why Italy can make money - Corriere.it

why Italy can make money - Corriere.it

TOndrea Silvestri, an expert in corporate taxation and professor of Strategic Tax Management at the Luiss Business School, has one conviction: Italy must reverse the rankings. At the time of the turning points that shaped globalization during the 1980s, it was among the last Western countries to understand the dynamics underway and to adapt. Now globalization is being transformed once again due to superpower rivalries. The new arrangements being defined are creating new risks and opportunities. The sooner Italy can read them and act accordingly, the better it will be able to benefit from them. «We must anticipate the major trends and not finish last» says Silvestri, who has dedicated his latest essay to this theme: «New taxman, new Europe. The fiscal scenario in a less global world» (Franco Angeli).

Professor, what do you see as the opportunities for a less "flat" world and more fragmented value chains?

«In the world today there are opposing blocs, grouped more or less explicitly around the United States and China. This dynamic, coupled with the aftermath of the pandemic and the war in Ukraine, is redefining globalization. In the last thirty years companies could go all over the world to look for the most favorable tax regimes. Now everything has changed and not only for the Global Minimum Tax, which establishes a minimum rate of 15% among dozens of signatory countries for multinationals with a turnover of over 750 million dollars».

Do you mean that a process of returning business activities to their countries of origin («reshoring») or from the low-cost countries of Asia to countries allied to the United States («friendoshoring») is starting?

"Exactly. Producing in China or other Asian countries is becoming more problematic and riskier in the future, so we will see a significant movement of relocation and redefinition of value chains. A Dutch consultancy group, Buck Consultants International, estimates that in the next three years 60% of Western companies will relocate at least part of the production sites that are currently in Asia. We do not know if this figure is accurate, but in any case it is a colossal opportunity ».

Do you think that the competition between European countries will be based on the attraction of "reshoring"?

«That will certainly be the case, because Europe is a totally integrated area. German companies could move from China to the Czech Republic and vice versa.

What can a country with so many disadvantages like Italy, from slow justice to a high tax wedge, do to attract those investments?

«We can think of favorable tax regimes for companies that decide to relocate to Italy coming from outside the European Union. For example, a reduced rate could be offered on business income from activities transferred from abroad: IRES rate halved to 12% and total exemption from IRAP for a period of ideally ten years, but at least five».

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It wouldn't be a cost to the public budget, because it would still be a revenue that didn't exist before. But isn't there a risk of distorting competition to the detriment of those who have to pay all taxes?

«In terms of revenue, this rule brings only advantages and no burden, on the contrary it can bring a lot of revenue, even indirectly from VAT or from the incomes of the people thus employed. Of course, a method of interaction with the Global Minimum Tax, which is 15 percent for large companies, should be envisaged».

But is competition distorted?

“Well, that's a problem we'd have anyway. We are in an integrated Europe, without friction at national borders. Companies that had to relocate to Hungary, Slovenia or Poland would still pay less taxes and would be in competition with Italian companies. So by giving up we would not have the advantages, but we would have the disadvantages. We would also lose the opportunity to have the first mover advantagethe advantage of whoever makes such a move first.

Relocations over the past thirty years have moved a very large amount of low-skill labor and expertise to Asia. Are Italy and European countries still able to offer this type of manpower?

«Here, in my opinion, is the second benefit of an attractive action on relocation. Moving from Asia to Europe, many companies will invest in automation and innovative machinery, to make up for the cost and shortage of manpower and to increase the range of product quality. Here too, it would be appropriate to reflect on accompanying fiscal measures".

Italy has been practicing them for years, if you think of incentives for technological investment such as Industry 4.0.

«Unfortunately, however, today they penalize large companies, which we desperately need instead. Above ten million euros of investment, the tax credit is just 5%, against the 40% practiced for example in the United States with the Inflation Reduction Act. Ideally, the incentive to invest in technology should be strong for all business classes".

Yes, but where do you think the budget resources can be found?

«I am not an expert on the National Recovery and Resilience Plan, but there is a lot of talk about remodulating these funds. Giving tax credits to investing companies has a great effect on the impact on the economy, now well demonstrated by various studies. After all, the Italian system needs to strengthen its productivity and this is the way to do it».

The EU Commission can object that it is state aid.

«It seems to me that other countries in this phase are getting a lot of state aid authorised. And I believe that it is in everyone's interest to ensure that the Italian Pnrr is successful: even of the Commission, which wanted it; and also of the governments of Northern Europe, which finance it with the resources of their taxpayers».

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