The Supreme Court shares the tax office’s approach to the division of the year in the case of transfer of residence of natural persons – tax contract

Most Read: Contributor Italy, November 2022

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The Supreme Court by judgment no. 25690 of September 4, 2023 rejected the claim for the refund of taxes paid in Italy by a well-known AC Milan player who moved to Paris Saint-Germain in 2012.

The player moved to France in the second part of the tax period and took up tax residence in France with immediate effect.

In France, unlike Italy, the tax residence is integrated from the moment of the transfer, even if the stay in this tax period is less than half of the period itself. Conversely, in Italy, residence for tax purposes is assessed for the entire tax period, with the consequence that an individual who has fulfilled the conditions for tax residence for more than 183 days in a year is considered resident for tax purposes throughout the year.

Different states’ different residency criteria easily create situations where a taxpayer is considered a resident of two states for part of the tax year after moving. In these situations, the Commentary on the OECD Model Tax Convention suggests applying tie-breaker rules to individual parts of the tax period.

In 2012, the well-known footballer fulfilled the conditions for tax residence in Italy for a period of 199 days and was therefore – for Italian tax purposes – resident in Italy for the entire tax period. For this reason, he declared in his Italian tax return all the income he received during the year. However, he then filed a claim for the refund of taxes paid in Italy on the income received after the transfer to France, arguing that the residence conflict between Italy and France should be resolved by dividing the tax period according to the Italian-French convention, as interpreted in the light of the OECD model and its commentary.

The appeal was rejected by the Supreme Court, which considered the proposal made in the OECD commentary non-binding and stated that double taxation must be resolved by crediting taxes paid in Italy in France under the Italo-French Convention. In addition, according to the Supreme Court, the existence of the tax credit mechanism excludes any criticism of the Italian legislation for violating the fundamental freedoms established by the TFEU.

The decision of the Supreme Court is in accordance with the approach of the Financial Office, which since its resolution no. 471/2008 has always rejected the possibility of splitting the tax period in all cases where it is not expressly regulated in the relevant double taxation treaty (this is the case of tax treaties with Germany and Switzerland).

Originally published on September 15, 2023

The content of this article is intended to provide a general guide to the issue. Professional advice should be sought regarding your particular situation.

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