Tax monitoring obligations for foreign insurance companies operating in Italy under the freedom to provide services

Introduction

The Italian tax authorities released Ruling No. 62 on 13 November 2023 (“The Ruling”) providing certain clarifications as to the tax monitoring obligations applicable to foreign insurance companies operating in Italy under the freedom to provide services (“FoS Insurance Companies”) under Article 1 of Decree No. 167/1990.

The Ruling confirms the position previously adopted by the Italian tax authorities in ruling No. 463 of 21 September 2022 (“Ruling 463/2022”), and provides additional clarifications with respect to the financial intermediary subject to tax monitoring obligations in case several intermediaries are involved in the same relevant transaction.

The tax ruling request was formulated by a trade association in order to obtain clarifications on the following:

(i) a confirmation that Insurances Companies in FoS which opted for the application of the Italian substitutive tax under Article 26-ter of Decree 600/1973 on capital income deriving from insurance policies do not fall within the scope of the tax monitoring obligations;

(ii) clarification on the application of the tax monitoring obligations for Italian insurance companies executing surrenders in favour of non-Italian beneficiaries (i.e., individuals with foreign bank accounts) through an Italian bank appointed by the Insurances Company in FoS;

(iii) a confirmation that (a) no administrative penalties would apply for tax monitoring violations due to the general uncertainty of the applicable provisions or (b) taxpayers are entitled to benefit from the special self-curing procedure set forth by the Italian 2023 Budget Law, upon the payment of the Euro 200 lump sum for any amended FY.

Application of tax monitoring obligations to FoS Insurance Companies

Starting from fiscal year 2013, the intermediaries required to comply with Italian tax monitoring obligations under Article 1 of Decree 167/1990 are those subject to the anti-money laundering (“AML”) rules contained in Decree 231/2007.

As of fiscal year 2017, the subjective scope of Decree 231/2007 for AML purposes has been widened and the definition of intermediaries subject to AML obligations also includes “banking, financial intermediaries and insurance companies having their legal seat and place of administration in another EU Member State, that are established without a branch within the Italian territory”.

In this respect, the definition of entity “established without a branch in the Italian territory” has been officially interpreted for AML purposes only on 13 July 2021, through IVASS Regulation No. 111, effective as of 1 January 2022 (“Regulation 111”). Regulation 111 provides that FoS Insurance Companies will be considered as “established” in Italy - and therefore subject to the AML requirements - if and to the extent they: (i) operate under the FoS in Italy in the life insurance sector; (ii) distribute insurance products in Italy by means of Italian or EU insurance intermediaries; and (iii) have a gross premium collection exceeding EUR 5 million.

In line with Ruling 463/2022, the Italian tax authorities stated that “companies established without a branch” qualify as financial intermediaries subject to tax monitoring obligations from 4 July 2017, regardless of the conditions and limitations set forth by Regulation 111.

In this respect, the Italian tax authorities added that the definition of “companies established without a branch” includes only foreign insurance companies established and tax resident in EU/EEA Countries distributing life insurance products through certain specific categories of authorized intermediaries. On the contrary, FoS Insurance Companies are not subject to tax monitoring obligations in case (i) the insurance policy is executed abroad directly between the client and the foreign company and (ii) the insurance product is distributed outside of the Italian territory through intermediaries authorized to operate abroad.

With respect to the exclusions provided under Italian tax laws, Ruling 62/2023 confirms that no tax monitoring obligations apply to transfers from abroad to Italy (i.e., inbound flows) in case the FoS Insurance Company opted for the application of the substitutive tax, provided that the relevant payments are executed through an Italian tax resident financial intermediary able to track the flows. Therefore, in case of payments executed abroad (without the involvement of an Italian resident intermediary) or in case of transfers from Italy to abroad (i.e., premiums paid by Italian policyholders to FoS Insurance Companies), tax monitoring obligations apply.

Application of tax monitoring obligations when a plurality of intermediaries are involved in the same relevant transaction

The Ruling states that – although tax monitoring duties lie in the hands of any intermediary that intervenes in the execution of a relevant transaction – in case the transaction is reported by one intermediary for tax monitoring purposes, the other intermediary is not required to do so if and to the extent it receives evidence of the reporting executed by the other intermediary.

Although the underlying ruling request submitted by the applicant makes specific reference to transactions involving Italian insurance companies, the Ruling stated a general principle that may be applied also to FoS Insurance Companies.

It is worth noting that this interpretation seems to overrule the previous position taken by the Italian tax authorities in Circular No. 93 of 17 June 1993 according to which “in case where several intermediaries intervene in the same transaction relevant for monitoring purposes intermediaries (…) detection must be carried out only by the intermediary which was first involved in the outward transaction and last involved in the transfer from abroad”.

Penalties and Voluntary Settlements

The Ruling does not provide specific guidance on the requested disapplication of administrative penalties due to the uncertainty of the legal framework, as the (dis-application) of administrative penalties requires a case-by-case analysis.

Although the ruling request explicitly makes reference to the possibility of reverting to the special voluntary settlement procedure (“ravvedimento operoso”) set forth by the Italian 2023 Budget Law, the Ruling states that any violation concerning tax monitoring obligations can be remedied through the “ordinary” voluntary settlement procedure under Article 13 of Decree 472/1997, without referring to the special one set forth by the Italian 2023 Budget Law.

Article 1, paras. 166 to 173, of Law No. 197 of 29 December 2022 (“Budget Law 2023”) provides for a facilitated definition of irregularities of a formal nature that do not affect the determination of the taxable base of taxes and the payment of taxes, committed up to 31 October 2022. Such special voluntary settlement procedure is subject to (i) the payment of Euro 200 for each tax period to which the formal violations refer (to be paid in two equal instalments on 31 October 2023 and 31 March 2024); (ii) the removal of irregularities or omissions for each tax period, at the latest, within the deadline of the second instalment. In this respect, it is worth noting that, in Circular No. 2/E of 27 January 2023, the Italian tax authorities clarified that the special voluntary settlement procedure relating to formal irregularities is precluded not only for violations committed by the taxpayer with regard to the filling in of the RW section (as previously clarified in Circular No. 11 of 2019) but also for violations committed by intermediaries in relation to Article 1 of Decree 167/1990.