The issue stems from Brexit. While the United Kingdom was a Member State, the IVIE taxable base was the UK cadastral value, which the Italian Revenue Agency itself had deemed appropriate in Circular no. 28/E of 2 July 2012; from tax year 2021 the same home is taxed on the price paid, at a rate currently equal to 1.06 per cent (0.76 per cent until 2023). For a property purchased for EUR 2 million, this means more than EUR 20,000 per year, against a few thousand if the local fiscal value were applied.
It may seem surprising that a Treaty provision should protect an investment in a country that is no longer part of the Union, yet this is precisely the Court’s starting point: Article 63 TFEU “prohibits, in clear and unconditional terms, all restrictions on the movement of capital not only between Member States, but also between Member States and third countries”, with direct effect entailing “the inapplicability of conflicting national rules”, and real estate investments undisputedly fall within the notion of capital movements. The differentiation of the taxable base then produces “an objective restrictive effect since, at an equal rate, the tax charged on a property located in the United Kingdom is systematically higher than that charged on a property of comparable cadastral value located in a Member State”, following the pattern already censured by the Court of Justice in Commission v Belgium (C-110/17). As to the justification traditionally accepted for third countries, namely the effectiveness of fiscal supervision, the judges recall that it “presupposes the concrete impossibility of obtaining the necessary information from the third State concerned” and doubt that such impossibility exists: Italy and the United Kingdom are bound by the bilateral double tax treaty, the Trade and Cooperation Agreement and the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, in whose Annex A “Italy has formally acknowledged that the framework of information cooperation” extends to IVIE. Moreover, the Court observes, “Brexit has not altered either the system for determining the cadastral value of properties in the United Kingdom or the structure of the British land registers”.
The referral has, in itself, no immediate effect and the Revenue Agency continues to apply the cost criterion. The question, however, is framed in general terms, since it addresses the taxable base for all properties “located in third countries, even where cooperation agreements are in force with such countries capable of allowing, on request, the exchange of the information necessary to verify the taxable base”, and a favourable ruling would reach beyond the case at hand, with potential implications for other non-EU countries with which Italy has an effective exchange of information and where an objective fiscal value exists that may serve as an alternative base, such as Switzerland or the United States. Hence the opportunity, for those paying IVIE on properties in the United Kingdom or in comparable third countries, to file a refund claim now under Article 38 of Presidential Decree no. 602/1973, applicable by virtue of the reference made by Article 19(17) to the income tax provisions: the deadline is forty-eight months from each payment, it is not suspended pending the Court of Justice, and any advance or balance payment not claimed in time is definitively lost. The claim preserves the taxpayer’s position; against the Revenue Agency’s silence, an appeal may be lodged without any time bar, which allows the European outcome to be awaited before commencing litigation.
Taxpayers in this situation may contact the Firm for an assessment of their position.
