Resolution To Fiat's Italian Tax Credit Problem

by Ulrika Lomas, Tax-News.com, Brussels

11 November 2009

Arrangements for Fiat, the Italian vehicle manufacturer, to be reimbursed for substantial tax credits accumulated by it under the country’s car scrappage scheme are expected to be agreed shortly.

The eco-incentive under the scheme, which extends to December 31, 2009, is EUR1,500 (USD2,250) to those who purchase a new low-emission petrol or diesel car, after scrapping an old vehicle produced before December 31, 1999. There are also additional incentives, even without scrappage, for the purchase of LPG, methane, or electric-powered cars.

Under the Italian scheme’s procedures, the incentive is provided initially by the seller of the car – ultimately, the car manufacturer funding the distributor – who is then able to claim a tax credit for its amount. Fiat’s problem appears to be the lack of recent profitability and consequent tax capacity, against which to use that credit.

Sergio Marchionne, Fiat’s chief executive, has disclosed that the tax credits accumulated by Fiat amounted to more than EUR400m at the end of September, but were expected to reach EUR500m by the end of this year.

In response, the Italian Revenue Agency is reported to have said that it was ready to arrange for Fiat to be able to obtain those funds, and that it only awaited a formal request by Fiat before agreeing an administrative solution to the problem (without recourse to legislation). The solution is likely to lie in the Revenue Agency approving the use of the tax credits by other, profitable, companies involved in the manufacture of the vehicles.

Car manufacturers in Italy are also concerned about the lack of information from the government as to whether the scheme, in whole or in part, will be extended beyond the end of the year. The possibility of such a renewal has not been mentioned in parliament during the passage of the 2010 budget bill.

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