The Revenue Agency, responding to Ruling n. 111 of 20 January 2023, clarifies the case of a taxpayer, an Italian citizen registered with the AIRE and tax resident in Singapore, who is the beneficiary of shares in a supplementary pension fund of an Italian private group for which he worked.
Premise of the Revenue Agency
As a preliminary remark, the Agency reiterates that, even after the formal registration with the AIRE, there is a relative presumption of tax residence in Italy for Italian citizens transferred to Singapore, pursuant to Article 2, paragraph 2bis, of the TUIR, as the Republic of Singapore is included in the list of States and territories with a privileged tax regime referred to in the Ministerial Decree of 4 May 1999 (Blacklist State).
Under Italian domestic law (Article 3 of the TUIR), this means that, unless proven otherwise, the taxpayer continues to be considered a tax resident in Italy and therefore subject to taxation on all his income.
In any case, according to the said article, the tax is levied:
- in the case of individuals resident for tax purposes, on the total income of the person, consisting of all income received less the deductible expenses referred to in Article 10 of the TUIR;
- in the case of non-residents, only on the income generated in the territory of the State.
The Agency then goes on to describe the Italian domestic legal framework, which establishes the rules for the taxation of income received by non-residents (Article 23 of the TUIR) and provides that income assimilated to earned income, including supplementary pension benefits paid by the State, by residents in the territory or by permanent establishments of non-residents, is deemed to be earned in Italy.
Specifically, the amounts resulting from the capitalisation of pensions are qualified as income assimilated to that of employees pursuant to Article 50(1) (h-bis) of the Consolidated Law on Income Tax (TUIR) and are taxable in accordance with Article 52(1)(d) of the same Consolidated Law.
Therefore, pension funds, as withholding agents, are obliged to pay withholding tax on the amounts distributed to the beneficiaries of the pension treatment pursuant to Article 24, paragraph 1quater, Presidential Decree no. 600/1973.
The treaty between Italy and Singapore against double taxation
However, Italian domestic rules must be coordinated with international rules to avoid double taxation. Indeed, Article 17 of the Convention signed between Italy and Singapore provides that pensions and other similar benefits paid to a resident of either State in connection with the termination of employment shall be taxed exclusively in the taxpayer’s State of residence.
According to the OECD Model Commentary, the provisions of Article 18 (which corresponds to Article 17 of the Convention under review) apply only to payments of pensions and similar remuneration made in connection with a terminated employment relationship.
The treaty avoids double taxation in Italy
In conclusion, the payments made by the Italian pension fund to the individual resident in Singapore are not taxable in Italy, so that the applicant may request reimbursement of the deductions made by the withholding agent by means of a specific application pursuant to Article 38 of Presidential Decree No. 602 of 29 September 1973.
The application, which can be submitted on plain paper to the Centro Operativo di Pescara, Via Rio Sparto, 21 65129 Pescara, must be accompanied by the relevant documentation to prove actual tax residence in Singapore, in this case, and the nature of the income for which the refund is claimed.
To facilitate the request, the taxpayer may also use the forms (in this case Model D “Other Income”) referred to in the decree of the Director of the Revenue Agency of 10 July 2013.