With answer to ruling no. 21 of January 29th, 2024, the Italian Tax Authorities recognised the possibility to opt for the special (and favourable) substitute tax regime for foreign pension holders, governed by Article 24-ter of the Income Tax Code, to an individual who is tax resident in the United Kingdom pursuant to the Convention between Italy and the UK.
Legal framework
Article 24-ter, Presidential Decree no. 917 of 1986 (“Income Tax Code”) provides for an optional 7% substitute tax regime for individuals with foreign-source pension income who transfer their tax residence from a foreign cooperative country to one of the qualified municipalities located in the regions of the South of Italy, or a qualified municipality affected by earthquakes.
The option may be exercised by individuals who have not been tax resident in Italy in the previous five fiscal years and is effective for the first nine fiscal years following the one in which the option occurs.
The Italian Tax Authorities in commenting the above with Circular letter no. 21/E of 2020 clarified that, in order to opt for the substitute tax, individuals are required to transfer their tax residence in Italy (as confirmed by answer to ruling no. 616 of September 20th, 2021).
Case at hand
The applicant is a UK resident who:
(i) receives pension amounts from two UK supplementary pension schemes,
(ii) intends to obtain the tax residence in Italy under the domestic tax rules maintaining his tax residence in the UK pursuant to the Convention between Italy and the UK, in order to exercise the option for the substitute tax under Article 24-ter of the Income Tax Code.
The queries of the applicant are aimed to understand if, in the above-mentioned scenario, the 7% substitute tax is applicable to the supplementary pension payments received and whether, in this respect, it is an obstacle the fact that the tax residence of the applicant remains in the United Kingdom pursuant to Article 4(2) of the Italy/UK Double Taxation Convention.
Official clarifications of the Italian Tax Authorities
First of all, the Italian Tax Authorities replied to the applicant clarifying that the amounts deriving from supplementary pensions schemes qualify for the purposes of the special tax regime provided for by Article 24-ter of the Income Tax Code.
Moreover, even if the applicant is tax resident in the United Kingdom pursuant to Article 4(2) of the Italy/UK Double Taxation Convention, the Italian tax authorities affirmed that this is not an obstacle to opt for the substitute tax regime to the extent that it is sufficient for the applicant to obtain the tax residence in Italy under Art. 2(2) of the Income Tax Code through the mere formal registration with the Italian Register of resident population.
Therefore, in conclusion, the Italian Tax Authorities ruled that – irrespective of the conventional provisions and connected consequences from a tax perspective – there is the possibility for the applicant to opt for the substitute tax regime in Italy relying on the definition of tax residence under the domestic tax rules.
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