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The French “Prelevaments Sociaux” Are Deductible From Italian Income Tax
According to article 6 (Income from immovable property) of the tax treaty in force between Italy and France “income from immovable property, including income from agriculture or forestry, may be taxed in the State in which such property is situated”. This provision “shall apply to income derived from the direct use, letting, or use in any other form of immovable property”.
The conventional provisions rule means that income from immovable property will be taxed both in the State in which the property is situated (for example, France) and in the State where the owner is resident (for example, Italy).
It should further be noted that the provisions of the article 6 do not prejudge the application of domestic law as regards the manner in which income from immovable property is to be taxed. In order to avoid the double taxation, Italian fiscal law provides (art. 165 of the Presidential Decree 917/86) the opportunity to deduct the foreign tax credit from the Italian income tax due on income from immovable property located in France.
The taxes to which the Convention shall apply are, in the case of France:
- the income tax (l'impot sur le revenu);
- the corporation tax (l'impot sur les societes);
- the solidarity tax on capital (l'impot de solidaritè sur la fortune);
- the taxes levied on the total amount of wages or salaries (les taxes assises sur le montant global des salaires);
- the business tax (la taxe professionnelle);
including any taxes withheld at source, prepayments (precomptes) and advance payments levied with respect to the above-mentioned taxes (hereinafter referred to as "French tax");
With reference to the “prélèvements sociaux”, not mentioned in the tax treaty, the French tax office clarified (see on www.service-public.fr) that, until december 31, 2015, the above “prélèvements” were not similar to any income tax considered in the tax treaty. Otherwise, since January 1, 2016 the “prélèvements sociaux” have been considering income tax, not recoverable.
Stated the above change of nature of the “prélèvements sociaux”, Italian tax office recently confirmed that they can benefit of the foreign tax credit in Italy if related to fiscal year 2016 and following.
Maurizio Bottoni is the senior partner of Interconsulting. As a consultant in one of the Big Four he has developed a deep knowledge of the Italian and International tax law, through the involvement in operations and reorganization of multinationals. Extraordinary transactions and international issues are his daily business.