International Law Issues Raised by an Extra-Territorial Property Tax

Despite the ever increasing interest of academic literature on international taxation, the imposition of Real estate and property taxes have been somehow under-recognized as an international tax issue in legal scientific research until recently. There are no general principles (world-wide accepted) applicable to taxes levied on property, mainly because the right to property as such is regulated and acknowledged very differently from State to State. In some areas it is considered a quasi-natural right of the individual, while in many other is protected under law only if a social function (on a case by case basis) can be attributed to is as well. But if no general consensus can be found on Real estate tax, nonetheless it is possible to find de facto common principles on qualified regional areas: shared rules affecting taxation of property that are established at a level which is beyond the one of the sovereign State and that might influence the latter. Europe is a clear example of this regional approach to Real estate taxation. In the old Continent both the EU and the Council of Europe have established clear limits to the taxing power of the States that should be respected while dealing with immovable property taxation. The first and foremost of these limits concerns the level taxation and the need for the application of a tax that should never lead to a deprivation of property. Taxation and expropriation in this respect are two phenomena that risk having a lot in common when they are directed to Real estate. Italy, as a member of the European Union and of the Council of Europe, developed very recently a brand new tax on Real estate, and dared to apply it also on immovable properties detained abroad (that is, in other States, including Korea) by individuals resident in Italy. This decision (taken in the attempt to maximize the flow of revenue in a time of crisis) will ultimately bring Italy to a possible conflict with the taxing powers of the other States, where the asset is placed. An individual resident in Italy, for instance, will be liable to tax therein for a Real estate owned in South Korea, even if he is also liable to tax in the Korean peninsula for the same asset. The mechanisms set up to prevent multiple taxation (basically, a foreign tax credit) appears all but adequate to mitigate the newly imposed tax burden, and the tax as such appears to be a serious hindrance to investments in foreign states and ultimately lead to a distortive effect on capital allocation. In the long run, the side effects of this policy is still unpredictable and its consistency with the above mentioned principles concerning Real estate taxation is at best uncertain.