Tax Break

John Fisher, international tax consultant

Archive for the category “Italy”

Nobody expects the Spanish Inquisition


And now for something completely different…

As Inquisitions go, the Spanish one went quite recently. The last garroting took place in 1826, with abandonment of the 350 year-old program in 1834. Portugal had, by then, put that sad part of its history behind her, while the Papal States, and their offshoot The Vatican, finally got round to announcing their Inquisition’s requiem in 1908, and its requiem aeternam in 1965. Parting was, evidently, such sweet sorrow.

Despite the Renaissance and all that followed, and despite the receding risk of having one’s soul removed from one’s body by religious force, the Catholic Church (and in its wake, other Christian sects and religions) has historically been treated with kid gloves – nowhere more notably than in the field of taxation.

Several nations have agreements with the Vatican governing that institution’s extensive property holdings, which provide extensive exemptions from income tax and property taxes. In addition, for various reasons (e.g. in the US, the Establishment clause of the First Amendment; in other nations, the contribution to the public good) nations include religions of all stripes in their tax-free, not-for-profit legislation.

Where the real clash occurs is when a religious institution earns commercial income. Income tax is a dogmatic no-brainer (though not according to all those agreements); but property taxes are in another world.

Salvation has possibly come in the form of the European Union, the Godless machinery of which has just come up, for at least the second time, with a fortuitous deus ex machina.

On June 27th, the European Court of Justice issued a judgment that Spain’s municipal construction and building tax could apply to Catholic Church property used for educational purposes not funded by the Spanish government. This was despite a Spanish High Court ruling enforcing a 1979 agreement with the Vatican that no taxes could apply to property and earnings from property owned by the Holy See and its offshoots. The miraculous solution was unlawful state aid – which, in the EU canon, is up there with adultery and child-sacrifice. The case was referred back to the Spanish courts for consideration – the presiding judges of which will presumably not need to stretch Church representatives on the rack or burn them at the stake in order to enforce an equitable solution.

On a previous occasion, in 2012, thanks to pressure from the EU over the same unlawful state aid, then Italian Prime Minister Mario Monti was handed the moral strength to strong-arm the Vatican into paying taxes on commercial properties around Italy, which hitherto had been tax exempt if they included some token religious symbol, like a chapel in a converted monastery hotel. Meanwhile, the Vatican itself remained a tax sanctuary, although the cash-strapped city of Rome has in recent years been trying to get the pope, who happens to live there and has expressed personal support for taxation, to pass the collection plate among the moneychangers at the entrance to the Vatican museum and its lucrative shop.

Other countries, unable to brandish the symbol of unlawful state aid, that have been trying to reach a modus vivendi with the Church will welcome the ECJ’s decision; notably Zimbabwe, that paragon of taxation virtue, and Israel, where it all started when an idealistic young man exhorted his countrymen to ‘render unto Caesar the things that are Caesar’s ’. But then, in those days, all roads led to Rome.



Spaghetti Westerners

He has been there before

He has been there before

The word around the Roman Forum is that Italy is on the verge of a Renaissance. After three years of recession, modest growth is expected this year.

Regular readers may recall Giovanni and Guiseppe, two Italian plumbers who tried their luck in England about three years back. Thanks to improved employment prospects, they have returned to their beloved homeland and have found work in the movie industry. Their photogenic faces not quite photogenic enough for the cameras, they have had to settle for being responsible for the fitting and maintenance of the portable toilets on the set of ‘Spectre’, the new James Bond movie. They handle their S-bends every bit as well as any stunt driver on the open road, while their high-speed drill leaves occupants shaken, not stirred.

Fellini's original Paparazzo in La Dolce Vita (lousy taste in whisky)

Fellini’s original Paparazzo in La Dolce Vita (lousy taste in whisky)

Strolling in the evenings  down the Corso Vittorio Emmanuele II, Giovanni and Guiseppe notice that the potholes have been filled so that Daniel Craig doesn’t hit his bonce speeding his Aston Martin (sadly, not the original) along its length. They have to wait for a seat at a restaurant next to the Ponte Sisto, while revellers gabble to each other in accentless English about their day on the film-set. As they take their seats, there is sudden confusion as a gaggle of long-forgotten paparazzi appear in the entrance, furiously snapping the gorgeous Monica Belucci – Bond’s latest Girl – as she glides to her table. The pick-up in the international film industry has had a knock-on effect across the economy.

Why this revival of Hollywood on the Tiber? Answer: Incentives. Now, incentives are an international tax purist’s nemesis. They distort the allocation and location of labour and capital, and – if they could be brought to life – should be shot. Just occasionally though, they are justified. The incentives given by the Italian Government to Film Production in 2009 and grudgingly renewed in 2013, are a good example. Italy is a natural location for location filming – it possesses exquisite beauty and preserved history.

The 1950s and 60s were Italy’s heyday as a Hollywood host while nurturing the amazing homegrown output of the likes of Fellini. By the 1990s, Bulgaria, Romania and the Czech Republic had gracelessly stolen Italy’s thunder through cheap alternatives. Italy’s legislation – providing tax credits to locally registered production companies that could be used against, in addition to corporate tax, deductions against wages – has not created a distortion; it has relieved one. And the world of cinema is a better place for it. Watch out for the remake of Ben Hur.

If you cannot imagine Churchill in a swimsuit...

If you cannot imagine Churchill in a swimsuit…

Orson Welles was at the Hotel Excelsior in Venice some time after World War II trying to convince a White Russian to finance his next movie (I believe it was the Italian produced ‘Black Magic’). As he walked into the dining room with his prey, he spotted Winston Churchill – whom he had met briefly during the war and who had attended a performance of Othello – at a corner table. Noticing Welles, Churchill gave a polite nod of recognition. This sent the White Russian crazy – and he proceeded to offer Welles everything he wanted. The next day Welles spied Churchill paddling in the hotel pool. Wading over to the Greatest Englishman, he told him what had happened and thanked him profusely. That evening, when Welles and the Russian entered the dining room, Churchill stood up and bowed low. Britain’s past and future prime minister was clearly an international  patron of the arts – and a decent comic actor, to boot. More’s the pity he had to play opposite Hitler and Mussolini, rather than Marlene Dietrich and Sophia Loren.


Judge for yourself

Practicing for next term of office?

Practicing for next term of office?

Silvio Berlusconi has a mission. Having already successfully nobbled two branches of government – the executive and legislature – he is out gunning for the third.

In a speech that in any other country would have had him up in front of the Beak accused of incitement, the newly convicted (this one’s for tax evasion) former Italian Crime Minister earlier this month went as far as to say that the judiciary that had convicted him exercised “the worst power – the power to deny someone their freedom”.

Now Silvio, darling, I know you are the latest in a long line of Italians the likes of Julius Caesar, Pope Alexander (Borgia) and Benito Mussolini who, shall we say, were born without the rule of law gene, but what do you really think all those judges are for if not to deny people’s freedom?

I really do think you are missing the point when you decry such  treatment of “someone who has given 20 years of his life to the nation”. Dear boy, you are not supposed to be above the law just because you were Chief Clown. Your sentence is something of a joke – because you are 76 years old and have had some modest success in buggering up the country’s laws during your three terms in charge, you are facing one year of house arrest or community service. You probably have an estate the size of Milan and, anyway, what community service is a 76 year old fit for (don’t answer that – you are being tried separately for that nonsense) ?

Watching Berlusconi’s privately produced video following the conviction, it occurred to me just how inadequate simultaneous translations are, and how difficult is the task now facing the OECD following its new mammoth commission from the G20 to clean up the world’s tax act in time for tomorrow morning’s  breakfast.

Mr Berlusconi, sitting at a desk with a backdrop of flags fit for a Duce, looked – thanks to the AC Milan boss’s season ticket to the cosmetic surgeon – like a cross between Pinocchio and Barbie’s boyfriend, Ken. Trying to understand what he was about was not just a matter of the inevitable lipsynch problems of English words crowding out the Italian pouring from his mouth. The man’s logic and body language were totally incomprehensible to a Brit like me, despite my substantial Mediterranean connections.

Same agency that dealt with the tax evasion issue?

Same agency that dealt with the tax evasion issue?

Around the same time Messrs Dolce and Gabbana, who I assume require no introduction among the refined readership of this modest blog, reacted to their own tax evasion (yawn!) conviction with  a full-page advertisement in the world’s press protesting their innocence (or something like that) accompanied by all sorts of data. Now I, as a Brit and despite my substantial Mediterranean connections AND a career in tax accounting, did not understand a damned word.

Yet,  neither Mr Berlusconi nor the luxury goods pair are stupid. And, even if they are, their PR people surely cannot be? My conclusion is that Mr Berlusconi’s advisers knew their Italian audience who view the whole Berlusconi saga in a different light to the rest of us (let’s face it, they elected him 3 times), while Dolce and Gabbana’s Italian advisers are, sadly, stupid.

According to my Atlas he was also an Italian

According to my Atlas he was also an Italian

This all brings me to the conclusion that the OECD is on a hiding to nowhere. Thanks to sheer American bullying power, there will be some progress in such areas as Exchange of Information but much of the 15 point plan (see last Post) is going to get mired in disagreements over different value systems. As the northern hemisphere celebrates the centenary of the last summer before the old world got taken to the laundry, that is hardly surprising.

Roman Circus

Didn't anybody tell them that the Messiah will have a beard?

Didn’t anybody tell them that the Messiah will have a beard?

“He is not the Messiah, he is a very naughty boy”. Thus spake Mandy Cohen, mother of Brian, to the ignorant  mob besieging her home,  rejecting  their mindless veneration of  her son. Her statement would have been appropriate at many points in history – the world has had no shortage of false messiahs. The human condition demands hope. When collective hope is lost, up pops an improbable saviour  promising salvation. Same plot, different protagonists.

Once upon a time they could plug into religion for a narrative (the occasional halo-wearer  still raises his angelic head in third world countries as well as American States south of the Mason Dixon Line) but in the cynical, secular modern world despair has to seek new panaceas.

Nowadays, the Hosannas are reserved for General Elections. The Eurozone crisis and its aftermath of German imposed austerity led to hope-inspiring changes of government in, among others,  Greece, Ireland, Spain and France (alright – maybe not France).  However, after a period of technocratic rule it was left to the Gigolos of Europe to take the Faustian route and threaten to bugger the entire European enterprise.

Having rid themselves in 2011 of an administration that seemed to govern from the loins, the Italians went on to remarkable things under the unelected  Mario Monti. Then, just as things were starting to straighten out, the former prime minister awoke from a court-case-induced coma and brought down the Government.

Now, in any normal country the expected result in the ensuing election would have been an outpouring of support for Mr Monti and an AC Milan football kicked up the buttocks of that venerable team’s chairman. But not Italy, a country where they strive to walk on water.

Rather than take the whole thing seriously Italian voters decided, as one man, to kick off their shoes, pass round a  communal joint, lie back  and inhale their way out of reality. Hallelujah!

Every Brit knows what a bidet is for

Every Brit knows what a bidet is for

The good news was that ex-King Bunga-Bunga did not win. The bad news was that neither did anybody else. A full 25% of eligible voters stayed home to watch Bunga-Bunga-owned television and Bunga-Bunga-owned football, while, among those who voted,  25% went for a Billy Connolly lookalike (but not soundalike) “comedian” with knock-out lines like: “Did you know that the British think a bidet is a bath for a violin?”  Duh? The retro any-left-wing- port-in-a-storm Pier Luigi Bersani with 29% scraped only a smidgen more than his nemesis, while Mario Monti, whose only crime was that he had both feet  planted firmly on the ground, picked up a pathetic 10%. His job in the new parliament is expected to be holding up the laugh prompt card.

The Italians proved once more what we have known for years. They do not like taxes and damn the consequences. One of the central features of Berlusconi’s campaign was the repeal and refund of the hated IMU tax that Monti imposed on second homes. Ironically, the expected take from that tax is only €4 billion each year. Meanwhile, anybody who managed to control his tears of mirth long enough to read Beppe Grillo’s blog would know that, while he does not object to taxes in principle, he doesn’t like the ones everybody is talking about at the moment – which is populist poppycock (unless that was supposed to be another of his side-splitting jokes).

If truth be told (and, as this is Italy, why the hell should it?) most responsible macro-economists groveling in search of a Nobel Prize today think that the policy of raising taxes in response to the Eurozone crisis is misjudged. On the other hand that does not justify the  complete abrogation of responsibility by an entire nation to behave like adults (and not just consenting ones). Italian taxes are extremely high. The problem is not the tax rates but the fact that so many residents do not pay their fair share. Like red lights in Rome (of the traffic variety), taxes are a suggestion rather than an order.

Italians rejected Monti, not because he put taxes up but because he came up with clever ideas to catch those not paying them. The Redditometro which, from this month,  enables the authorities to estimate what taxpayers should have declared based on databases of expenses and complex formulae,  is a particular turn-off for the fun-loving population. And what about those cash-strapped citizens who live in fear of the knock at the door of the family Ferarri.

The Italians would rather just lean back and wait for the Messiah – these days a frumpy, middle-aged lady in Berlin who is going to be placed  under steadily more pressure as she faces her own re-election battle later this year.

The Italians never could get the hang of the walking-on-water thing

The Italians never could get the hang of the walking-on-water thing

Of course, Italians and their politicians are not the only ones to make fools of themselves (although nobody can deny that  they are exceedingly good at it). The current political and religious goings on in Rome reminded me of a story from the 1960s when George Brown was British Foreign Secretary. To call a spade a spade,  it was universally known that Brown had a little problem with drink – he could never get enough of it. At a diplomatic ball he eyed a stunning black lady in a striking purple satin evening gown. Plucking up the courage, he ambled over and asked her to dance. “I cannot dance with you for two reasons’, came the curt reply. “Firstly, I do not dance. And, secondly, I am the Archbishop of Lagos”.

Perhaps, if every time Italians had to elect a government they were locked in a room with murals covering the walls and ceilings and not let out until there was a clear victor, they might take the whole process more seriously. On second thoughts, there is more chance of the coming of the Messiah.

A funny thing happened on the way to the Forum

"Who needs a programme?"

“Who needs a programme?”

As a kid, did you ever dream of an extra tap in the kitchen that dispensed endless lashings of Coca Cola  and Strawberry Milkshake? Or what about being let loose for an afternoon inside a locked, and deserted, sweet shop? Well, the  not-so-juvenile tax practitioners of Bungabungaland woke up on November 21 to a dream come true.  A new programme was launched a day earlier which, similar to the speed trap warning programmes marketed by mobile phone companies, tells you how much you need to report to the Bungabungaland tax authorities in order to avoid suspicion. In a country where tax evasion is part of the national culture, the idea that you could key in your assets and expenditure and be told how much taxable income to declare, is truly amazing. What is more incredible, and could only happen in Bungabungaland or its neighbour across the Ionian Sea, is that the programme is on the Italian Tax Authority’s’ website.

The truth is that the idea is ingenious, if impractical. In a country where nobody wants to tell the truth about their taxes (morality has been outsourced to the Vatican for centuries ), why not let  people feel they are deceiving the authorities by tweaking the edges of the programme, while they end up  paying substantially more tax than they otherwise would have done?

But, philosophy aside (and philosophy is an absolute aside when it comes to taxation), what is really so strange about all this in a country that is capable of producing a leading politician who is a stand-up comedian?

Spelling was never his strong point

Spelling was never his strong point

At the end of October second place in the Sicilian Regional Election was taken by Beppe Grillo’s Five Star Movement. Grillo, a former accountant and banned TV comedian,  was previously best known for organizing  V day celebrations in which he outed Italian politicians convicted of  serious crimes. The V was short-hand for a two finger salute which, in turn, was short-hand for something  often spelt with a surfeit of asterisks.

His party’s political success – it is currently running second in some polls for the upcoming General Election – is a sign of how bad things have become since Bunga Bunga. Of course it is not the first time the Italian electorate have done strange things – an Italian colleague reminded me yesterday that porn star La Cicciolina was elected to parliament for five years in the late 1980s on a platform of environmentalism and free love and, if we really want to go back, Caligula proposed making his horse a Senator.

Meanwhile, reading Grillo’s famous blog (there are Italian and English versions) he does appear to talk quite a lot of sense – including insistence that taxes are a good thing as long as they are  not used for the things they are used for now.

In point of fact, a stand-up comedian going into politics is not as custard-pie-in-your-face laughable as it sounds. While Italian politics has, for much of the last 20 years, been a hotbed of slapstick comedy, the dry interregnum of Mario Monti is  providing an incubator for the resurgence of  satire. Stand-up comedians are at centre stage in modern satire, the successors to Voltaire, Thackeray, Wilde and Dorothy Parker. In amplifying the ridiculous or unacceptable in everyday life they are one step ahead of their audience in consciousness of what is really going on around them. You laugh at a stand-up comic because he hits you with scenes that you realize are obvious but about which you have never gathered your thoughts (or thought that nobody else would consider them as important).

A political leader in a modern democracy should be someone who has the perception and ability to articulate what society is groping for but is not collectively able to express, and then make it come true.  That goes one step further than a stand-up comedian’s CV, but that may not be important for Grillo. As one who exposes the negatives of society, a stand-up comedian may not be well placed to go the extra mile with positive action- which is crucial to leadership. However, Grillo has stated categorically that he will not join in coalition with another party. What that means, in a system that inevitably produces coalitions, is that he is running for the post of Leader of the Opposition. For that he is perfectly qualified. The only question is whether Italy would be better off having him outside parliament protecting democracy as part of the Media Fourth Estate or, inside, protected by parliamentary immunity.

The Montis were luckier than her

The Montis were luckier than her

Meanwhile, the rest of the world has been enjoying the quiet studiousness of Mario Monti and his cabinet. That is not to say that there have been no moments of humour. Almost a year ago, according to the BBC, a Deputy in the Italian Parliament challenged that, with austerity biting and Bunga Bunga still banging on the frontal lobes of the entire population,  the new Prime Minister had held a lavish Christmas party in his official residence at the taxpayer’s expense. In reply to the accusation, Mr Monti, explained that he and his wife  had, indeed, held a party –  for their children and grandchildren. Mrs Monti had gone shopping herself for the food at her own expense and had cooked and served the meal herself. Mr Monti did point out that she had indeed used the gas stove in the official residence, the gas being paid for from the public purse. He hoped, however, that he and Mrs Monti would be forgiven this extravagance bearing in mind that, on assuming the premiership, he had refused a salary and was working for nothing.

La dolce vita

A headline on the front page of today’s International Herald Tribune caught my eye: “Fighting anti-tax mind-set, Italy deploys new tactic: Shame”. Given that this was Italy and that Italy is populated by Italians, the first thing that crossed my mind was, “Yeh..Shame they got caught”. On viewing the accompanying photograph of a class full of  angelic children being instructed to -metaphorically- educate their parents in the moral imperative of  double-entry bookkeeping , I felt that I was probably not far off the mark.

The article does not pull any punches in discussing the disease of rampant and almost overt tax evasion in Italy (it is claimed that 604 airplane owners declared annual income under Euro 50,000 ) but it was a comment of the director of the internal revenue service that was most interesting.

He compared the US and Italian systems. While he claimed that taxation in the US had originated in the far west to pay for the defense of the community, in Italy the first forms of taxation were imposed by princes, often foreign, to finance their battles – with the citizens getting nothing in return. As a result tax evasion became part of the culture right up to the present day.

Got it. Historically mobile morality. I can just see the conversation between two  plumbers fitting a new bathroom in the center of Rome: “Guiseppe, have they agreed to pay cash?” “Of course, Giovanni. I told the owner that your ancestors had their house swiped by the Borgias and he told me he had no problem with paying under the table as he was descended from the Medicis who hated the Borgias – that was a nice bit of luck.”

At the end of the day, however, perhaps these genetically conditioned tax evaders are ahead of their time. With new prime minister Mario Monti’s Euro 30 billion austerity package Italians might be looking once again at being required to pay taxes without getting much in return as the amounts collected are used to pay off  debts to foreign “princes”.

Machiavelli wrote in “The Prince”:”When neither their property nor their honor is touched, the majority of men live content”. That may have been true 500 years ago but, if the Euro crisis is to be solved, let’s hope those schoolchildren make their parents see sense.

Post Navigation