Tax monitoring obligations for foreign insurance companies operating in Italy without a branch

On 13 November 2023, the Italian Tax Authorities issued Resolution No. 62 which includes clarifications regarding tax monitoring obligations pursuant to Article 1 of Decree-Law No. 167/1990 for foreign insurance companies operating in Italy without a branch. They relate to life insurance contracts underwritten with Italian policyholders. The clarifications are in response to a request raised by ANIA, the Insurance Trade Association in Italy.

In the Resolution, the Italian Tax Authorities pointed out that non-resident insurance companies carrying business in Italy under the “freedom to provide services regime” (libera prestazione di servizi) have to provide information on certain transactions. This requirement applies to transfers of payments to or from abroad, carried out in virtual currency or in crypto-assets, for EUR5,000 and over. It includes transactions between, on behalf of or in favour of individuals, non-commercial bodies, partnerships and associations under Article 5 of the TUIR.

In the ruling no. 463/22, the Italian Tax Authorities had already clarified that the anti-money laundering requirements of IVASS are not applicable for monitoring obligations since those regulations have different purposes. Thus, the limits and conditions IVASS set for anti-money laundering purposes for insurance companies will not apply in relation to tax monitoring obligations.

For insurance companies, the obligation applies not only to transferable insurance policies and pledge policies, but to any transaction involving the transfer of funds through the payment of a premium and/or the surrender of the policy.

There are cases in which intermediaries are exempt from reporting requirements, including:

• when the person on whose behalf or for whose benefit the transfer of payment is executed has a deposit relationship with the intermediary and has opted for taxation of the income under the risparmio gestito or risparmio amminstrato regime; or
• where capital income is subject to withholding or substitute tax by the resident intermediary.

Where the transfer from abroad qualified as capital income derived from insurance contracts is made into an account held by an Italian resident intermediary, the foreign insurance company that applies the substitute taxation on the capital income pursuant to Italian tax law doesn’t have to follow the reporting obligations. But, if the amounts are transferred to a foreign bank account, even if the capital gains are taxed by the foreign company, the monitoring obligations still apply.

The monitoring obligations apply to non-resident insurance companies established without a branch in Italy from 4 July 2017 (i.e. from the date in which the Legislative Decree 90/2017 came into force). If the obligations are not fulfilled, a penalty ranging from 10% to 25% of the amount of the unreported transaction would applicable.

Italian tax law provides that penalties can’t be levied when there’s objective normative uncertainty. But this has not been granted by the Italian tax authorities which took a different view in Resolution No. 62. As a matter of fact, the Italian tax authorities suggested to the insurance companies that have not complied with their tax monitoring obligations the possibility to regularize their position by voluntary settlement (ravvedimento operoso, art. 13 Legislative Decree no. 472/1997).

For companies that would like to defend a different position, it would be possible to argue the objective law uncertainty before the Tax Court against tax assessment notices issued by the tax authorities.

Moreover, in relation to the above, the foreign insurance companies could take the chance to investigate their business model in order to ascertain any issues concerning the potential existence of a permanent tax establishment in Italy, especially in the case of functions carried out and risks located in Italy.

This requirement applies to transfers of payments to or from abroad, carried out in virtual currency or in crypto-assets, for EUR5,000 and over.