Specific rules for certain categories of taxpayer

Latest update: 12/12/2020

Cross-border commuters: employees and self-employed persons

Some Conventions contain specific clauses governing the rules that apply to cross-border commuters who work for an employer. These clauses govern the taxation of income received by taxpayers who live near the border in one Contracting State and who regularly cross the border to work in the other Contracting State.

However, Double Taxation Agreements do not contain specific rules on taxation of income received by cross-border commuters who are self-employed. Therefore, their income is taxed in accordance with the rules applicable to income received by independent professionals, contained in Article 14 of the Treaties in force in Italy, under which this income is taxed only in the country of residence of the taxpayer unless the latter has a fixed base in the other Contracting State.

If the taxpayer has a fixed base in the other Contracting State, the income attributable to the fixed base is taxable also in that State. The Convention with the Republic of San Marino is an exception, as it does not require such income to be to be attributed to a fixed base (Convention signed with the Republic of San Marino, ratified by Law No 88 of 19 July 2013(IT) – Article 14).

Workers on secondment

For workers on secondment in another country:

• income received by employees resident in Italy and posted abroad is taxable in Italy on the basis of ‘conventional’ wages (referred to in Article 51(8-bis) of the Italian Income Tax Code(IT)), if the employee works abroad for more than 183 days in a 12-month period
• income received by workers employed by a company with a registered office overseas and posted in Italy is taxable under the ordinary rules for taxation of income from employment, contained in Article 51(1) to (8) of the Income Tax Code.

Seconded workers also come under the provisions of Article 15 of the Conventions for the avoidance of double taxation in force in Italy, which generally comply with the OECD Model, according to which:

• in paragraph 1, taxation of income from employment both in the country of residence of the beneficiary and in the country from which the income is derived (general rule);
• in paragraph 2, as an exception to the general rule, taxation only in the country of residence if the following three conditions are all met:
  1) the worker lives in the country from where the income is derived for no more than 183 days in the tax year in question,
  2) remuneration is paid by or on behalf of an employer not resident in the country from where the income is derived,
  3) the remuneration is not borne by a permanent establishment or by a fixed base which the employer has in the country from where the income is derived;
• in paragraph 3 in most of the Conventions signed with EU Member States, taxation of income in respect of employment exercised on board a vessel or aircraft used in international traffic, both in the country of residence of the worker and in the country where place of effective management of the company paying the remuneration is located. By contrast, according to the OECD Model, the income is only taxed in the country where the place of effective management of the company is located.

Directors or members of the board of directors of a company

Shares in profits, attendance fees and other similar remunerations that a resident of a Contracting State receives under the same international treaties as a member of the board of directors or audit board of a company resident in the other State are subject to taxation in both States. This is provided for in the existing Conventions with EU Member States, in line with Article 16 of the OECD Model Tax Convention.

Employees working in an EU country for a company based in another State

The same considerations apply to these workers as to posted workers subject to the application of Article 15 of the Conventions. For example, if an employee of a company based in an EU country works in Italy, the residence of the employee must first be considered:

• if the person is resident in Italy, the income from employment must be taxed only in Italy, as the country of residence and the source country are the same (see Article 15(1) of the Conventions)
• if the employee is resident in a foreign country, income from work as an employee is taxed in Italy and in the foreign country of residence with the elimination of double taxation in that country (see Article 15(1) of the Conventions)
• if, however, the employee has not resided in Italy for more than 183 days in the tax year concerned and the remuneration received is not paid by an Italian employer or by a fixed permanent establishment or base of the foreign employer in Italy, that income is taxed only in the foreign country in which the taxpayer resides (see Article 15(2) of the Conventions).

Mobile artists or sportspersons

Income received as an artist or sportsperson is taxed both in the country of residence of the taxpayer and in the country in which the work is carried out, irrespective of whether it can be classified as business income, self-employment or salaried employment. The provision is contained in the double taxation conventions, in line with Article 17(1) of the OECD Model Tax Convention.

Furthermore, the double taxation treaties concluded by Italy with many foreign countries provide that, in any event, this income is subject to taxation in the country in which the artistic or sports activity was carried out, even when the same emoluments are attributed to natural or legal persons other than the artist or sportsperson (Article 17(2) of the OECD Model Tax Convention).

Some treaties in force in Italy contain a provision in addition to the OECD Model Tax Convention, which provides for the taxation of income received by artists or sportspersons exclusively in their country of residence when the same country or a local authority finances the artistic or sports activity.

Civil servants serving in another EU country

The double taxation conventions in force in Italy provide that salaries paid by a country or a local authority therein in respect of services rendered to those state or local authorities are to be taxed only in those countries, irrespective of the country in which the work is carried out (Article 19(1) of the OECD Model Tax Convention).

However, that income is taxed only in the country in which those services are provided if the recipient of those remunerations:

• is a resident of the country in which the work activities are carried out and is a national of that country (in the majority of the Conventions, it is also necessary not to be a national of the other Contracting State to the International Treaty — dual nationality);
• or has not become a resident of the country where the work is carried out for the sole purpose of providing those services there.

The provisions in the conventions, which are in line with Article 19(3) of the OECD Model Tax Convention, restore the taxation rules for remuneration paid for an industrial or commercial activity carried out by a country or a local authority therein (Articles 15, 16, 17 and 18 of the OECD Model Tax Convention).

For example:

• salaries paid by the Italian State or by a local authority to its own employees, who work in Sweden and remain resident in Italy, are exclusively subject to taxation in Italy
• salaries paid to employees who are resident in Sweden and Swedish nationals, for employment in Sweden, are exclusively subject to taxation in Sweden
• salaries paid to persons who were already resident in Sweden before working in the Scandinavian country on behalf of the Italian State or local authorities are taxed only in Sweden
• salaries paid by the Italian State (or a local authority) to one of its employees for commercial or industrial work carried out in Sweden are subject to the provisions of Article 15 (salaried employment) of the current double taxation agreement between Italy and Sweden, in accordance with the OECD Model Tax Convention.

Unemployed jobseekers in another EU country

Unemployment benefits paid by the National Social Welfare Institution (INPS), paid in lieu of an employee’s income (Article 6(2) of the Income Tax Consolidation Act (TUIR) (IT)), are subject to taxation in Italy, the country of the source of income.

Pensioners living in one EU country but receiving a pension from another EU country

Pension benefits paid in respect of previous employment (with the exception of work carried out by the state or local authorities) are taxed only in the country of residence of the taxpayer, in accordance with the provisions of the individual double taxation treaties under Article 18 of the OECD Model Tax Convention.

The treaties with Finland, France, Germany, Luxembourg and Sweden also provide for the category of social security pensions to be taxed in both the countries concerned. The exception is the treaty with Germany, which lays down specific rules.

State and local authority pensions are subject to the same rules for the income of civil servants under the provisions of the Conventions, in accordance with Article 19(2) and (3) of the OECD Model Tax Convention.

Pensions paid to former self-employed persons and professionals are taxed only in the country of residence of the pensioner, in accordance with the provisions under Article 21(1) of the OECD Model Tax Convention.

For example:

• a pension paid by the INPS to a resident of Spain, a former employee of an Italian private company, must be taxed exclusively in that country
• a pension paid to a former employee of the Spanish State residing in Italy and without Italian nationality is taxed exclusively in Spain
• a pension paid to a resident of Italy, a former employee of a Spanish company, is taxed only in Italy, as this falls within the scope of Article 18 of the double taxation convention between Italy and Spain
• a pension paid to a former Spanish lawyer residing in Italy is taxed exclusively in Italy, in accordance with Article 21 of the double taxation convention.