One of the worst nightmares of those who handle cryptocurrencies in Italy is the application of the obligations to declare crypto holdings in the RW form of the income tax return; that is, the compliance with the so-called monitoring obligations.
The absence of specific legislation and a series of alternate interpretations, make life difficult and expose those who are holding today and those who have held cryptocurrencies in the past to the risk of penalties.
Spanish laws vs. Italian obligations
The EU Court of Justice, however, with a very recent judgment (24.1.2022 in C-788/2019) has ruled on the Spanish law that in the field of tax monitoring, imposes obligations very similar to the Italian ones, of declaration of foreign accounts, and financial assets held abroad, and established that such legislation, is contrary to the principles of free movement of goods and capital of persons in the territory of the European Union.
Moreover, according to the European judges, the penalties that this law provides for would be contrary to the principle of proportionality.
What makes the news interesting is that the principles of this judgment could put a strain on the Italian provisions on reporting obligations in the RW form: the content and structure of the Spanish legislation on tax monitoring obligations, in fact, are very similar to those of the Italian legislation.
Articles 29 and 93 of Law 58/2003, which is the general Spanish tax law, imposes an obligation to declare assets and capital held abroad which, in essence and content, is hardly different from the declaration obligations provided for in Italy by art. 4, paragraph 1, Legislative Decree 167 of 1990 (as amended).
In other words, Spanish Form 720 is a close relative of the Italian RW form.
The EU Court, however, also makes other observations at the basis of its decision: the first is that the Spanish law essentially provides for a mechanism which in fact prevents the expiry of the statute of limitations on any violations. The second is that the penalties provided for by Spanish law (150% of the tax evaded, and possibly a series of additional lump sums) are contrary to the principle of proportionality.
The Court, therefore, concludes that the Spanish law is in breach of article 63 TFEU and article 40 of the Agreement on the European Economic Area.
According to the ECJ, in fact, the structure of the set of obligations to declare in Form 720 and the sanctions to be imposed in the event of non-compliance with these obligations creates a disparity of treatment between residents in Spain depending on the location of their assets and financial relations, which has the effect of dissuading, preventing or limiting the possibility of residents in the Member State to invest in other Member States.
If this is the case, there are a number of elements common to the Italian situation.
In the meantime, we start from a framework of obligations which, as has been said, is entirely similar in the two countries.
What certainly changes between the two systems are the limitation and forfeiture regimes: in Italy, these are exaggeratedly broad, but not as infinite as, conversely, the ones in the Spanish system are said to be.
Instead, there are fewer differences in terms of sanctions.
It is true that there are some significant ones between the mechanisms in force in the two countries. Despite this, however, at the end of the day, the amounts remain high even in the Italian system. Here, in particular, although the percentages are nominally lower, the determination of the sanction does not take as the basis of calculation the amount of tax evaded (as happens in Spain), but the amount of investments held abroad, “gross”.
Now, if the question were to be raised before the same Court, it is by no means certain that the Italian provisions would be able to pass the test of resistance to the principle of proportionality imposed by European law. Among other things, a case of this kind does not necessarily require that a ruling be made and that the European Court be called upon. In fact, the national judge, at least on paper, if he sees the existence of an irremediable contrast between the rule of domestic law and European principles, has the power to disapply the rule of domestic law.
Of course, a choice of this magnitude requires a good deal of legal expertise and guts, therefore, it is doubtful that any Tax Commission would take on the papal annoyance of a decision with this kind of impact.
It is no coincidence that the judgement against Spain was triggered by the initiative of the EU Commission which made a direct appeal to the Court. Moreover, it is worth remembering that the Commission had already dealt with Italian monitoring regulations in the past and had also initiated a series of infringement procedures against Italy. Procedures extinguished because in 2013 the government decided to make a series of regulatory changes, precisely in order to avoid the blows of Brussels.
The recent decision of the Court, however, suggests that we should return to reflect on the compliance with European principles of the regulatory framework in force in Italy today.
In any case, the alarm has already been raised by many professionals, although obviously, it remains to be seen if or when and in what terms the issue will ever land on the table of the European Court.
New rules for exchanges in Italy
Having said that, the hunt for the identity of anyone who holds cryptocurrencies, will continue in other ways and on other levels: just in the last few days the long-awaited Ministerial Decree on virtual currency exchanges was signed by the Minister Daniele Franco, imposing on operators the obligation to communicate to the OAM and therefore to the MEF a quantity of data relating to the operations carried out. This means that, thanks to the provisions contained in this ministerial decree, the identification data of customers and the nature of the operations carried out on exchanges registered in Italy will be systematically transferred to the MEF and that the same data will be accessed by the police and law enforcement agencies.
But this is another issue, to which we will return with some ad hoc considerations.