30 gennaio 2013
Tax treatment for a salary paid by the Italian companies to the members of their board of directors residing abroad is a topical issue these days, considering the fact that the boards of directors of Italian companies are presided more and more often by foreign directors, representing foreign shareholders (whether these are companies, private equity funds or investment funds) investing in Italy.
The main concern of this newsletter is to analyse the tax treatment of abovementioned incomes received by the directors of Italian companies residing in Switzerland. This analysis should therefore take into account both Italian and Swiss regulations as well as international double taxation agreements.
Regulations in Italy
Income for the office of director, remunerated on the basis of attendance fee, is an income comparable to a dependent employment income.
As provided by the Article 50, paragraph 1, letter c-bis of T.U.I.R. (Italian Tax Consolidated Text): "It is considered analogous to the income from a dependent employment:
the amount of money and valuables, in general, received during taxation period, [...] in relation to the office of a company director, auditor, fiscal auditor, organizations and other bodies with or without a legal status".:
After defining the income categories, the combined provisions of the Articles 23 paragraph 1, letter c) T.U.I.R. state: "The income derived from a dependent employment performed in the territory of the State, including the income derived from analogous kinds of employment [...]is considered to be generated in Italy, providing that the services from which the income derives are accomplished in the territory of the State"; and paragraph 24, ter 1 D.p.r. (Presidential Decree) 600/1973, which provides as follows: "in case of a taxable amount of income, as stated in the article 50, paragraph 1, letter c-bis [...], paid to subjects non-resident [in Italy], tax withholding shall be applied in the measure of 30%" it is claimed that in Italy the abovementioned income is subject to the deduction of tax at source by the Italian company (a withholding agent) in the amount of 30%."
It is also important to mention that in case that an income is received by the Italian director residing in Switzerland, the provisions of the Article 2, paragraph 2 bis T.U.I.R shall be considered. It states that Italian citizens residing in blacklisted countries and territories (e.g. Switzerland) are obliged to provide the Income Revenue Authorities in Italy at evidence that the place of his or her social, familiar and business activities is actually abroad (e.g. in Switzerland). This is to avoid that the same competent authority could impose a tax on the abovementioned income in Italy and subject it to the income tax rate (IRPEF) and to the social security tax rate as provided for this kind of income. Regulations in Switzerland The income derived from the office of director of the company is therein fully taxable and therefore it contributes to the determination of a total income. At this point, it is necessary to decide, in order to avoid double taxation (in Italy and in Switzerland), which country is entitled to levy the income tax, whether it is Italy, the source country, or Switzerland, the country of residence. To settle this issue, it is necessary to follow provisions stated in the international double taxation agreements. In accordance with the article 16 of the Double Taxation Agreement, which was signed between the Swiss Confederation and the Italian Republic on 9 March 1976 and became effective on 27 March 1979, only the source country is entitled to levy taxes (Italy in this case). The abovementioned Article 16 states: "Profit-sharing, attendance fees and other analogue ways of income which a resident of the contracting State may receive as a member of the Board of Directors or as a member of the Board of Auditors of a company residing in another contracting State are taxable by another State."
In the light of the issue discussed above and on the basis of the interpretation of national and stipulated regulations, it is evident that an income allocated by the Italian companies to the board of directors' members residing in Switzerland is subject to the following taxation treatment:
In Italy they are subject to overall taxation of 30%.
In Switzerland they are not subject to any taxation but they contribute, by means of an income tax return, to the determination of a tax rate to be applied to any other possible income of Swiss origin.
We remain at your entire disposal for any further clarification.