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Proceeds arising from alienation of property located in Italy by non-residents

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With its Reply No. 110/2023, the Italian Revenue Agency confirms the concurrent taxing power of Italy and Spain of the proceeds deriving from the alienation of a property located on the Italian territory, purchased more than five years ago by a person currently residing in Spain.

The Convention between Italy and Spain on double taxation

The interpretative solution envisaged by the taxpayer recalls the provisions of Article 6 of the Convention between Italy and Spain for the avoidance of double taxation, signed in Rome on 8 September 1977 and ratified by Law No. 663 of 29 September 1980.

On the basis of this article, income derived from immovable property, including income from alienation (see para. 3), may be taxed in the contracting State in which such property is situated. According to this provision, the applicant refers to Italian legislation, which provides that a taxable capital gain is not generated, given the five-year period between the purchase and sale of the property.

Moreover, on the basis of the non-taxability in Italy, the taxpayer argues that the same transfer cannot be subject to taxation by the Spanish authorities.

The reply of the Revenue Agency

In its reply, the Agency clarifies that the applicable treaty provision in the taxpayer’s case is Article 13 (capital gains) of the aforesaid Convention and not Article 6 as envisaged by the taxpayer. Indeed, paragraph 1 of Article 13 specifically refers to gains from the alienation of immovable property, providing that they are taxable in the contracting State where such property is located.

However, it is pointed out that the formulation of the treaty provision does not entail the attribution of the exclusive taxation power of such income to Italy, given the lack of the expression ”are taxable only”. In this case, since the expression ”are taxable” is used, and the word ”only” is therefore omitted, such income is subject to taxation in both contracting State.

Therefore, the capital gain at issue falls under the concurrent taxing power of Italy and Spain, which may exercise it according to the respective domestic laws.

On the Italian side, the Agency recalls that the tax applies to non-residents on income produced in the territory of the State, pursuant to Article 3(1) of the TUIR and that Article 23(1)(f) of the TUIR establishes that various income deriving from assets located in the territory of the State is considered to be produced in the territory of the State. However, Article 67(1)(b) limits tax relevance only to capital gains from the sale of property acquired or constructed by the previous five years.

Final remarks

In conclusion, it is confirmed that the capital gain realised in the case described by the taxpayer does not constitute taxable income in our country, while it remains necessary to verify the taxability of the income in accordance with Spanish legislation due to the competition of the taxing power.

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Regulatory Framework

Art. 23 TUIR

Reference (Italian only)

Art. 3 TUIR

Reference (Italian only)

Art. 67 TUIR

Reference (Italian only)

Ruling n.122 of 20/01/2023

Reference (Italian only)

Convention on double taxation between Italy and Spain

Reference (Italian only)

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