With circular message no. 20/E of 4 November 2024, the Italian Revenue Agency issued operating instructions concerning the tax residence of natural persons, pursuant to Art. 2(2) of Presidential Decree No. 917/1986 (TUIR) as amended by Art. 1 of Legislative Decree No. 209/2023.
As of 1 January 2024, this provision determines that, for income tax purposes, natural persons who, for the greater part of the year, have their residency or domicile or are present in Italy, are deemed to be fiscally resident in Italy. Fractions of a day are included in the calculation of the taxable period.
Introduced with effect from 1 January 2024[1] in order to i) ensure a better alignment with international rules, ii) guarantee greater legal certainty and iii) reduce litigation, the notion of tax residence under Art. 2(2) of TUIR is particularly relevant as it constitutes the fundamental prerequisite for the application of the Italian tax system, based on the worldwide income taxation principle under Art. 3(1) of TUIR.
According to the definition of tax residence set by Art. 2(2) of TUIR, and whose assessment is in any event based on the verification of factual elements, considered on a case-by-case basis, a natural person is to be deemed to be resident for tax purposes in Italy if for the greater part of the taxable period, corresponding to 183 days in a year (or 184 days in the case of a leap year), even if not consecutive:
- They have their residency in Italy within the meaning of Codice Civile. In this respect, it should be considered that the civil law notion of residence is composed of (i) an objective element, consisting in the permanence in a place for a certain period, even if not prevailing from a quantitative point of view, and (ii) a subjective element, which can be found when the person manifests the intention to live permanently in a place and this can be inferred from the habits of life and from determining the centre of their personal and economic relations.[2]
- They are domiciled in the territory of the State. As of 1 January 2024, ‘domicile’ is to be understood as ‘the place where the person’s personal and family relationships primarily develop’. In this regard, the Revenue Agency clarified that the term ‘family and personal relationships’ includes:
- relationships governed by legal provisions, such as, for example, marital relationships or civil unions,
- ‘stable’ personal relationships – such as ‘cohabitation’ – from which it can be inferred that they are rooted in the national territory.
In the opinion of the Revenue Agency, even annual membership of a cultural and sports club may constitute evidence of the person’s domicile.
In any case, the verification of domicile in Italy is conducted not only in the light of the aforementioned circumstances, but also by assessing the person’s behaviour and their concrete actions, showing the will to establish and maintain an effective link with the territory.
Clearly, also in view of the increasing mobility of persons, ascertaining residence for tax purposes may prove particularly difficult, since the elements that distinguish domicile – such as, for example, the dwelling of property – may be found in several Nations at the same time,
- They are present in the national territory. This criterion, introduced as of 1 January 2024, is self-contained (i.e. in itself sufficient to determine tax residence in Italy) and objective (merely factual), verified on the sole basis of the physical presence in Italy, even for non-continuous periods and regardless of motives and reasons.
Concerning the presence in the national territory, the Revenue Agency specified, by way of example only, how this requirement is verified when the individual ‘spends in Italy most of the tax period, even if fractionally, for holidays, or for study purposes, or to visit friends or relatives’ as well as in the case where they perform their work in Italy ‘while maintaining their residence (also for registry purposes), family and any other emotional and personal ties abroad’.
Fractions of a day are also relevant for the purpose of calculating the period of residence in Italy. In this regard, the Revenue Agency observes that ‘in order to exclude residence in Italy, particular situations in which the presence in the territory of the State is merely temporary or occasional, as may occur, for example, in the event of a stopover in the national territory due to a connecting flight to travel to a foreign country’ are assessed.
The criterion of presence in Italy is obviously also applicable to the natural person required to perform agile work (‘smart working’) or remote work, regardless of whether the employer is established in Italy or abroad; therefore, in this case, the income produced in any other country must be deemed to be subject to the Italian taxation regime, unless, as better explained below, a double taxation convention is applicable,
- They are enrolled in the National Register of Resident Population (ANPR). It should be observed that this requirement admits contrary (factual) proof. Therefore, a person enrolled in the Register is considered to be resident for tax purposes in Italy until they prove, on the basis of elements supported by objective evidence, that such registration does not correspond to actual residence in Italy.
Thus, tax residence in Italy is established when at least one of the criteria listed above is met, but, in any event, the individual may prove, with the support of ‘objectively verifiable elements’, that the alternative criteria set out in points 1), 2), 3) and 4) above are not met.
Art. 2(2-bis) of TUIR remains unchanged, by virtue of which Italian citizens removed from the registers of resident population and transferred to States or territories with a privileged tax regime are also considered resident, unless proven otherwise. These are the States included in the list referred to in the Ministerial Decree of 20 July 2023, from which the Swiss Confederation is excluded from 1 January 2024.
The proof of actual residence in another State or territory is in this case deemed to be offered by the individual when they prove ‘the loss of any significant connection with the Italian State and the parallel counterevidence of a real and lasting location in the tax privileged country’.
Concerning the special tax regime for ‘inpatriates’,[3] the subjective requirement of not having been resident in the tax periods preceding the transfer of fiscal residence in Italy must be ascertained in light of the current Article 2, paragraph 2 of the TUIR.
Concerning the relationship between the aforementioned Art. 2(2) of TUIR and international conventions against double taxation, by virtue of the prevalence of international treaty law over national law, treaty rules prevail upon national law. Therefore, the specific rules dictated by the convention (tie break rules) apply whenever the rules of the contracting States on tax residence do not allow the tax residence of the individual concerned to be identified with certainty.
[1] Art. 7(1), Legislative Decree No. 209/2023.
[2] Corte di Cassazione, judgment no. 3841 of 15 February 2021.
[3] Art. 5, Legislative Decree No. 209/2024.
In a recent decision,[1] the Italian Data Protection Authority held that the processing of data in this context not only constitutes a violation of the rules on the protection of personal data but is also likely to constitute an unlawful control activity of control upon the worker.
Background
A commercial agent lodged a complaint with the DPA, alleging a violation of the rules on the protection of personal data implemented by the employer company.
More specifically, the complainant alleged that, after termination of employment, the company had kept the employee’s corporate e-mail account active, with access to the contents of all correspondence sent and received on said account, which had in fact been produced in the course of a lawsuit brought by the same company before the Court of Venice, which had discovered unfair competition activities pursuant to art. 2589(3) of Codice Civile and the misappropriation of secret data committed by the commercial agent to the employer’s detriment.
After termination, the Company had an outsourcer perform a back-up on the e-mail boxes by means of a certain software (a technical security measure in compliance with Art. 5(1)(f) of the EU Regulation). The maximum storage period of the e-mails on which the back-up was performed was three years, during which time it was possible to retrieve data and/or information backwards in the event of an inefficiency or computer attack.
Moreover, the company had provided a special notice to employees and collaborators specifying the possibility of accessing the content of e-mail accounts for any proven business continuity needs.
The findings of the DPA’s investigation
As a result of the examination, the DPA found that the Company, in its capacity as data controller, had carried out certain processing operations in compliance with the data protection rules.
Specifically, it emerged that the Company had commissioned a forensic engineering firm to carry out an investigation on the content of the complainant’s e-mail using the ‘Mail Store’ application.
It turned out that the information provided by the Company did not comply with data protection regulations, since it was unsuitable and incomplete in representing the characteristics and methods of the processing, with particular reference to the storage times of the e-mail data and the methods and purposes with which controls are carried out by the Company as data controller.
Moreover, no information was provided concerning the backup of the contents of the individual mailbox, during the employment relationship, and the preservation of its contents, after termination of employment.
The software had in fact been used for purposes other than that of ensuring the security of the computer systems. In fact, the Company had analysed the e-mails on the complainant’s account, verified their content and initiated the litigation.
Additionally, such software – precisely because of its specifics – was found to be suitable for performing a control of the work activity inasmuch as it was able to minutely reconstruct, even at a distance of time, the activity of the employees, both through the communications exchanged by e-mail, and through the logs of the management system used for the employee’s work.
Moreover, even if, hypothetically, such processing operations were intended to achieve one of the purposes strictly listed by Art. 4(1) of Law No. 300/1970, the Company had not even activated the required guarantee procedure (agreement with the workers’ representatives or, failing that, authorisation by the local branch of the Ministry of Labour).
The DPA’s conclusions
Ergo, according to the DPA:
- The processing of personal data (contained in e-mails) constitutes a breach of the rules on the protection of personal data and is liable to result in an unlawful monitoring activity (in breach of the principles of lawfulness, minimisation and limitation of storage[2] and of the relevant regulations on remote monitoring),
- The information provided is inadequate and incomplete in fully representing the characteristics and methods of data processing, with particular reference to the retention of data relating to electronic mail and the methods and purposes with which controls are performed by the Company.
Remarks
With the penalty of EUR 80,000 imposed on the Company for the reasons set out above, the DPA confirms its protectionist stance towards workers and (to say the least) limiting stance towards companies with respect to the debated issue of the employer’s retention and use of company e-mails.
This approach is in line with previous (and much criticised) measures of February and June of this year, in which the Authority, among other things, was firm in considering a limited retention period for company e-mails to be necessary (initially equal to 7 days, which then became 21 in the June measure), specifying that retention may take place for a longer period, but only in the presence of special conditions that make extension necessary.
The provision in question also sets a further limit, since the DPA states that processing carried out by accessing e-mail for the purpose of legal protection can only be allowed in the event of litigation that is already underway, and not for abstract and indefinite protection needs.
It appears evident that such an approach, correlated with the sanctions system, does nothing but severely limit the verification activities of employers and this, also to the detriment of controls that could be carried out for purely defensive purposes which, moreover, are now unquestionably admitted by the case law.
In the case at hand, the (economic) consequences arising from the unfair competition litigation instituted by the Company against the employee were – in practice – neutralised by the application of a significant sanction against the Company, while the latter had taken action to interrupt or limit the consequences of the employee’s misconduct.
Such an approach, albeit with arguments consistent with the principles dictated by the privacy legislation, places companies in the difficult position of balancing often opposing interests (protection of the company’s assets on the one hand and the guarantee of the individual’s privacy on the other), which in the management sphere translates into a burden on the employer’s IT and information procedures, as well as an increase in costs that may be difficult to foresee.
[1] Decision No. 10053224 of 17 July 2024.
[2] Art. 5(1)(a), (c) and (e) of the EU Regulation.
By Order 27723/2024, Corte di Cassazione confirmed that an employee who has been subjected to harassment and sexual violence at work is entitled to compensation from the employer for the moral damage resulting from the psychological suffering caused by such events (in addition to the recognition of biological damage).
An employee was awarded the sum of EUR 157,185.00 after she brought an action to obtain compensation for non-material damage for having been the victim of sexual harassment by two hierarchical superiors and having been raped by one of them.
The Court stated that, in the case of damage to health, the joint award of a sum of money as compensation for biological damage, even if personalised, and a further sum as compensation for damage that can be defined as non-material damage, does not constitute a double award.
Non-pecuniary damages, although they do not have a medico-legal basis – in that they have no organic basis and are irrelevant to the determination of the percentage of permanent disability – are represented by inner suffering (such as, e.g., mental pain, shame, self-loathing, fear, despair).
Therefore, Corte di Cassazione rejected the company’s appeal and considered that the compensation for moral damages was legitimate and appropriate.
We remain available for any further clarification.