Smart working, in which state will you have to pay taxes on foreign worker which carries out the performance of agile work in Italy?
There is no single answer, as explained by the response to question number 626 of 27 September 2021 of the Revenue Agency.
To determine where the tax is due, the place of performance.
The activity of an employee of a Luxembourg company who performed her service in Italy is also relevant in our country.
To resolve any problems of double taxation is the special agreement between Italy and Luxembourg.
Smart working, for foreign workers in Italy the place of performance counts
In the case of smart working carried out in Italy by an employee of a Luxembourg company, in which state it will have to be to pay taxes?
The clarifications to the question come with the response to the request number 626 of 27 September 2021 of the Revenue Agency and with other recent documents of practice on the subject.
- Revenue Agency – Response to the interrogation number 626 of 27 September 2021
- Tax treatment of employee income received by a non-resident who, due to the epidemiological emergency, carries out his / her work activity in Italy, in smart working, instead of in a foreign country – articles 49 and 51 of the TUIR
To respond to the specific case, the Financial Administration refers to the reference regulatory framework which is composed of TUIR and fromspecial agreement between Italy and Luxembourg.
L’Article 3, paragraph 1, of the TUIR states the following:
“the tax is applied to the total income of the person trained for residents by all income possessed net of the deductible charges indicated in article 10 and for non-residents only by those produced in the territory of the State”.
Article 23, paragraph 1, letter c), of the TUIR also provides that i compensation of employees loaned in the territory of the State, unless otherwise provided for by specific agreements between the two States to avoid double taxation.
In the specific case, therefore, it is necessary to take into account the provisions of the Convention signed in Luxembourg on 3 June 1981 and ratified by law no. 747
Based on the provisions ofArticle 15 of the Convention, wages, salaries and other remuneration which a worker receives for an employed activity are taxable only in the State of residence, unless such activity is carried out in the other Contracting State.
In this case the sums will be taxable in the other State. In the latter case, theconcurrent taxation in both countries.
Smart working, the rules to avoid double taxation
Paragraph 2 of Article 15 of the Convention provides for exclusive taxation in the State of residence also for i compensation of employees relating to the activity carried out in the other State.
In this case, however, the following conditions:
- the beneficiary must reside in the other state for a period maximum of 183 days during a fiscal year;
- the remuneration is paid by or on behalf of a employer who is not a resident of the other State;
- the burden of remuneration is not borne by a permanent establishment or from a fixed base that the employer has in the other state.
In the case in question, the 1st of the indicated requirements is not met.
To determine the taxation it is necessary to refer to the “Place of performance”.
In this regard, the document of practice specifies the following:
“In this regard, a useful interpretative reference is provided by the commentary on article 15, paragraph 1, of the OECD model convention for the elimination of double taxation, according to which in order to identify the Contracting State in which the work is actually considered to be performed, it is necessary to have with regard to the place where the employee is physically present when carrying out the activities for which he is remunerated.
It is added that the income received by the employee cannot be subject to taxation in the other Contracting State, even if the results of the work performance are used in that State. “
Taking into account the combined provisions ofArticle 15 of the Convention andarticle 23 of the TUIR, the Revenue Agency believes that the income received by the Applicant, resident in Luxembourg, is also fiscally relevant in our country.
In fact, the provisions of paragraph 2 of article 15 cannot be applied as the maximum length of stay abroad of 183 days is not respected.
To resolve problems on possible double taxation, reference must be made to theArticle 24 (1).
This provision provides that a tax credit from Luxembourg, State of residence of the employee.