Monti Seeks To Squash Italian Tax Evasion Culture

by Ulrika Lomas, Tax-News.com, Brussels

12 January 2012

The Italian tax authority has very publicly embarked on a raid of Cortina d'Ampezzo, one of Italy's most exclusive ski resorts, to demonstrate that Mario Monti's new government is taking a hard-line approach to tax evasion by actively challenging individuals and service sector companies that historically have significantly under-declared earned income.

The resort's raid by 80 tax inspectors found that among the owners of 133 parked luxury vehicles, 58 had declared income of less than EUR50,000 (USD64,000) and, of those, 42 had declared annual income of less than EUR22,000 per year. The tax authority also reported that 118 sports cars were under the ownership of companies - to allow the owners to claim tax deductions, and of those companies 37 had claimed profits of less than EUR50,000 a year. 19 of these companies declared losses.

Italy's Revenue Authority further said that they had found significant tax evasion present among the resort's retailers and restaurants, with tax receipts rising by around 300-400% since the previous day on the arrival of tax inspectors.

Businesses and individuals present at the Cordina resort criticized the raid as a publicity stunt, noting that Italy's tax avoidance problem is national, and Cordina is but a microcosm of what is going on throughout the country. The government estimates that Italy's 'black' economy is worth about EUR275bn a year.

The mainstay of the government's investigations will be the use of Serpico, a new computer program to be used to cross check incomes against taxpayers' assets. To prevent cash from being hidden abroad, the nation has stepped up checks at borders and is to continue other Italian administrations' policies of offering a tax amnesty for remitted assets, albeit with less favourable terms than its predecessors.

The government is to also outlaw cash transactions above EUR1,000, and is thought to be considering providing tax concessions for those that seek and retain receipts from service sector businesses to encourage value-added tax compliance.

There will also be an additional annual levy of 0.4% on financial funds declared during previous tax amnesties, which is now made permanent and will be increased to 1% in 2012 and 1.35% in 2013. There will, from this year, also be a levy of 0.76% on the purchase cost or market value of property held abroad by individuals, and of 0.1% (rising to 0.15% in 2013) on the market value of their foreign financial assets.

Furthermore, the recently approved budget introduces new taxes on powerful cars, private aeroplanes, helicopters and boats this year. For example, ‘foreign’ private planes (those registered in Italy) will be taxed if they remain in the country for longer than 48 hours, while the level of tax on cars and boats will be reduced depending on their age.

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