"Finanziaria 2008" or the latest Italian
budget is a complex, condensed and
sometimes confusing raft of legislation
which came into force last month. In an
attempt to combat tax evasion in Italy,
it has introduced a potential new trap
for unwary buyers. Because of the way it
operates, this new risk is difficult to
ascertain and to avoid.
The provisions in question relate to the
evasion of Italian VAT (IVA - Imposta
sul Valore Aggiunto), which is usually
payable on a sale of property, where the
vendor is an Italian corporate or
commercial builder / developer. IVA is
levied at a flat rate and almost
entirely replaces all other taxes, when
it is levied on a property transactions.
It may happen that Italian developers
will try and avoid / reduce the burden
of IVA by convincing buyers to
under-declare the property value in the
Deed of Sale. To avoid at least part of
the IVA payable, a value is declared
which is lower than the actual sale
price. Because IVA is levied at a flat
rate, if the overall declared price is
artificially reduced, then tax on the
undeclared difference is evaded. This
criminal fraud is frequently compounded
by the vendor insisting to be paid the
balance of the sale price in "black", in
cash to avoid detection. In this case
the buyer will breach Italian exchange
controls regulations which expressly
forbid cash payments in excess of £
12,500, and additional penalties will
apply.
Previous legislation had already made
this kind of fraudulent transaction very
risky for Italian property buyers. All
buyers are now required by law to
declare the full sale value of their
Italian property under oath in their
Title Deed (Atto di Compravendita) . A
false statement could now result in a
criminal prosecution (perjury).
However in these cases the main target
of the Italian Revenue used to be the
commercial builder / seller, the party
responsible for charging and paying over
IVA to the Authorities with all his
assets. Italian legislation recently
introduced "normal values" (“Valore
Normale“) for most Italian properties
and where the value declared in a Title
Deed is artificially low, the Italian
Revenue was empowered to levy
assessments to IVA, interests and fines
on the defaulting vendors, without
requiring further evidence. There was no
tax sanction against the fraudulent
buyer.
"Finanziaria 2000" has now changed all
this, by shifting some of the tax
evasion burden on errant buyers. Under
this new legislation, both the
commercial builder / developer / seller
and the buyer are now jointly liable for
any IVA evaded, fines and interests.
Both the parties to the fraudulent
transaction are now jointly liable for
their actions.
Under this new legislation however, the
Italian Revenue will also acquire a
charge over the property being sold
where IVA tax has been evaded, both for
the actual tax evaded, interest and
penalties.
Because arrears of IVA tax, interests
and penalties can be claimed for up to
10 years from the date a fraudulent
value understatement was made, both the
developer and the buyer will be at risk
for a very long time.
In addition (and this is the new
"risk"), tax evasion will also affect
the Italian property in subsequent
years, as it will operate as an
undisclosed, potential charge over the
property. Thus the "risk / tax charge"
will follow the particular property over
the years in the hands of subsequent,
unwitting, innocent buyers. Whoever is
the registered owner of the property at
the time the fraud is discovered, may
now be effectively called to pay up the
tax evaded, interest and penalties, even
if he has absolutely nothing to do with
(earlier) tax evasion, as he will risk
losing his property.
Because this legislation may now result
into a (substantial) claim against a
subsequent innocent property owners it
may not always be fair in its operation.
Also, because it is almost impossible
for a subsequent buyer of the same
property to spot the risk of a charge
associated with earlier IVA tax evasion,
this "risk" will hang over the
fraudulent parties and any subsequent
innocent buyers... as the sword of
Damocles for up to 10 years.
"Caveat Emptor" (Latin for "Buyer beware
!").
Dr Claudio Del Giudice
February 2008, Copyrights reserved
