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Italy: Mid-term update on direct and indirect taxation topics

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By replying to a request for advance ruling the Italian Revenue Agency has clarified some tax aspects on virtual currencies, and more specifically on the so-called bitcoins held by individuals outside their business activity.

Bitcoin: Direct taxation aspects

For income tax purposes the same general rules regulating conversion operations of traditional currencies apply to conversion operations of virtual currencies.

As a consequence, the spot sale of virtual currencies – i.e. the transaction that provides for an immediate exchange of a currency against another one – lacking speculative purposes does not give rise to taxable income.

However, other income is generated if a currency sold originates from withdrawals from electronic wallets, with an average deposit in terms of counter-value of more than €51,645.69 ($60,000) for at least seven consecutive working days in the tax period (under Section 67 [1c-ter] and [1-ter] of the Italian Tax Code [TUIR]) and in the event of forward sales.

The counter-value in euro of the average deposit of virtual currency is to be calculated according to the reference exchange rate as of January 1 of the tax period. Given that there is no official daily price to be applied to the exchange rate between the virtual currency and the euro at the beginning of the tax period, according to the Italian Revenue Agency, the exchange rate obtained from the internet site on which the virtual currency has been purchased or, if missing, of the internet site on which the most transactions occur, can be used. The average deposit must be verified with regard to the total wallets held by the taxpayer, regardless of their type (paper, hardware, desktop, mobile, or web).

In order to determine any contingent capital gains/capital losses from wallet withdrawals that exceed the above average deposit, the purchase cost must be used; furthermore, the currencies purchased most recently are deemed to be the first ones to be sold.

Income from transactions on the FOREX market and from CFDs (contract for difference) with virtual currencies also constitute other income under Section 67 (1c-quater) of the TUIR.

Individuals resident in Italy holding virtual currencies abroad (or in Italy but outside the circuit of resident intermediaries) are subject to the duty of tax reporting and, hence, required to fill out the 'RW' field in their tax return.

Finally, virtual currencies are not subject to IVAFE – imposta sul valore dei prodotti finanziari, dei conti correnti e dei libretti di risparmio detenuti all'estero (Italian tax on the value of financial assets held abroad), since this tax applies to bank deposits and bank accounts only (Italian Revenue Agency, reply to the request for advance ruling 956-39/2018).

Tax credit for R&D

Tax credit for research and development (R&D) under Section 3 of Decree-Law 145/2013 does not apply in connection with costs borne by companies belonging to the same group for the acquisition (even if through a licence) of intangible assets (technical and industrial property rights relating to an industrial or biotechnological invention, etc.). In regard to this matter, companies linked by a shareholding control or affiliated relationship under Section 2359 of the Italian Civil Code are considered as belonging to the same group.

The limitation applies to intra-group transactions from the tax period as at July 14 2018, "also in relation to the calculation of eligible costs to be allocated to tax periods relevant for the calculation of the comparative average".

For acquisitions in previous tax years the following applies: The part of the cost of purchase corresponding to the expenses previously allocated to the Italian company as a result of its participation in R&D projects relating to the purchased goods is not considered as eligible cost.

VAT and electronic invoicing

The Italian Revenue Agency provided various clarifications on the duty of electronic invoicing. Please note the following:

  • All those identified for tax purposes only, but not resident in Italy, are not required to issue electronic invoices; they may, however, receive electronic invoices, despite their right to obtain a paper copy of the invoice upon request;

  • In order to comply with the provisions on electronic invoicing that will generally enter into force as of January 1 2019 (or are already effective as of July 1 2018 for sales of vehicle fuel and gasoline outside road fuel stations and for public procurement subcontractors), in the event of deferred invoicing, reference must be made to the date of document issuance and not to the transaction execution date; and

  • The duty to issue electronic invoices through the interchange system (SdI) refers to those working with the procuring entity or, in the course of the execution of the procurement contract, those who are the actual recipients of subcontracts (i.e. directly procure a part thereof) or are subcontractors (i.e. perform services to the contractor due to a contractual duty and as such are reported to the procuring entity jointly with the tender identification code (CIG) and/or the single project code (CUP); however, those who sell goods to a customer without being directly involved in the principal procurement and are not required to report to the public procuring entity and to provide the CIG and/or the CUP (e.g. all those who provide goods to the contractor without knowing how such goods will be used, since they may be used in part for a public and in part for a private procurement) are excluded from the new invoicing obligations (Italian Revenue Agency, newsletter 13, July 2 2018).

Case-law: Tax residence

The Italian Constitutional Court ruled as follows: "…individuals registered with the registry of residents are deemed resident in any case and, thus, are subject to tax in Italy under the formal criteria contained in Section 2 of DPR 917/1986; further to the above, this means that the transfer of the residence abroad is irrelevant for tax purposes, as long as the residence is not deleted from the residents' registry of an Italian municipality, since such registration is preclusive of any further assessments (Italian Constitutional Court 677/2015, 14434/2010, 9319/2006)".

Basically, the Italian Constitutional Court does not seem to attribute much importance to the provisions contained in the double taxation agreements. This means that an individual relocated abroad, who forgot to register with the Italian registry of Italians living abroad (AIRE), will continue to be deemed resident in Italy (Italian Constitutional Court, order 16634, June 25 2018).

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