Tax treatment of work mobility and remote working: further in-depth insight from the Italian tax authorities


published on 28 September 2023 | reading time approx. 4 minutes

With the publication of Circular no. 25/E of 18 August 2023, the Italian Revenue Agency has provided some relevant clarifications on unresolved issues relating to the taxation of remote work, together with some explanations on the novelties introduced by Law no. 83 of 13 June 2023, ratifying the Agreement between the Italian Republic and the Swiss Confederation on the taxation of frontier workers and the Protocol amending the Convention against double taxation between the two countries.


First part: doubts about the interpretation of tax rules

The first part of the document is devoted to addressing doubts about the interpretation of tax rules that have arisen as a result of the increasing spread of the phenomenon of work mobility. Indeed, identifying the applicable tax rules is undoubtedly made more complex by the emergence of remote working arrangements, where there is often a separation between the jurisdiction where the work is carried out, the country of residence and the place where the effects of the work occur.
The interaction between the concept of tax residence under Art. 2 of the T.U.I.R.[1]  and smart working is examined first. The tax authorities confirm the thesis that the applicability of provisions contained in Art. 2 is unaffected, without the way the work is performed affecting the determination of tax residence. In this sense, they provide some examples to illustrate how, when choosing to work remotely, the connection criteria, i.e. registration in the population register, habitual residence or domicile, remain fully applicable in order to ascertain whether the remote worker is tax resident in Italy. Let us consider the circumstance of a foreign citizen who is not registered in the register of residents, who works remotely from Italy for a foreign employer and who, together with his family, spends most of the year in our country. In this case, according to the Revenue Agency, it is not possible to ignore the fact that the non-Italian has, for the majority of the tax period, the main center of his personal and affective relationships and his habitual residence in the territory of the State. Consequently, the individual is deemed to be resident for tax purposes in Italy.
The assumption that smart working does not, per se, have autonomous relevance on the establishment of tax residence is also relevant for the purposes of the special tax regime for so-called “Impatriate” workers under Article 16 of Legislative Decree No. 147 of 14 September 2015. The condition to access such beneficial tax treatment is that an effective transfers of the individual’s tax residence to Italy, after having maintained it in a foreign State for a minimum period of at least two years. Specifically, the beneficiaries of this regime will be taxed on only 30 percent (a percentage reduced to 10 percent if specific circumstances occur) of the total income that is “produced in Italy”. The position of tax authorities, as reported in the document, is that income produced in the territory of the State pursuant to Article 23 T.U.I.R., on which the tax relief is due, also includes the proceeds from remote work carried out in our country, regardless of whether the employer is located abroad or not.
The clarifications provided so far on domestic Law must necessarily be coordinated with the provisions of the bilateral treaties against double taxation negotiated by Italy: the issue of the application of conventional Law has a direct bearing on remote employment, which often involves two or more jurisdictions. Therefore, the practice paper examines the provisions of the OECD Model that allocate taxing power in relation to income from employment (Article 15), business income (Article 7), permanent establishment (Article 5) and Independent Professions (Article 14) as implemented in the treaties concluded by Italy[2].
As regards income from employment, Article 15 of the OECD Model, substantially implemented in the Conventions negotiated by Italy, provides, in paragraph 1, for the exclusive taxation of income from employment in the State of residence of the taxpayer, unless such employment is carried out in the other Contracting State; in the latter case, such income must be subject to concurrent taxation in both countries, subject to the conditions set forth in paragraph 2 below.
The Revenue Agency reiterates its position also in the conventional context, according to which the taxability of the employment income of a non-resident who performs his work in Italy is not per se affected by the way the work is concretely performed. Referring to paragraph 1 of the Commentary to Article 15, the tax authorities’ argument rest on the assumption the rationale of the norm is to consider the work activity as fulfilled at the place where the employee is physically present at the time of the performance of the work, regardless of whether the results of such work are relevant in the other Contracting State. Consequently, if a non-resident person works remotely in Italy for a non-resident entity during a period exceeding 183 days, the income attributable to work carried out in our country shall be taxable here. The agency also specifies that “neither the circumstance that, in the absence of smart working arrangements, the worker would have to physically go to the premises of the company in State X, nor the possible forced origin of the establishment due to restrictions on movement” are of any relevance.
The above-mentioned observations are also applicable to the recognition of a permanent establishment or a fixed base issue. As specified by the Italian tax authorities, similarly to income stemming from employment, “it shall not be deemed that smart working alters the traditional criteria of attribution of taxing power dictated by the conventional provisions” of Articles 7 and 14 of the OECD Model. The prerequisites for identifying the existence of a permanent establishment or fixed place of business are thus fulfilled according to the already known provisions also in the case where there is a natural person carrying out in Italy business activities or self-employment from a remote location.

Second part: consequences of smart working on the tax treatment applicable to frontier workers

As for the second part of the examined Circular, it is devoted to an investigation of the consequences of smart working on the tax treatment applicable to frontier workers. The International Agreements entered into by Italy with its neighboring countries, i.e. the bilateral Conventions between Italy and the States of France, Austria and San Marino, refer to domestic law for the definition of the frontier worker, beneficiary of the regime. In the absence of a rule clearly identifying who is to be qualified as a frontier worker, the Revenue Agency recalls its previous publications[3], from which it emerges that the frontier worker is to be identified in the figure of the employee who is tax resident in Italy but daily travels to border countries to catty out his work activity. The requirement of daily travel to the foreign State is understood as necessary, although not sufficient. Therefore, the tax authorities point out the employee, who performs of smart working in Italy for an employer resident in the border State, is not entitled to obtain the status of a frontier worker, as there is no physical movement of the individual from one side of the border to the other.
The Agreement between Italy and Switzerland signed on 23 December 2020 and ratified by Law No. 83 of 13 June 2023 represents instead an exception. Intended to replace the previous 1974 Agreement, it will enter into force as of 1 January 2024 and specifies[4]  that “the status of frontier worker does not cease if the person does not return to his/her domicile, for professional reasons, for a maximum of 45 days in a calendar year, excluding holidays and sick days”. The norm applies to all frontier workers and represents a significant opening towards remote work, which will be possible, albeit for a limited period, without this determining the loss of the right to benefit from the frontier worker regime, which in turn has been modified by the new Agreement by introducing concurrent taxation between the country of source and residence. 

[1] D.P.R. No. 917/1986, Consolidated Income Tax Act
[2] Although removed from the OECD Model 2020, Art. 14 is currently present in the Conventions stipulated by Italy.
[3] Circolare dell’Agenzia delle Entrate No 1 of 3 January 2001, para. 1.2.2, No 15/E of 1 February 2002, para. 13, and No 2/E of 15 January 2003, para. 9. 
[4] Protocol to the Agreement, para. 2



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