In connection with the enactment of its own tax amnesty (which permits the repatriation or regularization of undeclared foreign investments with the payment of a very generous 5% flat tax on the fair market value of the undeclared assets), Italy is cracking down on tax havens, especially those across the border such as Switzerland, Liechtenstein and San Marino. Current estimates of the Italian tax administration suggest that more than 35 percent of Italian investments in Switzerland are being repatriated under the amnesty, and more are expected to come and sit permanently in Italy after the repatriation procedure (for which the deadline is set at December 15).
Recently, it has been reported that Italian tax agents under cover visited several Swiss banks taking pictures of clients coming in and out the banks, and have increased the controls at the border for Italians moving in and out of Switzerland.
As a result of Italy’s strong action, Switzerland is now working on a revised proposal to the EU for the enactment of a new back withholding in exchange for Swiss banks customers privacy. Under the new proposal, Switzerland would negotiate with each EU member state a new back up withholding tax, that could be as high as 30 percent and would apply on savings from Swiss accounts of residents of other EU Member States. The proceeds from the withholding tax would go to the resident state of the Swiss bank account holder. In exchange for the back-up withholding, Swiss banks would not be forced to give up the bank secrecy and reveal the names of their customers.
Italy’s reaction to the proposal has been rather skeptical so far. The approach of the Italian government is that first the tax amnesty procedure is completed, and then the due consideration will be given to any possible solution to the problem of those Italian individual investors who have decided to keep their undeclared funds offshore. A new provision in the Italian tax code now presumes that any money kept offshore comes from undeclared income for which Italian taxes are due, and the penalty has been increased to up to 400 percent of the amount of unpaid taxes.
Liechtenstein, on the other side, is negotiating a new exchange of tax information treaty with Italy, after several other similar treaties have been signed with a number of other EU Member States.