International taxation: the Italian reform resulting in the light of the approval of the implementing decrees

The pillars of the reform include the revision of the residence rules for natural and legal persons, the limitation of the scope of the Regime for so-called “Impatriated” workers returning to Italy, the encouragement of the reshoring of economic activities within the territory of the State and, finally, the transposition into domestic law of EU Directive No. 2022/2523, which will mark the introduction of the domestic minimum tax. Each of these prerequisites of the reform will be analysed below.

Following the preliminary go-ahead of the Council of Ministers on 16 October, the draft od Legislative Decree shall continue the institutional process and be approved within 31 December 2023.

Significant changes have been made to criteria for the assessment of natural persons’ tax residence in Italy. First and foremost, the assumption of tax residence resulting from the registration with the population register of residents for most of the tax period is officially superseded. This presumption, which in turn derives from a consolidated orientation in most Court rulings, is downgraded from absolute to relative: this concretely means that such a case the taxpayer will be granted the right to provide contrary evidence as to the place of his actual domicile or habitual abode, regardless of the place where his registry residence is formally located.

Moreover, the reference in Art. 2 of Presidential Decree No. 817/1986 (the so-called Consolidated Income Tax Law) to the civil law notion of domicile is eliminated in favour of an interpretation that affirms the prevalence of personal and family relationships over the economic sphere and business interests, contrary to the more recent development and decision of Court cases, which instead favoured business affairs. 

Particularly relevant is also the restriction of the scope of the facilitation regime for so-called “Impatriate” workers. The amendments mainly concern the following aspects:

For further discussion of the Impatriate Workers tax treatment, read “Limitations the applicability of the preferential tax regime for so-called “Impatriated” workers: an analysis of the recently introduced amendments and issues stemming therefrom”.

Consistently with the international law of Conventions against double taxation, the reference to the main purpose of the business activity, which in the past has generated quite a few critical issues, as it was liable to generate double taxation, is eliminated. It is rather stated that the tax residence of companies and legal entities is to be ascertained exclusively on the basis of the following criteria, which are mutually alternative:

The limitation of the scope of the “Impatriate” regime seems to be partially balanced by the introduction of an advantageous tax regime for the relocation of economic activities to Italy: the facilitation provides for the non-taxability to the extent of 50 per cent of income deriving from business activities and from the exercise of arts or professions.

The imposition of specific forfeiture rules, as well as the repayment of the tax incentive previously received, in the event the taxpayer does not maintain his residence for five years following his return to Italy, also remains firm for this regime, in parallel with the provisions for Impatriates beneficial tax treatment.

Pillar 2, elaborated within the OECD under the impetus of the G20 countries, aims to ensure a level playing field between large multinational corporations and to reduce incentives to shift profits to low-tax jurisdictions through the introduction of common rules aimed at ensuring a minimum taxation of 15 per cent in each of the jurisdictions in which they operate (so-called GloBE rules).

The domestic implementation of the global minimum taxation rules is provided for in Article 3(1)(e) of Delegated Act No. 111/2023. The draft delegated legislative decree, in turn, was drafted in compliance with EU Directive No. 2022/2523, which aims to ensure the implementation of Pillar II in the single market, with entry into force set for 1 January 2024. The transposition into national law of further provisions deriving from international developments may take place through ministerial decrees and, in any case, the interpretation and application of the Italian transposing legislation will be oriented towards compliance with what has been agreed at international level.