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Tax Competition: race to the bottom? HNWI and Tax Competition in Europe Rome, November 24, 2017 Giuliano Foglia Filipe Romão
Tax Competition: race to the bottom?
HNWI and Tax Competition in Europe
Rome, November 24, 2017
Giuliano Foglia
Filipe Romão
1. Comparative Survey on Special Tax Regimes
for HNWIs
2. Tax Competition Factors
3. Hidden Traps: any way out?
4. Special Tax and Entitlement to Tax Treaties
Index
Comparative Survey on Special Tax Regimes for HNWIs
Italy Switzerland
Lump-Sum Taxation
UK
Res-Non-Dom Flat-tax
• Tax on local source
• Lump-sum taxation
(Euro 100.000) on
foreign sourced
income
• Taxation base on
expenses(living
costs), with a
minimum amount
• Ordinary tax rates
apply
• Tax on local source
• Tax on a remittance
basis
Comparative Survey on Special Tax Regimes for HNWIs
Italy: Flat-tax Condition
s • Available for all
individuals (regardless of their nationality)
• Non-tax residency in Italy for at least nine out of the ten tax periods preceding the one for which the option is exercised
Duration
• 15 years
Advantages
• Flat tax of Euro 100.000 (additional Euro 25.000 for each family member)
• Exemption on foreign income
• Exemption on foreign asset from IVIE and IVAFE
• Inheritance and gift tax exemption on foreign asset
Comparative Survey on Special Tax Regimes for HNWIs
Switzerland: Lump sum taxation
Conditions
• Foreign nationals
• Tax residency in Switzerland for the first time or after an absence of at least 10 years
• No gainful activity in Switzerland
Duration
• NA
Advantages
• Lump sum taxable base
• Exemption on foreign income, save for the option for the so called "modified lump-sum taxation"
• Depending on the canton (e.g. Ticino), inheritance tax exemption on transfers between spouses and to descendants
Comparative Survey on Special Tax Regimes for HNWIs
UK: Res-Non-Dom
Conditions
• Residency in UK, but domicile outside of UK
• For long term resident, remittance basis charge
Duration
• 15 years
Advantages
• Foreign income is only subject to taxation in UK if it is remitted to UK (progressive tax rates)
• Inheritance and gift tax exemption on foreign asset
Comparative Survey on Special Tax Regimes for HNWIs
Malta
Res-Non-Dom
Portugal
Non-Habitual Residents (NHR)
Spain
Beckham Law
• Tax on local source
• Reduced rate (20%)
on HVAA
• Exemption on foreign
income
• Employment income
in Spain required
• Tax on local source
• Exemption on foreign
income
• Tax on local source
• Tax on a remittance
basis for foreign
income
Comparative Survey on Special Tax Regimes for HNWIs
Malta: Res-Non-Dom
Conditions
• It depends on the applicable programme (which vary in accordance with the nature of the relevant taxpayer)
Duration
• NA
Advantages
• Foreign income is only subject to taxation in Malta if it is remitted to Malta (15%, as a general rule)
• Capital gains on foreign assets are not subject to taxation in Malta, even if the gains are remitted to Malta
• There is no inheritance or gift tax in Malta
Comparative Survey on Special Tax Regimes for HNWIs
Portugal: RNH
Conditions
• Not deemed as PT resident during the last five tax years (prior to transfer to Portugal)
Duration
• 10 years
Advantages
•Employment and professional income from HVAA – reduced rate (20%)
•Exemptions on foreign income:
•Employment income effectively taxed in the source state;
•Pensions; taxable in the source state under the DTT or the OECD Model Tax Convention
• Inheritance and gift tax exemption on foreign assets and transfers of Portuguese assets between spouses and to descendants and ascendents
Comparative Survey on Special Tax Regimes for HNWIs
Spain: Beckham Law Conditions
• Not deemed as Spanish resident during the last ten tax years (prior to transfer to Spain)
• Transfer to Spain for employment reasons
• No PE in Spain
Duration
• 6 years
Advantages
• Employment income in Spain - 24% up to € 600K; 45% exceeding €600K
• Exemptions on foreign income
Tax Competition Factors
(In)stability of Tax Law
Inheritance and Gift Taxes
Net Worth Taxes / Declaration
Special Tax Regimes
Erosio
n of
the Tax
Bases
?
Tax Competition Factors
Other relevant factors:
Quality of Life
Climate
Infra-structures
Trendiness
Security
Hidden Traps: any way out?
Protection of
Acquired Rights
Principle of Equality
Conflict with EU
law / principles
Exit Tax
Special Tax Regimes and Entitlement to Tax Treaties
E.g. UK; Malta
• individuals should benefit from the relevant tax treaties
E.g. Switzerland
• individuals should not benefit from the relevant tax treaties
Portugal
• individuals should benefit from the relevant tax treaties
Italy
• individuals should benefit from the relevant tax treaties
E.g. Spain
• individuals cannot benefit from the relevant tax treaties
Res-Non-
Dom
Lump-
Sum
Other
Special Tax
Regimes
RNH
Flat-tax
In principle, but subject to a case by case analysis in relation to (i) the relevant DTT
and (ii) the interpretation of the sourced income Country
