4th October 2019
In recent years, Italy – a cultural hotbed and contracting hotspot – has been pulling out all the stops to crack down on tax evasion. If international contractors want to live, work and enjoy their pasta and wine in peace, then it’s crucial that they do not fall foul of the increasingly strict compliance legislation in the region. As the country takes action to shirk the reputation that tax evasion is its ‘national sport’, this is perhaps easier said than done. Here’s what contractors need to know about the Italian tax crackdown.
Italian tax crackdown – The end of cash payments?
In Italy, a radical plan to discourage cash payments and reduce tax evasion has been proposed by Confindustria, the think-tank of Italy’s business lobby. It is hoped that this policy would limit the huge losses that authorities are suffering as a result of evasion, with the country missing out on 107.5 billion euros due to tax dodging in 2016.
The proposal will see consumers offered tax credits for settling their debts electronically while imposing a penalty on cash withdrawals above a monthly threshold. Reducing the use of cash and encouraging electronic payments would go a long way toward cutting into an underground economy that accounts for more than 12% of gross domestic product.
First of many steps
The wider Italian tax crackdown has featured a number of attempts to claw back lost revenue. Recently, we reported on how the country is driving innovation in digital tax in order to solve extensive concerns around VAT evasion. At the heart of this is the Sistema di interscambio (system of exchange), or SDI. This is an interface for receiving, processing and then transmitting invoices to the intended recipient. Under certain circumstances it also takes care of the storage of invoices for up to ten years.
In addition to this, recent figures show that in the past 18 months, Italy’s finance police caught over 13,000 so-called ‘total evaders’ – residents who don’t file a single tax return. Between January 2018 and May 2019, the Guardia di Finanza uncovered 13,285 people who had dodged a combined total of €3.4 billion. The financial crimes unit also found 42,048 employees being paid under the table, an increase of more than 11,000.
However, it’s not just individuals being targeted, and in May 2019, after an intensive investigation, luxury goods brand Kering was ordered to pay a record €1.25 billion to settle a dispute with Italian tax authorities. Centred on Gucci, the settlement is the highest ever agreed by a company in Italy. Tax authorities accused the fashion house of evading taxes on more than €1 billion in revenues between 2011 and 2017.
While Italy may still be top of many contractors bucket lists, it is still important to bear in mind that international tax and compliance is a complicated affair, with rules constantly changing, and authorities becoming ever more powerful. In fact, the Italian tax crackdown is just the tip of the iceberg.
And, once the UK leaves the EU, there could be further changes and complications for UK expats seeking opportunities in Italy. Given this increasing complexity, it is essential that contractors do not attempt to take on the burden of international tax and compliance alone. We strongly advise the employment of expert help from those who truly understands tax and compliance, as by leaving it to the professionals, you’ll be able to focus properly on the job at hand. Contact us today.