INPS, in its capacity as withholding agent, is involved in in the enforcement of international regulations on the taxation of pensions paid to expatriates.
The purpose of tax conventions between two Countries is to avoid double taxation on the income and/or assets of their respective residents.
From a legal standpoint, Conventions on double taxation are international treaties, by which the contracting Countries govern the exercise of their taxation powers.
A further purpose of such treaties is to prevent tax fraud and tax avoidance.
In Italy, after their ratification by Parliament, Conventions on double taxation become a part of the legal system after publication of a specific ordinary law in the Government Gazette.
Such conventions may provide for several different taxation systems:
- A) Taxation in only one State (e.g. in the Country of residence);
B) Taxation in only one State, but only above certain thresholds of exemption and/or by application of certain preset tax rates (different from the tax rates provided for by the tax law in force in the other Country); C) Taxation in both Countries (i.e. both Governments collect a tax on the same income), but the taxpayer will then have a right to a tax credit in the Country of residence.
To avoid double taxation, a retiree residing in one of the Countries with whom Italy has entered into a specific Convention may, in the circumstances expressly provided for, apply for INPS to scrap the tax on his Italian pension (and thereafter his income will be subjected to the tax regime in force in his Country of residence), or ask to be applied the tax rate more advantageous for him provided for in that Convention (e.g. that taxation be collected only above a certain threshold of exemption, or ask to be taxed at a different tax rate from that provided for by the Italian tax law in force).
To this purpose, the retiree shall have to prove his residency abroad by sending the relevant documentation, duly certified by the relevant foreign authority, to the INPS office in charge of paying his pension.