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Italy-Monaco Tax Conflict Resolved Through Multilateral Agreement Based on the OECD Convention

In accordance with the Judgement No. 698 of October 1 2024, the Second-Level Tax Court of Liguria has resolved Italy-Monaco Tax Conflict through a multilateral agreeement based on OECD Convention by recognising the fiscal residence of the appellant in Monaco thanks to international criteria of residence.
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Consultation on Tax return in Italy for foreigners and expats

Judgment No. 698 of October 1, 2024, issued by the Second-Level Tax Court of Liguria, adds to a well-established body of case law emphasizing the supremacy of international tax conventions over domestic laws. The case, resolved through the application of the multilateral administrative agreement between Italy and the Principality of Monaco, based on the OECD Convention, underscores the importance of international law in addressing tax conflicts.

The case of the appellant

The appellant, a worker who relocated to the Principality of Monaco in 2018, requested a refund of over €250,000 in IRPEF (Italian personal income tax) paid in Italy, claiming that his fiscal residence for that year was in Monaco. However, his late registration with AIRE (Registry of Italian Residents Abroad) led the Italian tax authority to consider him a resident in Italy, thereby taxing his foreign income.

During the trial, the appellant demonstrated that he had effectively transferred his center of vital interests to Monaco as early as January 2018. Evidence such as employment contracts, rental agreements, and continuous presence in Monaco allowed for the resolution of the tax conflict.

The Court’s ruling

The ruling was based on Article 12 of the multilateral administrative agreement between Italy and the Principality of Monaco, aligned with Article 4 of the OECD Model Convention. This article establishes hierarchical criteria to determine fiscal residence in the event of a conflict:

  1. Permanent home;
  2. Center of vital interests;
  3. Habitual residence;
  4. Nationality.

The court determined that the appellant’s center of vital interests was clearly in Monaco, where he had moved his professional activity and primary economic and personal relationships.

This decision fits into a long-standing legal tradition that includes rulings such as No. 1138 of 2009 and No. 16647 of 2017 by the Italian Supreme Court, which reaffirmed that international conventions, once ratified, override domestic laws. Their contractual nature and the respect for international obligations strengthen the central role of international law in ensuring tax fairness.

Conclusions

The ruling by the Liguria Tax Court once again highlights how international conventions are a fundamental tool for resolving complex issues such as dual fiscal residence. For taxpayers with cross-border interests, it serves as a reminder to thoroughly document their position and rely on international agreements to protect their rights.

This case ultimately demonstrates that legal certainty and cooperation between States are indispensable pillars of a fair and transparent tax system.

For further information about italian fiscal residence, please read our article on new tax residency criteria for individuals.

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