Italy's Tax Amnesty Causes A Dilemma: Repatriate Or Declare?

by Ulrika Lomas, Tax-News.com, Brussels

29 July 2009

The Italian government proposal for a new tax amnesty on funds held by Italians abroad, from which it is hoped to bring billions of euros back into the Italian economy, has produced a choice for those with assets within, but not for those outside, the European Union.

If the undeclared assets are situated outside of the European Union, the only means of benefiting from the amnesty is to repatriate. However, if the assets are situated within the European Union, it is possible to choose whether to repatriate the assets, or merely declare their existence to the Italian authorities.

Unfortunately, undeclared assets will not only be held in the form of cash, shares and bonds, but also by other means, not all of which will moveable or easily saleable. For example, a bank account held in France, Germany or the UK need not be closed, but would have to be if held in Switzerland. However, the value of a house owned in France could be declared, but could remain unsold, while a house owned in Switzerland would need to be sold for the resulting funds to be included in the amnesty.

In the present global economic climate, the sale of certain assets for their repatriation may be difficult, or only possible at a much reduced price. The attempted sale of investments in assets without a good liquid market would produce such a problem. Furthermore, certain hedge funds have a notice period of up to six months, while structured bonds and insurance policies can impose very high penalties if liquidated within the first two or three years.

In those cases, therefore, the addition of the 5% tax payable under the amnesty on top of other market penalties might, in certain cases, be prohibitive.

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