Tax Reforms in Italy

T A X R E F O R M I N I T A L Y

Introduction

Estimated tax evaded (2008): 100 billion €

Taxable amount evaded (2008): 270 billion €

Source: (Tax evasion in Italy, Agencia delle Entrate)

Contributing Factors to Tax Evasion:

* Overregulation

* Tax Burden

* Production Structure of the Economy

* Effectiveness of Financial Administration

* Tax Justice

* Quality of Services

* Social Norms

In 2011, tax evasion in Italy grew by 13,1% reaching a high record in the North (14,2%).

There are five areas that tax evasion takes place:

1. Underground Economy (Black Economy),

2. Criminal Economy,

3. The Evasion of Corporations,

4. The Evasion of Large Companies,

5. The Evasion of Small Businesses and Individuals.

The first category comprises with the illegal workers (about 3 million, mainly Chinese) or people holding a second or third job. Tax evaded income from illegal workers rises up to 34 billion €.

The second category is the Criminal Economy that includes mainly operations by the famous Italian Mafia and by other „Mafias‟ like the Russian. that, in northern Italy in 2011 grew by 18.7%. It is estimated that the turnover produces an evasion of taxable income amounting to 78.2 billion € a year.

The third area is made up of the corporation‟s (except large enterprises). The data show that about 78% of Italian companies declared negative income or less than 10.000€, so as not to pay taxes. Many of them close within 5 years in order to avoid tax audits. In practice, of a total of approximately 800,000 corporations operating, about 81% do not pay taxes. Tax evaded income is estimated at around 22,4 billion €.

The fourth area is composed of large companies. One in three closed during the previous year at a loss without paying any taxes. In addition, 94% of big company abuse the rule of "transfer pricing" to shift costs and revenues between the group companies or artificially transfer taxation in countries with an advantageous tax system. Tax evaded income is estimated at around 37,2 billion €.

Finally there is the avoidance of self-employed and small businesses due to the non-issuance of receipts, and invoices that deprives the Treasury of around 8.2 billion € per year.

"To combat tax evasion'', said Victor Charlemagne president of Taxpayers Association of Italy, "the Italian tax authorities need to be reformed by introducing tax compliance, following what happens in the main European countries that have reduced tax rates, improved quality of public services and eliminate waste of public money. Tax evasion because of the ineffectiveness of the PA has become the most popular sport practiced by the Italians. Until we improve the efficiency of the tax cut and spending of the caste, the new government will need to issue pardons to cash at all costs. And you always press the big tax evaders, who prefer to pay lump sum taxes and with the maximum discount".

Tax Evasion in Italy - The Numbers

Tax Evasion by Geographic Region (2010)

Minimum

10,93%

(Milano, Torino, Genova, Roma)

Median of the country

38%

Max

65,7%

Salerno, Reggio, Calabria, Messina

Source: http://economia.virgilio.it/tasse/mappa-e-numeri-evasione-fiscale-in-italia.html

Some other figures:

Number of tax controls in 2010: 700.000

Number of taxpayers with high tax duty in 2010: 2.609

Source: http://economia.virgilio.it/tasse/mappa-e-numeri-evasione-fiscale-in-italia.html

Sectors with high concentration of tax evasion:

Agriculture (31,1%)

Industry (12,1%)

Hotels and public exercise (56,8%)

Source: http://economia.virgilio.it/tasse/mappa-e-numeri-evasione-fiscale-in-italia.html

Professions that report low income (suspect of tax evasion), Annual in € (2008)

Category

Declared income

Hairdressers and Barbers

10.190,00 €

Stationery

11.200,00 €

Clothing and Footwear

11.380,00 €

Household appliances

12.070,00 €

Vets

15.620,00 €

Psychologists

17.730,00 €

Photography studios

18.680,00 €

Hotels/Rooms to let

18.810,00 €

Architects

28.810,00 €

Insurance intermediaries

34.420,00 €

Film producers

35.790,00 €

Source: (Tax evasion in Italy, Agencia delle Entrate)

New Tax Reform (2010-2011)

The 2010-2011 reform (Manovra Economica) of the taxation and the entire fiscal system seems a necessary step for the Government to accelerate the process of increase the effectiveness of the tax authorities together with the reform of justice. The general scope is to move towards to a more simplified way of doing business in Italy for both individuals and firms.

The tax