New Italian Coalition Government Leads To Tax Uncertainty

By Global Tax Weekly

What’s this? A political party called Five Star? Founded by who? A comedian? What? In Power?! With who? You mean Silvio’s back? And a flat tax? On corporate income too? In Italy?!

Yes, it can only be the latest edition of “voters do the funniest things.”

We’ve seen some unusual coalitions formed and attempted recently, unholy alliances between populist anti-establishment and mainstream parties. But Italy must top the lot. It’s difficult to pin down exactly where the Five Star Movement stands on the political spectrum, but it’s safe to assume, I think, that they are a long way from the nationalist overtones of the Lega Nord.

So what does all this mean for taxpayers? It’s difficult to say. One thing that the parties do have in common is their euroskepticism. But, given Lega Nord’s previous calls for a referendum on Italy’s membership of the European Union aren’t included in the coalition agreement, it’s highly unlikely that taxpayers will have to contend with an Italian withdrawal from the EU, which, as we’re seeing with the UK, is wreaking havoc on company tax planning.

Besides, Italy can’t leave the EU because there’s not a catchy-enough portmanteau for it. Brexit works. As would Grexit and Frexit in the unlikely event these ever came to pass. Itexit just doesn’t have the same ring to it. Exitaly? Better. But ideally you need just two syllables. Anything more is a bit of a mouthful in the age of the soundbite. Anyway, it’s probably a moot point now.

But what about this flat tax proposal? Obviously, this would represent a radical change to Italy’s sclerotic and much-criticized tax system. But, by all accounts, it’s too radical. There’s no way the European Union’s fiscal police are going to allow for a tax measure that could add considerably to Italy’s budget deficit. The suggestion is that the coalition might just ignore the EU. But can they ignore the markets? Suddenly the outlook’s cloudier than it was before, and for taxpayers instability is no joke.

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