Italy-UK Convention: taxation in the UK for the remuneration of an Italian resident in London and employee of an Italian company

In its ruling No. 25424 of 23 September 2024, the Court of Cassation, with regard to the issue of double taxation, established the legal principle according to which the employer's nationality is to be considered irrelevant in the case of an international convention against double taxation that provides for the impossibility of re-taxing in the employee's country of origin income already taxed in the foreign country of residence.

The case

The case concerned an expatriate worker employed in the UK by an Italian company, who had paid tax to the UK Tax authorities on the wages he received and at the same time had been subject to withholding tax in Italy by his Italian employer.

In order to avoid a double taxation, the taxpayer applied to the Italian Tax Authorities for a refund of the tax paid on his behalf by the withholding tax agent and, upon its rejection, appealed to the competent Tax Court.

Following the favourable first and second instance rulings, the Tax Authority appealed to the Court of Cassation, claiming the violation and/or misapplication of the Italy-United Kingdom Convention, as the appeal tax judge had incorrectly found the refund request justified, despite the fact that the employee income had been paid by an Italian employer.

The decision

The Court of Cassation rejected the Tax Authority's appeal and confirmed the legitimacy of the employee's right to a refund of withholding taxes paid in Italy on income already taxed abroad. In its decision, the Supreme Court first observed that the taxpayer had correctly proved his tax residence in UK by producing the certificate issued by the foreign tax Authority and by applying for taxation on income earned there.

According to the double taxation Convention between Italy and the UK, if an Italian employee resident abroad has already been taxed on the wages received abroad (State of residence), he cannot be taxed on the same income in Italy (State of nationality).

On this basis, the legal principle established by this Court clarifies that “the nationality of the employer is completely irrelevant in the matter of traditional disciplines for the contrast of double taxation, by which it is intended to avoid that the same income is subject to taxation in two States, and it is therefore provided It is therefore provided, with the possibility of exceptions, that if the income has been taxed in the foreign country of residence of the employee, the same amounts may not be taxed (again) in Italy, the country of nationality of the employee, regardless of the nationality, Italian, English or otherwise, of the employer who has paid the remuneration”.

For the reasons mentioned above, this ruling is extremely relevant for all Italian citizens working abroad. In fact, by confirming the substantial value of bilateral conventions, despite a completely irrelevant fact such as the employer's nationality, the judgment confirms the double taxation prohibition and counteracts the multiple taxation of employees.