The Effectiveness of Transferring Residence Abroad for Tax Purposes: Recent Opinion of the Italian Supreme Court

In accordance with Italian legislation, and in particular, the Consolidated Tax Act (“Testo Unico Imposte sui Redditi – TUIR”), individuals who produce income in Italy, even if resident abroad, are obliged to declare such income to the Italian tax authorities, except in cases of exemptions provided by laws.

In particular, subjects residing within the Italian territory, on the basis of the principle of “universal taxation” provided for by art. 3 TUIR, are required to declare in Italy (and therein pay the related taxes) on any income produced, even if foreign-sourced.

For tax purposes, natural persons are considered as residing in Italy if they are registered at the population registry in Italy for the greater part of the tax period (183 days or 184 if a leap year) or if they have their domicile or residence in Italy. To avoid double taxation, it should be noted that if a foreign-sourced income is included in the total income, the taxes effectively paid in that foreign country on the same income will be deductible from the net tax due in Italy, within the limits provided for by art. 165 TUIR.

Subjects not residing in Italy are instead required to declare only the income generated in Italy to the Italian tax authorities (and pay the related taxes).

Italian citizens who transfer their residence abroad are required to register at AIRE, i.e. the Register of Italians Residing Abroad (Law no. 470/88). This must be done within 90 days from the transfer of the residence to the Consulate of the immigration district. Failure to do so will imply that the taxpayer shall be treated as if he/she were still an Italian resident.

According to the tax authorities, the transfer of residence abroad by Italian citizens has been found to be an increasing phenomenon. Therefore, the Italian Tax Bureau is paying particular attention to such transfers, especially in order to distinguish situations of actual transfer from those of a merely fictitious transfer of residence.

Accordingly, the jurisprudence of the Italian Supreme Court has also shown a particularly strict position on this area. Indeed, with Ordinance No. 17748/2021, the Supreme Court maintained that in terms of income tax, under the combined provisions of Article 2 TUIR and Article 43 of the Civil Code, “”an Italian citizen who, although residing abroad, establishes in Italy, for most of the tax period, his domicile, understood as the main place of business and economic interests as well as personal relationships, as inferred from presumptive elements and regardless of his registration in AIRE must be considered a taxable person”.

As a result, it must be considered that the mere registration in the AIRE register is not a decisive element to exclude tax residence in Italy, especially when the person has his/her domicile in the Italian territory and it is understood as the main place of their business, economic interests, as well as personal relationships.

However, it should be noted that, with the exception of the transfer of residence to so-called “black-listed” countries (i.e., countries with privileged taxation identified by the Decree of the Ministry of the Economy and Finance), the burden of proving that the transfer of residence is merely fictitious on the basis of the aforementioned parameters lies with the tax authorities and not with the taxpayer.