New bilateral tax Treaty agreed in principle between Italy and Switzerland

After almost three years’ negotiations over untaxed Italian assets in Swiss banks, Switzerland and Italy have reached an agreement in principle on future cooperation in tax matters.

The agreement between Switzerland and Italy was initialled on 19 December 2014

The two governments are currently preparing the signature of a Protocol of Amendment to the double taxation agreement which should be signed before the deadline set for Italy’s voluntary disclosure programme on 2 March 2015.The double taxation agreement (DTA) between Switzerland and Italy is to be supplemented by a protocol that makes provision for the OECD standard for the exchange of information upon request.

“After years of controversy, this agreement should improve relations between Switzerland and Italy in relation to financial and tax matters – says Alessandra Bellanca, Partner in the E.U. Tax Team – It will simplify the regularisation of untaxed assets before the automatic exchange of information is introduced and limit risks’ exposure arising from legal proceedings for banks and their employees”

When the new Swiss-Italian tax agreement will enter into force, Switzerland will be removed from Italian black lists and it will lead to an orderly transition to the future automatic exchange of information and to a simplified regularisation of Italian bank clients’ assets without massive outflows of capital.

The Swiss-Italian DTA contains the following clauses in particular:

Automatic exchange of information: The OECD standard is to be introduced between Switzerland and Italy in the future with a new legal basis.

Regularisation of the past: Italian taxpayers with an account in Switzerland can take part in the Italian voluntary disclosure programme (VDP) under the same conditions as those in other countries that are not on a black list. Both countries can make group requests to identify persons who wish to conceal untaxed assets. The OECD standard applies in this respect; fishing expeditions are not permitted.

Prosecution of taxpayers as well as financial institutions and their employees: Taxpayers who participate in the VDP get a reduced penalty. Financial institutions and their employees are not responsible for the tax offences of their clients in principle. Financial institutions’ cooperative behaviour with the regularisation of their clients will be looked upon favourably.

Taxation of cross-border commuters: In the future, cross-border commuters should be subject to reduced taxation in the state where they work as well as regular taxation in their country of domicile. The proportion in the state of work will be a maximum of 70% of the total withholding tax.

Italian black lists: With the entry into force of the Protocol of Amendment to the DTA, Switzerland will be removed from lists that are based solely on the absence of the exchange of information

Financial market access: Both sides confirmed their intention to seek ways of enhancing cross-border cooperation and financial market access.

Further amendment of the DTA between Switzerland and Italy: In a second stage, it will be sought to reduce the tax rates on dividends and interest payments, amend the abuse provision and include an arbitration clause.

From the Italian taxpayers’ point of view, the agreement will considerably increase legal certainty for Italian taxpayers who have an account in Switzerland. This agreement is the precondition to reduce the taxable period for Italians with secret accounts from 10 years down to 5 years only. Furthermore, Italy will allow Italians to maintain their account relationships with Swiss banks because Switzerland is now considered as cooperative country.

For the Swiss banks, these will be authorized to retain tax compliant funds of Italians still in Switzerland.

For more information about the double taxation agreement (DTA) between Switzerland and Italy, please contact in strict confidence: Alessandra Bellanca, Partner in the E.U. Tax Team (a.bellanca@giambronelaw.com) or Vincenzo Marzullo, Chartered Accountant and Head of the Italian Tax Department (v.marzullo@giambronelaw.com)