Italy's latest tax disclosure opportunity infringes European law, says a report by the leading European think-tank.
The European Policy Forum, an independent research institute, is arguing that Italy's latest opportunity for taxpayers with offshore accounts to repatriate funds contravenes European Commission laws on the handling of VAT.
The facility allows taxpayers to repatriate funds held in foreign jurisdictions which have not been properly disclosed in their annual tax returns. The repatriation procedure guarantees full anonymity to taxpayers choosing to regularise their position. Those wishing to repatriate their assets are subject to a 5% tax on the total value of assets.
The dispute relates to the concealment of VAT matters from the Commission. This breaches the EC VAT Directive as the amnesty extends to those with unpaid VAT. The forum believes the disclosure facility acts as an indiscriminate rejection of VAT controls. They also argue that the collection of sums due undermined the function of the harmonised VAT system.
This is not the first time Italy has fallen foul of EC rules for VAT tax disclosure. In 2004, the Commission asked Italy to remove VAT from their disclosure facility for the same reasons.
"The breadth of the amnesty covers VAT, member states are not allowed to do this," said Graham Mather, forum president.
However, Paulo Giacometti, a partner at Chiomenti Studio Legale, in Italy, disagrees that the amnesty involves VAT.
"The previous amnesty involved VAT which member states don't have the authority to change," said Giacometti.
"The current amnesty only relates to repatriating investments held abroad and makes no explicit mention of VAT," he added.
"The business community are concerned that taxpayers are getting away with just a 5% penalty," he added.
According to Advocate Giuseppe Giacomini, a specialist in European and Italian law, the disclosure facility also breaks competition and state aid rules and he is calling for a full investigation by the EC and action by the Italian government.
He also says that the facility will make it easier to contravene EU anti-money laundering legislation.
Giacometti also disagrees with this assertion. "There is still the obligation to report about money laundering, although the responsibility lies with intermediaries," he said
"I am surprised that the Commission hasn't asked Italy to explain what it is doing," said Mather.
Other countries have already fallen foul of the Commission regarding their tax disclosure facilities. In 2007, the Commission took action against Portugal as their 2005 facility did not respect the free movement of capital as it discriminated in favour of investments in Portuguese government bonds. The Commission said that this feature of the amnesty constituted a restriction on the free movement of capital.
Finland and Denmark were also targets for the Commission following the different tax rates applied to resident and non-resident persons. Both countries domestic pension funds were taxed at a lower rate than non-resident investors in company dividends.
"Amnesties provide a particular likelihood, with their suspension of existing rules, that community law could be infringed and the level playing field could be damaged," said Mather.
Others feel that tax disclosure facilities are needed following the onset of the global downturn. "The amnesty was enacted due to the presence of funds held in tax havens. Many countries have adopted similar measures including France and the UK," said Giacometti.
"The Commission has not received any complaints against the Italian amnesty for the moment, and we cannot speculate as to what action might be taken until the details of the amnesty legislation is carefully examined," said a spokesperson for the Commission.
