Tax evasion in Italy

In Italy, tax evasion includes failing to declare taxable income, underreporting earnings, and inflating deductions. Offenses such as making fraudulent declarations (Articles 2 and 3 of DLgs. 74/2000), issuing false invoices, and failing to file tax returns can result in fines, criminal charges, and imprisonment for severe cases. Businesses risk reputational damage, loss of trust, and exclusion from public contracts.

How authorities detect tax evasion 

Italian tax authorities employ a combination of advanced tools to detect tax evasion. These include AI-driven data analysis, cross-referencing financial transactions with declared income, and real-time reporting mechanisms introduced under the European Union’s VAT directives.

Information-sharing agreements under the Organization for Economic Cooperation and Development (OECD)’s Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA) provide insight into offshore accounts and international financial activities. 

Traditional audits, whistleblower reports, and financial institution oversight complement these modern methods. Authorities also leverage media and social media analyses to identify lifestyle inconsistencies with declared income. This multifaceted approach ensures high detection rates and highlights the inevitability of scrutiny.

Voluntary disclosure

In the past, Italy introduced specific voluntary disclosure programmes, such as the ones launched in 2014 and 2017, which provided taxpayers with a formal and structured framework to regularise undeclared income and assets, particularly those held abroad. These programmes offered reduced penalties, immunity from criminal prosecution, and a clear deadline for participation. 

In contrast, the current system relies on the “ravvedimento operoso” mechanism ­– voluntary settlement of tax paid late – which allows taxpayers to voluntarily correct irregularities in their tax position without a set time-limited programme. While it still provides reduced penalties and often avoids criminal liability, the process applies to a broader range of violations but lacks the comprehensive scope and immunity guarantees of earlier voluntary disclosure initiatives.

Opportunities to amend tax declarations 

Taxpayers can voluntarily amend their filings before formal investigations begin, thereby minimising penalties. The sooner the amendment is made, the lower the penalties, with adjustments ranging from minimal fines for corrections made within 30 days to higher penalties for longer delays.

Tax declarations can generally be amended within six years, specifically by the end of the fifth year following the year in which the return was originally filed. 

It is important to note that if a taxpayer fails to file a tax return within the statutory deadline, they must submit it within 90 days of that deadline. Beyond this period, the ravvedimento operoso mechanism is no longer available, penalties cannot be reduced, and the tax return is classified as “unfiled”, leading to more severe consequences.

Conditions for voluntary disclosure of tax evasion 

In Italy, voluntary disclosure of tax evasion is currently based on the ravvedimento operoso mechanism, which allows taxpayers to amend past tax returns or other relevant filings, as well as to rectify errors, omissions, non-payments, or underpayment of taxes. This procedure is open to all taxpayers and is not contingent upon specific prerequisites, other than adherence to statutory deadlines and the condition that no audits, investigations, or inspections have already commenced.

To benefit from this process, taxpayers must ensure full and accurate disclosure, make timely payments of outstanding taxes (including interest and reduced penalties), and submit corrected declarations before any formal proceedings are initiated. The flexibility of this mechanism makes it a key tool for addressing a wide range of tax irregularities, and encourages proactive compliance.

Consequences of voluntary disclosure 

Amending past tax returns or other relevant tax filings, as well as rectifying errors, omissions, or cases of non-payment or underpayment of taxes, allows taxpayers to regularise their tax position. This process provides the benefit of reduced penalties, often resulting in substantial savings compared to the standard penalties imposed for irregularities detected by the authorities. In most cases, criminal liability is avoided, provided the taxpayer complies with all applicable conditions.

For businesses, voluntary disclosure can also help safeguard credibility and facilitate smoother operations, particularly when eligibility for public contracts or adherence to regulatory compliance is critical.

When voluntary disclosure Is no longer possible

Voluntary disclosure, including the use of ravvedimento operoso, becomes inadmissible if the taxpayer is already under investigation, has received official notice of imminent audits or inspections, or if procedural deadlines for amendments have expired.

It is crucial to act promptly to address tax irregularities. Delays limit available options and can lead to harsher penalties. In severe cases, prolonged inaction could expose taxpayers to criminal liability for significant or intentional non-compliance.

Key areas of concern for voluntary disclosure

Frequent areas of evasion include undeclared offshore accounts and assets, income from international investments or business activities, misrepresentation in VAT filings, transfer pricing discrepancies, and omission of significant domestic income, such as rental income or capital gains. These areas often involve complexities that taxpayers might overlook, leading to unintentional evasion. Italy’s active participation in international tax cooperation has increased scrutiny on cross-border transactions, making compliance in this area a priority for multinational businesses and expatriates. 

Common oversights by foreigners leading to tax evasion in Italy  

Foreign nationals living in Italy often misinterpret the country’s residency-based taxation system, which requires tax residents to report their worldwide income. 

Non-compliance frequently arises from failing to:

• Declare income from foreign investments, real estate, or inheritances; or 
• Disclose the value of foreign investments and assets. 

If such assets are held in tax havens, penalties and time limits for challenging assessments are doubled. Short-term rental income is another area where foreigners may inadvertently breach tax laws. Additionally, a lack of understanding of Italy’s VAT obligations for goods and services within its borders can lead to significant penalties. 

Professional recommendations 

Swift and informed action is crucial for suspected tax evasion. Consulting a qualified tax advisor is the first step in assessing the scope of non-compliance and developing a tailored strategy for resolution. Advisors can assist in gathering necessary documentation, preparing accurate declarations, and navigating the voluntary disclosure process.

Transparency and cooperation with authorities are essential to achieving favourable outcomes. Beyond addressing immediate concerns, professionals should educate clients on compliance requirements, particularly for cross-border transactions and residency-based taxation. This proactive approach not only mitigates risks but also fosters trust and long-term compliance.

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Daniela Canossa is a chartered accountant and statutory auditor, specialising in transfer pricing, international tax structures, and tax advisory. A member of the international tax department, she assists Italian and foreign-based multinational groups.