Fiscal residence and DTAs

The private letter ruling n. 203, published on June 25th, 2019, provided important explanations regarding the assessment of the fiscal residence in Italy of an individual, as well as regarding the relationship between the domestic regulation and the Double Taxation Agreements.

In fact, the Italian Revenue Agency disclosed its interpretation, highlighting that when at the same time and for the most part of the fiscal period, one of the requirements of art. 2 of the Italian Corporate Income Tax Text – CITT (in this specific case, the registration at the AIRE) and also the requirements provided by the regulations of the other State are satisfied, then the conflict should be resolved on the basis of the Double Taxation Agreement.

By answering to the PLR abovementioned, the Italian Revenue Agency specified that any regulatory conflict between the two jurisdictions (in this case, Italy and Denmark), should be resolved according to the criteria, in compliance with the OECD model, settled in paragraph 2 of art. 4 of the DTA and therefore according to the so-called Tie-Breaker Rules.

The interpretation given by the Italian Authority is partially different from what agreed so far by the Cassation, which has repeatedly pointed out that the AIRE registration represents a sufficient formal requirement in order to deem an Italian residence for fiscal purposes.

The assessment of residence, in the specific case of an individual employed by a foreign company (Danish), is quite relevant: while, in fact, a non-resident is never subject to taxation in Italy for the employment income received form working activities carried out for a foreign company (pursuant to Article 23, paragraph 1, letter c) of the CITT), a resident is instead taxed in Italy also for the employment income received abroad (under the worldwide income taxation principle). In this regard, in fact, Article 15 of the Agreement, in accordance with the OECD model, provides for the possibility of taxation in the State of residence as well as in the State in which the working activity is carried out.