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Italian Banks Await Rules For Repatriation Tax Break

by Ulrika Lomas, Tax-News.com, Brussels

26 November 2010


At a seminar organised by the Association of Italian Banks (ABI) in Gubbio, its president Giuseppe Mussari spoke of possible tax breaks for Italian banks repatriating the business they currently operate through their overseas financial subsidiaries.

He pointed out that the government’s financial package, finalised in July this year, included the possibility for Italian banks to repatriate those businesses, having already agreed their tax treatment for the next three years with the Italian fiscal authorities.

It would, he said, be a form of tax amnesty covering, particularly, those asset management companies operating wholly outside of Italy, but that are subsidiaries of Italian banks. Such companies are to be found in all of the principal Italian banking groups. It might well be in those groups’ interest, at the present time, to repatriate those subsidiaries’ assets into Italy, particularly where their current country of domicile (such as Ireland) is in financial difficulty.

He added that the start of such repatriations was awaiting the issue of the relevant regulations from the Ministry of the Economy. They are said to be “in the process” of being produced.

Mussari also took up another of the tax problems that Italian banks have raised with the government, particularly in relation to the economic recession and the consequent increase in bad and doubtful debts experienced by banks in Italy on their loan books.

As has been pointed out by the banks in the past, there is a distinct difference between the tax treatment of such credit losses, as against their accounting treatment on the banks’ balance sheets. For example, a credit impairment of 100 would be wholly taken as a loss in one year in a bank’s accounts, but only 5 would be allowed against taxable profits in that year. The balance of 90 is to be considered as a tax credit, repayable over 18 years (5% per year).

This, he continued, was in stark contrast to banks in the countries of their competitors, including Germany, where a loss is taken equally against both audited and taxable profits. It was, he said, time that Italian banks were able to reduce those credits which are, in effect, “financing to the government at zero interest rates.”

Given that the amounts involved are billions of euro, it would not be possible to cancel the tax credits immediately as Italian banks would then not be taxpayers for many years. He concluded, however, that it was time for reductions to begin, and for allowances to be made within the proposed Basle III regulations to ensure competitive homogeneity with banks from other countries.

A comprehensive report in our Intelligence Report series, analysing the situation on the ground in each of the main offshore banking centres, is available in the Lowtax Library at http://www.lowtaxlibrary.com/asp/subs_reports.asp and a description of the report can be seen at http://www.lowtaxlibrary.com/asp/description_report3.asp
TAGS: tax | accounting | banking | financial services | corporation tax | audit | tax credits | offshore | offshore banking | Italy | tax breaks | services

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