Expatriate ignorance of Italy tax no longer an excuse

Dr. Roberto Ciccioli and Helena Leslie. Photo: Tim Wade

ROME - Foreign footballers, companies and expatriates are "playing with fire" by ignoring the ever-widening Italian tax net being cast by the Machiavellian authorities on the peninsula, Dr. Roberto Ciccioli, one of Italy’s top fiscal advisors, says.

  In an interview with The Italian Insider, Dr. Ciccioli, Head of Tax and Advisory Services at the Consulting Centre in Rome and Milan, acknowledged that there are flaws in Italy’s complex taxation system. He says that many would welcome the introduction of a flat tax system as proposed by the election campaign of conservative media mogul Silvio Berlusconi. Meanwhile, however, often expatriates may not even know that they must declare foreign assets.

 The same is true for football players attracted to Italy by the sky-high salaries offered by top clubs. Dr. Ciccioli manages the finances of some of the world’s biggest fashion brands and most talented sportsmen. With his firm, he has also supported some professional football players, in all legal and tax aspects, in signing contracts with Italian clubs. He has seen an international crackdown on tax avoidance in recent years, due to a greater focus of the Italian Tax Authorities, and other authorities worldwide. This change is due to the fact that everything is now registered and online, making it impossible not to declare all assets. 

 And yet, some multinational companies, especially operating online, are able to maximise their profits by moving funds to other countries with a better tax rate, such as Ireland or Luxembourg. Italians, even when not happy, according to Dr. Ciccioli, do pay their taxes. At the same time, it is clear that small companies are burdened by unfairly high rates, and there is support for Berlusconi’s proposal.

 “I am sure that 80 percent of expatriates living in Italy are not compliant with the Italian tax law because they don’t know about it,” Dr. Ciccioli continues. “If you have financial investments abroad worth more than 10,000 euros a year, and you staying in Italy for over 6 months, it is illegal not to declare your earnings, whether you are a foreigner or Italian-born.”

 “Individuals, above all the foreign individuals, don’t know about the laws. If the tax advisor doesn’t give them a clear picture, they won’t know.”

 Previously, foreigners could be excused from not understanding Italian tax laws given their extreme complexity. They must deal with the local, social security, and the corporate taxes. Beyond this, “the terms, the length and the judicial issues” are what make tax compliance challenging. “The interpretation of a law is not the same between me as an advisor and the Italian tax authorities who interpret the same thing in a different way. Often it is necessary to go to court to solve the problem. Having a large number of laws, in my opinion, gives to us, and to the people who want to invest in Italy, a big instability.”

 Whilst the laws may be difficult to interpret, Dr. Ciccioli cautions that this will not be a valid excuse in the future.

 “The world has started a fight against tax evasion. They really need, in this moment of [economic] crisis, to take any amount to reduce debt.” And because different authorities are working together, “it is necessary to declare assets. We are going into a world where all private information will be disclosed between governments.” Houses, boats, cars, and financial investments, even if they are located abroad, are all registered somewhere.

 “It is the same for football players. They are like the expatriates, in paying tax they are the same.” In actual fact, the soccer players understand the tax law even less than the expatriates.

 “A lot of the expatriates are managers or consultants, so they have an idea and they work in business. Players do not. They are focused only on football.” The inflated egos of some of the players also get in the way.

 “We are talking about young men being overpaid in some cases, so they don’t have the mind to understand correctly their accomplishments, or their obligations. The big issue is the large personality of the players.”

 In addition, players can remain in Italy after they have finished their careers, and create other channels of income. “A player at the moment is like a businessman, maybe they have stayed in Italy and created a business, have an estate, and be operating in other markets. A player is currently a business guy who is able to create value in Italy.” Players then also set up sponsorship deals or image rights agreements abroad, paying, after meeting some conditions, only the 'foreign incomes flat tax,' expected from the Legge di Bilancio 2017. Without knowledge of tax law, they can find themselves in trouble.

Dr. Ciccioli conceded that the Italian authorities have difficulties in collecting tax from footballers, as often they move around rapidly from country to country. ”In some cases, it is “understood” by the Italian tax authorities and maybe they don’t ask the players additional information about this.” This, however, is changing, and Ciccioli spoke of a client living abroad who has received a tax assessment about incomes previously unasked for while in Italy.

 “In the past, maybe Italian tax authorities were not that interested in following them, but at the moment, the Italian tax authorities and other tax authorities in the world need money because there is a crisis.” 

 His concern goes beyond the individuals and footballers. Dr. Ciccioli worries that major foreign companies, and some individuals, are unknowingly avoiding tax. “We wanted to discuss this with some international entities, but it is not easy to explain to them these type of issue and potential liabilities.” Dr. Ciccioli refers to his concern as about “the image of Italy,” in ensuring Italian companies are compliant with the law.

 As expected, companies that can aim to pay as little tax as possible. “The companies operating in the internet markets, we have some clients there, and the companies operating in a multinational environment, can benefit from an aggressive approach to taxes.” Multinational companies are able to be more efficient with their tax. By contrast, he maintains that Italian companies usually pay their taxes correctly. “At the moment, the larger [and more multinational] the business, the larger the opportunity to avoid taxes or to pay less taxes than due.”

 The high rate of tax in Italy, and particularly the personal tax, currently at 43 percent of income, is too great, when combined with other local, and social security, contributions, in Dr. Ciccioli’s opinion. When asked about Berlusconi’s concept of a “flat tax,” which would end the relative increase in tax for each new tax boundary, and instead impose one singular value, Dr. Ciccioli said it would be “very very interesting to see maybe two thresholds, perhaps under 150,000 euros and another more than 150,000 euros. Berlusconi’s idea is okay - you reduce the tax rate and then people pay all that they owe.”

 In Italy, taxes are paid in part as a deposit for the following year. The collation of all of the taxes means that the figure can end up being astronomical, and in some cases more than half of a year’s wages. Reducing the tax rate may mean that more people end up paying all their tax to the Italian government, rather than trying to reduce it in unconventional ways.

 Dr. Ciccioli also said that small businesses in Italy, operated by individuals, can benefit from some other favourable tax regimes. In addition to the flat tax, it would be interesting to increase the thresholds (currently between 15,000 and 40,000 euros). He believes it should be set higher, at 70,000 to 100,000 euros, as is the case in other countries like the United Kingdom. 

 “Here in Italy, we have a large amount of small and medium-sized companies interested in approaching the foreign market but probably not prepared, or able, to do this," he continued. Small businesses, pillars of the Italian economy, are necessary for the growth of the country already buried in debt. They experience difficulties in the domestic market due to the large number of laws, and also in the foreign market due to their size compared to competitors from other countries. Small businesses are given a fair chance under the current system, Dr Ciccioli said.