The Magic Disappearing Tax

By Global Tax Weekly

Italy in the spotlight again this week, with (unelected) Matteo Renzi in full flood of (unelected) government-forming. It’s difficult to see how he can change the Porcellum (pig-sty) for the better with the dogs’ dinner of a parliament that he has inherited from his unsuccessful predecessors, Mario Monti and Enrico Letta, which is most likely to tear itself apart if any real reforms seem imminent. But let’s wish him luck. As an example of Italy’s political incoherence we can point this week to the splendid piece of governmental incompetence displayed by the tax agency’s announcement of a 20 percent withholding tax on monies received from “abroad,” which it was forced to withdraw within 48 hours after the EU pointed out that it was illegal. That seems obvious: how can mandatory “withholding” be applied to cross-border EU transfers in a way that’s consistent with freedom of capital? Anyway, it’s not “withholding,” it’s theft. Withholding applies to outgoing payments, not incoming ones. The results would quickly have been catastrophic: nobody, no bank, and no company would have made payments to Italy in the face of such a regime. On one very probable construction, cross-border business would have become immediately paralyzed, and all Italians expecting to receive monies from “abroad” would have made sure to open bank accounts somewhere else. So, very stupid, but you have to ask: “Who’s in charge?” Didn’t the tax agency have to get approval from the finance ministry? Didn’t the finance ministry realize what the results would be? Did (silly question) the Prime Minister know about it, whether that would be Letta or Renzi? It’s disconnected government, not joined up at all. So if you’re Renzi, where would you start? If I was him, I’d go back to Florence. As it is, he’s in the snake pit, God help him.

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