Italian Company Profits Hit By Tax Amnesty Payments

by Ulrika Lomas, Tax-News.com, Brussels

16 September 2003

It has emerged that Italy's largest corporations are sacrificing profits in order to take advantage of the government's tax amnesty thus preventing possible fines, penalties or a potential visit from the dreaded Guardia di Finanza tax police.

The Italian government is currently running a broad-based amnesty where both firms and individuals can report undisclosed income and repatriate overseas deposits without fear of a lengthy investigation or the imposition of fines. The GdF offers to forget any past misdemeanours, which almost inevitably end up turning into a lengthy and costly investigation. The amnesty is also a useful source of extra revenue for the government, which is struggling to maintain its budget deficit below 3% of GDP in order to stay in line with the euro stability rules. Last week the finance ministry announced that the amnesty raised 6 billion euros through July.

As the first half earnings reporting season gets underway, it has come to light that the amnesty has taken its toll on the profits of many large companies. Benetton for example reported net profits of 50 million euros, though it revealed 'normalised' profits of 73 million euros, a discrepancy blamed on an 11 million euros payment to the amnesty and the omission of certain assets. Fiat meanwhile has said it intends to part with 50 million as an amnesty payment and Silvio Berlusconi's own media firm Mediaset paid 47 million euros in extra taxes in the first six months according to the FT.

However, although the amnesty campaigns have been a useful tool for the government in attracting extra tax revenue, the readiness with which Italy tends to resort to such measures is something of a double-edged sword, a policy criticised by many. "If Italians can look forward to pardons every year the incentive to pay taxes drops even further," Pasquale Diana, an economist at J.P. Morgan Chase & Co. in London told Bloomberg In June. "They can't go ahead with pardons, they need to tackle the problems of deficit and spending head on," Diana warned.

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