Italy and Switzerland signed today in Rome a new agreement on the taxation of frontier workers and a Protocol amending the Convention to avoid double taxation. The new agreement will replace the one currently in force, dating back to 1974, will significantly improve the current system of taxation of cross-border commuters and will help maintain good bilateral relations between the two countries.
The new agreement was signed by the Italian Deputy Minister of Economy and Finance, Antonio Misiani and by the Secretary of State for International Financial Affairs, Daniela Stoffel. Having verified the impossibility of signing the text as initialed in 2015, this year the talks between Italy and Switzerland have resumed which have led, in recent months, to changes to the previous draft agreement which represent a satisfactory solution for both set off.
The process of defining the agreement was accompanied by consultations with the trade unions and the Association of Italian border municipalities, as well as with the authorities of the cantons of Grisons, Ticino and Valais. The entry into force of the new agreement requires ratification by the parliaments of both countries.
The main aspects are the following.
- Ordinary regime: the tax that the State in which the working activity is carried out will apply on employee income for new cross-border commuters will rise to 80 percent, against the 70 percent initially envisaged in the draft agreement signed in 2015. I new cross-border commuters will be subjected to taxation in the ordinary way also in the country of residence, which will eliminate double taxation. Those who enter the labor market as cross-border commuters from the date of entry into force of the agreement will be considered as "new cross-border workers".
- Transitional regime: those who work or have worked in the cantons of Graubünden, Ticino or Valais in the period between 31 December 2018 and the date of entry into force of the new agreement fall under the transitional regime applicable to "current frontier workers". Current cross-border commuters will continue to be taxed exclusively in Switzerland. Until the end of 2033, Switzerland will pay financial compensation in favor of the Italian border municipalities equal to 40 per cent of the withholding tax levied by Switzerland. After this date, Switzerland will retain all tax revenue.
- Definition of frontier worker: the new agreement provides a definition of “frontier worker” which includes workers who reside within 20 km of the border and who, in principle, return to their home every day. It applies to all cross-border commuters (new and existing) as of the entry into force of the agreement.
- Anti-abuse clause: the new agreement contains a provision aimed at preventing potential cases of abuse in relation to the status of “current frontier”.
- Reciprocity: the agreement is based on the principle of reciprocity.
- Review: The agreement will be reviewed every five years. In addition, a clause provides that consultations and any periodic adjustments regarding agile work / teleworking are foreseen.
On the occasion of the signing of the agreement, Italy and Switzerland also carried out an exchange of letters, aimed at clarifying the interpretation of certain provisions of the new agreement on cross-border commuters and ensuring their correct application. In particular, it is confirmed that the withholding tax is the only taxation method applicable to frontier workers.
The text of the agreement, the protocol amending the Convention to avoid double taxation, the exchange of letters (general amicable agreement) are available on the website of the Ministry of Economy and Finance.