Voluntary cash disclosure: a treasure worthing at least EUR 40-50 billion

Voluntary cash disclosure: a treasure worthing at least EUR 40-50 billion

As always, on the occasion of election campaigns (and budget laws) the issue of finding resources for our public finances arises again.

As Eurispes[1] has already pointed out for some time now, an emersion (with taxation) of cash could serve to bring a considerable treasure in public finances.

However, it is a fact that cash detention, in itself, or other bearer securities in the territory of the Italian State is not illicit.

Anyone can potentially decide to keep their liquidity under their mattress, in a safe or in a safety deposit box. However, having liquidity without spending it (especially in times of increasing inflation such as those of today) may not be a very wise choice. And spending liquidity that is not in line with one’s tax return could lead (this is true) to unfortunate assessment consequences.

Essentially, if one buys a Ferrari, for example, and declares an annual income of EUR 20,000, the tax authorities would (correctly) want to find out where that person got that money from. And it might (correctly) assume that that person got it from tax-evading activities. Therefore, in order to meet both the State’s need to collect resources that are not easy to identify (and even more so to collect) and the taxpayers’ needs (or potential taxpayers) who have not declared these resources, but who would now like to spend them, a voluntary cash tax, which would establish a sort of loyalty pact between the tax authorities and taxpayers, might actually be a new starting point and a good idea.

Given that the possible taxable base of such a procedure, would be of more than 200 billion euro in the region, applying – just to give an example (but it could be much higher) – a tax rate of 20-25% – according to some estimates (including that of the Milan Public Prosecutor’s Office) – this would result in a collection for the Italian tax authorities of at least 40-50 billion euro. In other words, as mentioned before, a very attractive treasure.

And it is no coincidence that the proposal has come back in a ‘karstic’ way  over the years. A voluntary disclosure that would allow the return of capital, in cash or kept in safe deposit boxes by Italians, with the payment of a coupon and with the obligation to reinvest the resulting surplus would also be a great boost to the real economy. Moreover, it could be implemented against the payment of a substitute tax (of income tax, additional tax, substitute tax, IRAP, VAT, any violations relating to the declaration of withholding agents, penalties and interest) and the use, for a minimum period of time (e.g., 5 years), of a significant part of the amount (e.g., 40%-60%) in activities for recovery, such as the investment in the capital of the company of the voluntary disclosure party (provided that such amounts are not returned before the deadline as dividends or increased director’s fees, etc.), or the investment in social security or in the capital of the company of the voluntary disclosure party (provided that such amounts are not returned before the deadline as dividends or increased director’s fees, etc.). ), or the investment in registered social bonds (aimed at social projects, such as the renovation of schools, or specific infrastructure projects, or other similar instruments).

There would certainly remain the problem of how to avoid facilitating money laundering operations through such a procedure. To this end, the rewarding effects in the criminal sphere (tax violations, money laundering and self-laundering) could then be subject to specific consistency requirements of the taxpayer, based on the amount of cash and/or valuables subject to regularisation and the professional qualification and work activity carried out by the regularising taxpayer. In the event of integration of the ‘consistency requirement’, there may be no need to provide explanations on the origin of the sums. Otherwise, the voluntary taxpayer, in order to benefit from the bonus effects, would have to prove the provenance of the regularised amounts.

Given the above, how could a regulation allowing such emersion be practically conceived? In fact, a method to refer to already exists in our legal system and is called ‘synthetic assessment‘. Even today, having cash saved up that is not in line with the declared income may well be an (abnormal) index of one’s spending capacity, which is relevant for assessment purposes. Since the synthetically measurable income is higher than the declared income by at least 1/5, i.e. by 20%, one could, for example, foresee a zero-cost regularisation for ’emerged’ cash up to 20% of the declared (annual) income, and a flat-rate taxation on the remainder, with reduction (or exemption) of penalties.

Some numbers may help to better understand the proposed mechanism: given a declared amount of 100,000 euro and a cash amount to be reported of 200,000 euro, applying a ‘deductible’ of 20,000 euro (equal to 20% of 100,000, declared) and a tax rate (just for convenience of calculation) of 25% on 180,000 (cash amount to be reported, net of the deductible), this would result in a tax to be paid of 45,000 euro (assumed over a period of 5 years). In short, a mechanism that is not even that complex. And above all a way to bring out resources that (unfortunately), precisely because they are in cash, would by now be difficult for the tax authorities to detect. But also difficult to spend by the taxpayer. A new beginning to begin, therefore, with loyalty, a new relationship between the State and its citizens.

Note by the Director of the Eurispes Observatory on Fiscal Policy, lawyer Giovambattista Palumbo.