The employee of a Luxembourg company, an Italian citizen registered with AIRE, presented a request for a ruling to the Revenue Agency, asking for clarification regarding the applicable tax regime to the employment income received in 2020. The same declared, in fact, that she had carried out her own working activity in Italy from March 2020 to today, working in smart working due to the Covid-19 health emergency.
According to the petitioner, the income produced in the year 2020 had to be taxed in Luxembourg, the place where the work was performed was not relevant. If a natural person resident for tax purposes abroad has been forced to extend the period of stay in Italy due to the extraordinary and exceptional situation of the pandemic, this circumstance should be taken into consideration in order to establish the Country where the income is to be declared. The income received – according to the petitioner – should not be subject to taxation in Italy, since the physical place from which the service was performed is not important.
What the legislation provides
The art. 2 TUIR, paragraph 1, provides that the taxable persons of IRPEF are natural persons, residents and non-residents in the territory of the State. In particular, resident subjects pay the tax on all income owned, wherever produced, while non-residents only on those produced in the territory of the State (art. 3).
Paragraph 2 of art. 2 specifies, then, that for the purposes of paying the tax, those who are considered resident for most of the tax period they are registered in the registries of the resident population or have their domicile or residence in the territory of the State in accordance with the Civil Code.
The concept of domicile and / or residence
According to the law, therefore, a natural person is considered fiscally resident in Italy if he is registered in the Municipal registry of the resident population; if it has in the territory of the State the address o la residenza pursuant to the Civil Code.
Such requirements they are among them alternative and non-competitors: the occurrence of only one of them will therefore be sufficient for a subject to be considered fiscally resident in Italy.
In this regard, it is necessary to refer to the civil notions of residence and domicile, as well as to the interpretation that the Court of Cassation has provided over time (see for example sentence no. domicile must be recognizable to third parties in order to take on relevance and this recognition must be identified in relation to the management of interests and economic-patrimonial affairs, primarily with respect to the place of affective and family relationships).
Pursuant to art. 43 cc, the domicile of a person is in the place where it established the principal place of business and interests, while the residence is in the place where the person has the usual residence.
It follows that the cancellation of the resident population from the Registry and the consequent AIRE registration it is not a sufficient requirement to determine the residence outside the territory of the State, when the subject still has his / her domicile in the aforementioned territory, understood as “principal place of business and economic interests, as well as of his / her personal relationships”. Basically, the main center of vital interests of the subject must be identified by giving priority to the place where the management of said interests is habitually exercised in a way that is recognizable by third parties.
As for the concept of residence, it is defined by the Civil Code as “the place where the person has his or her habitual residence”.
Therefore, it can be affirmed that it is determined by the habitual voluntary abode of a person in a given place, contributing to establishing this legally relevant relationship both the objective fact of permanent permanence in that place and the subjective element of the will to remain there.
The response of the Revenue Agency
The Revenue Agency – Central Directorate Individuals, self-employed workers and non-commercial entities – with the response to ruling no. 626 of 27 September 2021 decided to depart from the interpretative solution proposed by the taxpayer, clarifying that the income perceived by this go subject to taxation in Italy.
The Administration reminds that art. 23, paragraph 1, letter c), TUIR establishes that “income from employment rendered in the territory of the State” is considered to be produced in Italy.
The art. 15 of the Convention for the avoidance of double taxation stipulated between Italy and Luxembourg then provides, in paragraph 1, the exclusive taxation of income from employment in the country of residence of the beneficiary, unless the work activity, in respect of which the income, is carried out in the other Contracting State: hypothesis in which the aforementioned emoluments are subject to concurrent taxation in both countries.
And again, paragraph 2 of the same art. 15, provides for the exclusive taxation in the country of residence also for income paid out in consideration of an employment activity carried out in the other State, provided that the following three conditions are met:
a) the beneficiary stays in the other State for a period or periods not exceeding 183 days per year;
b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State;
c) the remuneration burden is not borne by a permanent establishment or a fixed base that the employer has in the other State.
Finally, in order to identify the Contracting State in which the work performance is actually considered carried out, it is necessary to take into account the place where the employee is physically present when he carries out the activities for which he is remunerated.
Therefore, based on the combined provisions of art. 15 of the Convention and art. 23 TUIR, it is believed that the income received by the taxpayer resident in Luxembourg, for the employee activity carried out in Italy in 2020, are also fiscally relevant in our country.
Moreover, since the applicant declared that he had stayed in Italy for more than 183 days, the provisions of paragraph 2 of art. 15 of the Convention, as the requisite referred to in letter a) does not exist. The resulting double taxation will be resolved through the recognition of a tax credit by Luxembourg, the country of residence of the employee.
This clarification is undoubtedly current.
The Covid-19 pandemic has in fact pushed many Italian citizens, residing abroad and employees of foreign employers, who were in smart working, to come back temporarily in Italy to carry out their work from here, perhaps in the belief that nothing would change from a fiscal point of view.
In fact, the Revenue Agency has now made it clear that – if the period of stay in Italy he has exceeded 183 days in a tax period – that income must be considered fiscally relevant in Italy.