International Tax Planning, Reporting and Compliance for Individual Taxpayers

Foreign taxpayers (nonresident individuals) who move to Italy or the U.S. for a limited period of time or to live there permanently are exposed to the risk of being subject to tax in Italy or the U.S. The actual tax treatment they are subject to eventually depends on how much time they spend in Italy or the U.S. in one or more tax years; what kind of work or activities they perform there, and what kind of income from source located in those countries they may earn. Similarly, they may be subject to various internarional tax reporting and compliance obligations.

Italy determines the tax residency of individual taxpayers under three different and alternative tests (registration, fixed home and domicile) one of which (the registration test) is mechanical and bright line, and two of which (fixed home and domicile) are heavily dependent on the facts and circumstances of each individual case. Once you become a resident on Italy for tax purposes, you are subject to tax in Italy on your worldwide income, and you are required to report on your Italian income tax return all of your assets, weherever located in the world.

The U.S. determines the tax residency of individual taxpayers based on the days of presence in the United States, computed by taking into account the days spent there in the current year (which are counted in full) and in each of the two immediately preceding years (counted for 1/3 and 1/6 respectively). If the total equals or exceeds 183, you are terated as a resident alien individual, subject to tax on your worldwide income and required to reportyour financial accounts wherever located in the world, on form finCen 114 and form 8938 of your U.S. income tax returns. Additional reporting is required in case you onw interest in foreign partnerships or stock in foreign corporations or receuved a gift from a foreign estate or trusts.

International tax reporting rules are pervasive, very wide in scope and aggressively enforced by the tax amdinistrarions, who can count on automatic and bilateral exchange of banking and financial information pursuant to bilateral agreements entered into under following the enactment of FATCA in the United States.

Failure to report is severly sanctioned, regardless of the liability for income taxes associated with it.

“We assist clients dealing with the tax issues that arise in connection with their moving across borders to or spending periods time in Italy or the U.S. and properly planning their move and change in tax residency in advance to minimize adverse tax consequences. On the other side, we also advise Italian and U.S. residents who move to a foreign country and are exposed to similar issues while still being subject to tax in Italy or the U.S.”

Also, individuals residing in Italy or the United States having financial interests or even just signatory powers on investments or accounts outside of Italy or the United States are subject to significant reporting and compliance obligations. In Italy, Italian residents with assets, accounts or investments abroad must report them on a special section of their individual income tax return (Section RW), together with any transfer into or outside Italy or abroad concerning those assets, accounts and investments. Failing to file report is heavily sanctioned.

Similarly, U.S. citizens (living in the U.S. or abroad) and residents must report their foreign financial accounts by filing a special form (Foreign Bank Account Report) separately from and in addition to their individual income tax return. Also, starting with tax year 2011, they will have to file an additional report under the new FATCA legislation.

“We assist our clients to comply with their international tax reporting obligations or go back in compliance by filing missing, delinquent past returns while avoiding or minimizing penalties”.