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A few clarifications on the automatic exchange of financial information

For those persons who were present at the Treasurers meeting on December 17, 2014, here are a few clarifications deriving from questions raised by a member:

a) What is the significance of the January 1, 2018 date?

On January 1, 2018 the automatic exchange of financial information agreed upon by nearly 100 countries in the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes will have become effective for some 51 of the signatory countries.

This means that from that date there will be a constant and free flow of financial and tax information between the signatory countries making it difficult if not impossible for taxpayers to withhold from their national tax authorities information concerning their foreign financial acitvities and income.

Different signatory countries interpret the regulation more or less restricitvely and are more or less selective as to the countries with whom they will effectively collaborate but the trend toward full transparency is very much here to stay.

This is why we suggested that any cleaning-up of foreign accounts and investments be made before that date.

b) If the Congregation holds its investments through a foreign vehicle (trust or corporation), is it still subject to Italian reporting requirements?

We have to distinguish two situations:

  1. where an Italian resident entity, such as a "Casa Generalizia", has accounts or investments abroad in its own name;
  2. where a congregation's investments are held outside Italy in a foreign company or trust which is managed directly from Italy by Italian resident individuals.
  3. In the first case, the Italian resident entity is clearly subject to the Italian monitoring and tax regulations for foreign accounts and investments.

    In the second case, where the investment is in the name of a foreign resident entity (e.g. a company or a trust) which is on its face subject to the tax regulations of a the foreign country, the income derving from that investment could still be considered taxable in Italy where the foreign investment vehicle is effectively managed by Italian residents (center of management test). This would be the case, for example,where the Board of Directors of a UK or US investment company merely reproduced the General Council of the Congregation.

    c) If a General Admininstation in Rome manages the foreign investments for a local entity or Province, do Italian monitoring and tax rules apply?

    Where the General Admininstration of a congregation or a member thereof (e.g. the Treasurer General) manages the investment portfolio of a non-Italian Province in virtue of a clear written mandate and the accounts or investments in question are clearly and exclusivley in the name of the non-Italian entity and are not situated in Italy, the non-Italian entity should not be considered an Italian resident for tax purposes and, consequently, the tax or reporting requirements would not apply.

    A question still exists as the the reporting requirement applicable to the Italian manager (GA or individual) but that does not necessarily imply that person's or body's being subject to tax in Italy on the income from the investment in question.

    The amsers to the second and third questions much depend on the facts of the case and on the details of the arrangements and on how they are applied.

    Consequently, a more thorough answer would require an examination of the details of the arrangements in place.