Taxes

Italy Targets Luxury Car Owners


On Jan. 28, Milan’s high and mighty felt the heavy hand of the state. Police halted more than 350 high-end vehicles, mostly expensive SUVs and Porsches. At checkpoints, including one adjacent to the fashionable Corso Como, police got driver’s licenses and registrations, which they passed on to the national tax agency. The tax authorities will use the data to determine whether the cars’ owners had declared enough income (and paid the right amount of income taxes) to justify their lifestyles.

It was at least the fifth raid targeting wealthy Italians since a Dec. 30 sweep at the posh Cortina d’Ampezzo ski resort, where 251 cars were stopped. Rome, Portofino on the Italian Riviera, and Florence have also been targeted. “I’ve been stopped three times in the last few weeks by authorities because I’m driving a luxury SUV,” says Andrea, a Range Rover owner and entrepreneur in Italy’s wealthy northeast. “It seems like the McCarthy era in America. You’re guilty by suspicion.” The 43-year-old, who declined to give his last name for fear of attracting the attention of Italy’s tax agency, now plans to sell the SUV he bought last May. He expects to get at most €40,000 ($52,400) for a car that cost him more than €100,000. “Dealers are full of luxury cars. No one wants to buy them now,” the businessman says.

Italian authorities are applying to luxury car owners the same logic they displayed more than a year ago, when tax agents started tracking down the owners of yachts berthed in Italy’s harbors to see whether they were current on their tax payments. In the raid in Cortina d’Ampezzo, tax agents found that 42 luxury car owners had declared income of less than €30,000 for 2010 and 2009.

This is serious stuff for the government, which estimates that tax evasion costs the country about €120 billion a year in lost revenue. “The ownership of a luxury car highlights a level of spending and a standard of living that are often not reconcilable with the income declared by the owner,” says Carmelo Piancaldini, a manager in the inspections unit of Agenzia delle Entrate, Italy’s tax authority. “If one is transparent with the tax agency and buys a luxury car, he doesn’t have to worry.”

The collection effort is part of Prime Minister Mario Monti’s plan to curb record borrowing costs on Italy’s €1.9 trillion debt and avoid following Greece, Portugal, and Ireland, all of which had to seek bailouts. Monti has also raised taxes on luxury goods, including expensive cars. The owner of a €316,000 Lamborghini Aventador, for instance, will now have to pay about €8,400 a year in taxes, an increase of €6,600. The new taxes and high-profile dragnets have sent exotic-car prices down 20 percent, according to dealer association Federauto. “Extra taxes and fiscal raids are hurting the demand for supercars and killing the secondhand market,” says Filippo Pavan Bernacchi, head of Federauto.

Monti’s new luxury vehicle tax targets owners of cars whose engines have more than 251 horsepower. The tax may raise about €165 million this year, according to Unrae, Italy’s association of foreign carmakers. “It’s hard to imagine that any other European country having luxury car producers contributing significantly to employment would have introduced a tax” on supercars, says Maserati Chief Executive Officer Harald Wester. The government also increased duties on fuel. All told, the extra levies will cost Italian drivers €5.1 billion by the end of 2012, says Unrae.

The bottom line: Dragnets for Italy’s luxury car owners are part of a larger effort to stop tax evasion that costs the government some €120 billion a year.

With Flavia Rotondi
Ebhardt is a reporter for Bloomberg News in Milan.

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