HOT TAX TOPIC: NEW ITALIAN RULES ON REPORTING DUTIES OF INTERNATIONAL VIRTUAL ASSET SERVICE PROVIDERS

Foreword

Considering that the pseudo-anonymity of virtual assets relying on cryptography and distributed ledger technologies (such as the blockchain) may pave the way for their potential misuse for illegal purposes, over the last years, EU and States’ legislators have implemented measures aimed at monitoring the use of virtual assets, for anti money laundering and terrorism financing (“AML/CFT”) based on international recommendations and guidelines issued by the global AML/CFT watchdog named “Financial Action Task Force” (“FATF”).

Over the last years, Italy has enhanced its AML/CFT legislation to target virtual assets service providers based in Italy and, as of May 2022, based abroad and offering their services to the Italian market.

Italian tax definition of virtual currencies and virtual asset service providers for AML/CFT purposes

Italy was amongst the early implementers of the so called “fifth EU AML/CFT directive” (Directive no. 2018/843) pursuant to which providers engaged in exchange services and custodian wallet service providers are subject to the standard customer due diligence and related reporting duties on suspicious transactions since July 2017. Notably, the Italian AML/CFT legislation went further than the EU directive, providing for, among others, a definition of providers engaged in exchange services broad enough to include also crypto-to-crypto trades.

The current Italian AML/CFT law (i.e. Legislative Decree no. 231/2007 – “AML/CFT Decree”) defines:

• “virtual currency”;
• “virtual asset service provider” (“VASP”);
• “wallet service providers” (“WSP”).

Under Italian laws, VASPs and WSPs encompass a wide range of service providers which are obliged to comply with all the standard obligations and fulfilments pursuant to the AML Decree such as the following:

• customer due diligence and identification of the ultimate beneficial owner;
• retention of customers’ information;
• suspicious transaction reporting;
• refraining from carrying out transactions which they know or suspect to be related to proceeds of criminal activity or to terrorist financing.

Accordingly, those VASPs and WSPs are liable to the penalties set out by the AML/CFT Decree, which could increase substantially depending on the circumstances and whether the VASP and WSP derived an economic advantage from such violations (and possibly constitute a crime in specific cases).

The new OAM Register

The AML/CFT Decree and its implementing regulations require that VASPs and WSPs resident in Italy or providing for their services to clients based in the Italian territory must enrol with a register held by a public body named “OAM” (the “OAM Register”).

Notably, VASPs and WSPs falling within the scope of the provisions at issue and not enrolled with the OAM Register are deemed as abusive service providers and exposed to penalties than include a prohibition from providing their services to customers.

Such provisions implement the fifth EU AML/CFT directive and are in line with the FATF’s recommendations and guidelines.

The OAM Register is effective as of 16 May 2022. VASPs and WSPs which already carry out their business activity in Italy must have started the enrollment procedure with the OAM Register within 15 July 2022.

VASPs and WSPs are eligible to enrol with the OAM Register if they meet the following conditions:

• for individuals: being (i) an Italian citizen or (ii) a citizen of an EU Member State or (iii) a citizen of a non-EU member State and domiciled within the Italian territory;
• for entities: having the legal and administrative seat in Italy or, for entities incorporated in a EU member State, a permanent establishment in Italy.

This means that non-Italian entities have to incorporate an entity or have a permanent establishment in Italy depending on the circumstances.

This would also require an in-depth analysis of the business activity of foreign VASPs and WSPs aimed at identifying the relevant Italian tax consequences that may arise further to such fulfillment.

OAM Register: enrolment procedure

The enrolment procedure is carried out online by VASPs and WSPs on the OAM’s web page. The same are allowed to amend the relevant data and request cancellation from the OAM Register.

For instance, entities must provide for several information, including:

• their business name, legal nature and legal seat;
• details of their Italian permanent establishment (if any);
• details of their legal representative;
• a detailed description of their activity carried out as VASP or WSP.

OAM will verify the regularity and completeness of the request of VASPs and WSPs and may ask for integration of documents for its final approval or rejection.

VSPs and WSPs enrolled with the OAM Register are required to pay a one-time fee to OAM (Euro 8,300.00 for entities and Euro 500.00 for individuals).

All the above-mentioned information are fully accessible by the competent authorities including the Italian tax authorities. OAM Register is accessible by the public too, showing some of the abovementioned details.

OAM Register: reporting duties

VASPs and WSPs enrolled with the OAM Register must communicate, on a quarterly basis, several information concerning transactions carried out in the Italian territory.

With regard to each customer, such information include personal details and residency.

With regard to each transaction such information include (i) the value of all the fiat and virtual currencies held by each client; (ii) the amount and value of all the fiat-to-crypto exchanges and vice-versa carried out by each client; (iii) the amount of all the crypto-to-crypto exchanges carried out by each client; (iv) the amount and value of all the transfers of virtual currencies by each client.

The OAM is required to put in place adequate measures for personal data protection pursuant to EU and domestic laws and keep the above-mentioned information for ten years. The latter are fully accessible by the competent Italian authorities including tax authorities.

How we can help

International VASPs and WSPs offering their services to clients based in Italy should now carefully consider their possible obligation to comply with Italian laws on AML/CFT with particular regard to the OAM Register and the related Italian tax implications.

This means that enterprises involved in the virtual assets industry should first clarify whether their services offered make them a VASP or WSP, and whether their business should be reviewed accordingly.

Our legal and tax teams advise clients on the above-mentioned rules and assists both individuals and corporate entities with a cross-border analysis to make their investment structures compliant with Italian regulations.

We are part of a non-exclusive international network which covers some of the major European jurisdictions and key markets in USA and Asia (such as Singapore and Hong-Kong): our cross-border capability enables us to deliver to the clients global services wherever required.

[Should you need any further information or clarification, please contact giorgio.vaselli@galaw.it].