Foreign Direct Investment – Italy Not in Top 15

It’s easy to be negative about Italy, and the country is receiving quite a lot of bad press at the moment, what with potentially repressive laws designed to restrict press freedom, and the odd scandal or three.  All the furore leads to this question, possibly: Could Italy’s tarnished image be damaging the countries foreign direct investment prospects?

The answer, according to the UNCTAD – the United Nations Conference on Trade and Development appears to be a big yes.  In fact, in the UNCTAD’s World Investment Prospects Survey for the period 2009 to 2011, Italy does not even figure in the top 15 countries in terms of ‘The 15 most attractive economies for the location of FDI’ – page 65 of the UNCTAD survey, if you are interested (link to the survey below).

The top five countries of the world which are most attractive to foreign direct investment are: China, the USA, India, Brazil and the Asian Federation.  France sits at the bottom of the top 15, incidentally.

What could be putting off foreign direct investment in Italy?

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Italy’s Coop Tops CSR Tables in Europe

Finding something positive to say about Italy these days is not that easy, so reading that the Italian Coop supermarket chain came out on top in Europe in terms of corporate social responsibility, was a pleasant surprise.

To unearth the positive I had to turn to a specialist Italian magazine called Mark Up, which is all about the scintillating world of marketing and retail in Italy. For those in the retail sector, I’m sure Mark Up, which is produced by the Gruppo24Ore‘s Business Media division, is of interest.  Yes, I do work with Gruppo24Ore, but I have no connection with Mark Up whatsoever, in case you might be wondering.  I will admit to picking up a free copy of this business magazine which sells at the not inconsiderable sum of €12.00.  The high price reflects the limited market of this publication, I imagine.

Back to the Coop, so to speak.

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Building Bridges to Italy with Lots of Good News

BlogfromItaly is kicking off 2010 on an optimistic note.  This post is about BridgestoItaly – a networking site set up by enterprising Italian Bianca Dellepiane to provide a little online publicity for the work of Italian scientists in the Biotech, Nanotech, Cleantech and High-tech sectors.

However before saying some more about BridgestoItaly, a New Year’s rant about bad news.

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Do Italian Banks Encourage Tax Evasion?

Is it possible that banks in Italy encourage tax evasions, albeit indirectly? This is a question I’ve ended up asking myself recently.

Italy

Those who follow the news in Italy will know that legislation was recently passed to encourage Italian’s who had ‘hidden’ vast sums in banks beyond Italy’s borders to put their hoards back into Italian banks.

The new law, which recently passed through Italy’s parliament, also granted Italy’s money re-importers immunity from prosecution for any false-accounting relating to the funds concerned.

The false-accounting immunity provisions caused huge controversy in Italy because it appeared as if those who moved their fortunes back into Italy were being patted on the back for being so clever.  Not, as really should be the case in the opinion of many Italians, punished for having evaded Italian taxes for many moons.

But why did these people move lots of cash into offshore accounts?  Well, one reason may be because it is do darn hard to squeeze credit out of Italy’s phenomenally cautious banking system.  Getting people to pay is also traumatic in Italy.

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The IRAP quandary

IRAP is a funny little Italian tax which is applied to businesses, except nobody in Italy seems to know which businesses should be liable for it. In October 2009, Italian Prime Minister, Silvio Berlusconi, announced that this tax is to be phased gradually out.

This regional tax (IR = Imposta Regionale) should, in theory, only be applied to businesses with a structure.  ‘Structure’ in this sense seems to mean a business which has employees.

I know of self-employed people who do not pay this tax because they have no employees, although the legality of not paying has not yet been fully proven in the Italian courts despite their having been a few cases on this matter.

Someone I know has recently opted to not pay this tax and acted upon the advice of a tax specialist who does not pay it.  My tax accountant, on the other hand, is taking a cautious approach to the payment of this tax and does not think it is a good idea to stop paying it because no definitive decison has yet been reached.  Apparently, the Italian tax authorities do not really know if this tax can be legitimately applied to one-person businesses.   Yes, it’s all a bit confusing.

Me?  I’m umming and aahing over the matter, which is why I’m posting this.  What I don’t want to do is to stop paying and then find myself with a retrospective tax bill, plus interest.  Then again, I’m not too happy about paying a tax which many think I should not be liable for.  Difficult situation.   Then again, this is Italy, and it could take years before any firm decision is reached, and even if it is, any change in legislation may not be retrospective.  Yes, I’m in a quandary.

UPDATE: 28 October 2009

After facing a revolt from Italy’s finance minister Giulio Tremonti, Berlusconi’s government seems to be revising its intentions to completely abolish the IRAP tax.  Instead this may be lowered, applied selectively  or certain companies may be exempted.  Just what will happen is not yet clear, although the chances of the IRAP tax being abolished appear to be reducing with every moment which passes.

Finance minister Tremonti was not all happy with the decision taken by Berlusconi to eliminate the IRAP tax.  This is  because Tremonti does not believe the Italian government can afford to lose the income it generates.  He may have a point in that the level ofItaly’s public debt in continues to increase.

Another update will appear when the IRAP situation becomes clearer.

-Update end.

UPDATE: 22 October 2009

Silvio Berlusconi announced that the IRAP tax is to be abolished.  Not a bad idea, as its implementation has been complicated and it is likely that the hot air expended in discussing who should actually pay has probably led to a huge reduction in the level of income generated by this tax .  If administration costs exceed tax income, then the tax is not really worth collecting, or is too low.

My quandary as to whether to bother paying this tax was resolved, and I stopped paying IRAP on the advice of my accountant a while ago, as, I imagine, did many others.

The date when this tax will cease to exist is yet to be decided, although it was announced today that the IRAP tax would be lowered gradually until it ceases to exist.

-Update end.

Fewer taxes are always welcome, as the businessman side of Berlusconi well knows. Indeed, it was Berlusconi listening to small business which led to the decision to eliminate this pesky little tax.  Good stuff Silvio! – Well, the intention was there, but, it seems, the means were not, as the 28 October update above indicates.

Lower taxes can, paradoxically lead to higher tax income for governments, in that people will spend more, causing business profits to increase, which means, in turn, that tax contributions from businesses will increase – in theory at least.

A case of less is more, perhaps?

It would be great if Italy introduced a law to oblige companies to settle invoices within 30 days of receipt.  This in itself would help many companies in Italy, and may even be better than cutting taxes.   Prompt payment means that companies have money to pay taxes, and to keep employees in work. Late payments increase the risk of bankruptcy and unemployment.