings in the UK have always had tax deducted at source under PAYE - he has always been an employee, never self employed. 

He was not aware that according to Italian law (called AIRE) he was supposed to have declared to the Italian government that he was living permanently in the UK.  They are now trying to charge him almost £6,000, which is made up of a penalty amount for failing to register, but a large part of it they say is tax on his earnings and value of his flat in the UK.

We cannot understand how he can be taxed twice on earned income as surely there is a double taxation treaty between the UK and Italy and he has already paid all applicable tax on his UK earnings. He lives in his flat and does not "earn" from it. 

He is very worried.  Is there anyone please who has expertise in this area who can offer any guidance or links to any useful information as to whether there are grounds to challenge this?  If not necessarily to challenge the penalty amount, as he admits he failed to register because he didn't know about this law, but the element of double taxation of his earned income by the Italian government?

Many thanks in advance.

bargainbetty

It is probably worth paying for an appointment with an accountant who specialises in these things - cross-border taxes can be very complex and professional advice would be well worth your time. 

EdSwippet

DIYhelp76 said:

We cannot understand how he can be taxed twice on earned income as surely there is a double taxation treaty between the UK and Italy and he has already paid all applicable tax on his UK earnings. He lives in his flat and does not "earn" from it. 

There is. You can find a copy here: Italy: tax treaties - gov.uk. Of possible use is Article 15 paragraph 1:

(1) Subject to the provisions of Articles 16, 18, 19, 20 and 21 of this Convention, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.

Translated: Italy may not tax the employment earnings of someone who lives and works in the UK and has not worked in Italy.

Jeremy535897

To sound a note of caution, we don't know for sure that OP's partner is a resident of the UK and not a resident of Italy, or if he is, that the double tax treaty aforementioned would decide that OP's partner is UK resident under the treaty. It would be worth checking that first.

DIYhelp76

Thanks very much for the helpful replies above. My partner has been trying to investigate the law further in Italy.  We know of the existence of the double tax treaty. As the Italian government have demanded the tax he has 60 days within which to pay it.  He has found out he has a "right of appeal" if he can "prove" that he is a UK resident.  But this involves going through a formal system of appeal in Italy and a kind of court challenge (we understand) and he risks losing more money in legal/challenge costs if he is unsuccessful. 

He is gathering all evidence from the UK to show he is resident here.  Can anyone help/advise on likelihood of success?  He has done everything correctly in the UK: he is a legal citizen here, has been employed under PAYE by a UK employer all the time he has been here. He has UK bank accounts, UK mortgage on his flat, pays Council Tax, water rates, broadband and other bills. He has only been back to Italy for holidays.  We think this should be enough to prove residency but if anyone has any comments/advice/suggestions we'd be very grateful. Many thx in advance.

DIYhelp76

Separately, as he is now in the process of formally registering under the Italian AIRE system that means he will no longer be a "resident of Italy" in the eyes of the Italian government.  He has an old Italian bank account with little money in it.  Does this mean he now has to submit a UK self assessment tax return detailing that bank account?  It holds only a small nominal account and he has kept it open just for convenience of having an Italian/EU account for when he visits.  If yes, he is minded to just close the account as he doesn't want the hassle of having to submit a UK self assessment tax return (as all his other earnings are PAYE only in the UK).  Many thanks again.

Jeremy535897

From what you say, as a matter of fact, he is not resident in Italy:
https://taxsummaries.pwc.com/italy/individual/residence

Even if he was, it seems clear that he is resident in the UK for the purposes of the UK-Italy double tax agreement:
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/498371/italy-dtc_-_in_force.pdf

See Article 4(2)(a) on residence, and Article 15 on employment income, as mentioned in earlier posts.

On this basis, there appears to be no justification for Italy to tax his UK employment income, unless Italy has enacted some form of anti-avoidance legislation to overrule the double tax agreement. From the item from PwC, they have done so in the case of tax havens (some may consider the UK a tax haven for non domiciliaries, but that does not appear to be in point). Italy has a reputation, whether justified or not, of a less than robust approach to implementing their own laws when it suits them, so I don't think it is possible for anyone not well versed in these matters to comment further. Unfortunately, the cost of proper professional advice is likely to exceed the benefit.

If any interest on the Italian bank account, plus any other interest he has, is £1,000 a year or less (£500 for higher rate taxpayers), it is not subject to UK tax and therefore does not of itself create a requirement to self assess.

EdSwippet

DIYhelp76 said:

...We think this should be enough to prove residency but if anyone has any comments/advice/suggestions we'd be very grateful. Many thx in advance.

It is probably worthwhile applying to HMRC for a Certificate of Residence:

How to apply for a certificate of residence to claim tax relief abroad - HMRC

It appears possible that they might in some cases water this down to a "letter of confirmation", but that should still suffice. The treaty allows for dispute resolution, if Italy does not honour its terms. Article 26 paragraph 1:

(1) Where a resident of a Contracting State considers that the actions of one or both of the Contracting States result or will result for him in taxation not in accordance with the provisions of this Convention, he may, irrespective of the remedies provided by the domestic law of those States, present his case to the competent authority of the Contracting State of which he is a resident.

However, treaty authorities move at a pace that makes glaciers appear speedy, so this would be pretty much a last resort.

Finally, even if Italy imposes penalties in apparent contravention of its treaty, if all assets are in the UK and none in Italy then it is possible that those penalties could be uncollectible for all practical purposes; that is, either the UK will not assist Italy in collection, or if it does then the cost and hassle to Italy of going though that process might not be worth it. Very much not a situation you want to reach, since it could make it tricky to visit Italy in future, but worth bearing in mind.

nigelbb

He should proof of his permanent EU Settled Status which is only available after being a UK resident for over five years

civilservant17

Hi DIYHelp17.

My girlfriend is in the same position and has been slapped with a 20,000 euro fine.

She also did not know about the AIRE and has worked as a civil servant in the UK for 4 years, paying UK income tax. However now, the Italian government are saying she must pay tax to the Italian government on the income she has earner in the UK. 

If the original poster would be able to provide any update on how they handled this in the end d it would be incredibly useful.