The interpretation of the tax legislation concerning interest paid on loans granted by Swiss banks to residents of Italy may lead to different consequences depending on the approach followed by the Italian tax Authorities or that of the courts. It should be noted that this is an issue regarding not only the Swiss banks but also any other EU or extra-EU bank or entity.
With ruling n. 41 of 23 October 2018 the Italian tax Authorities expressed their view on the tax regime of the above mentioned interest, stating that they are taxable in Italy in accordance with the domestic legislation (article 151, first and second paragraphs and article 23, first paragraph, let. B of the income tax code). According to the ruling, if interest are paid by a resident person other than a withholding paying agent, the non-resident banks must include such income in the Italian return and tax them accordingly.
In the relevant case, due to the fact that Italy executed a tax treaty with Switzerland where interest may be subject to tax in the source country but such tax cannot exceed 12,5%, the tax Authorities concluded that the Swiss banks may apply the treaty rate also for interest due by Italian resident individuals (who are not withholding tax agent by virtue of the domestic legislation).
In contrast to this interpretation, with two already dated decisions (issued in 1983 and 2011) the Supreme Court stated that the above tax regime does not apply to foreign commercial entities with no permanent establishment in Italy (to which the loans generating the interest are allocated).
The different views taken by the tax Authorities and by the (few) decisions of the Supreme Court may raise doubts as to the correct interpretation to apply in the case at hand and may lead to assessments and litigations. The consequence of that could also be criminal sanctions if the assessed tax were in excess of Euro 50.000 and if the non-resident omitted to file the relevant tax return in Italy.
It must be noted, however, that the divergent interpretation of the law may also be invoked to claim the disapplication of the tax sanctions arguing on the uncertainty of the tax obligations and the criminal sanctions may not be imposed if it is not possible to provide evidence of the intentional fraud carried out by the recipient of the interest.
