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ANALYSIS-Italy amnesty set to lure billions from tax dodgers      

By Ian Simpson

MILAN, July 23 (Reuters) - Italy's planned tax amnesty on hundreds of billions of euros held abroad is likely to be effective because it is one of the most generous in the global crackdown on offshore tax dodging.

The amnesty, which features a 5 percent one-off tax rate, anonymity provisions and simple terms, goes to a parliamentary vote on Friday, and is part of a crisis-fighting package whose success is key for the cash-strapped government. Analysts said the negative impact on wealth managers was likely to be modest overall but pronounced in some regions.

Italy is hoping to get back a large part of the estimated 278 billion euros ($395.4 billion) to 500 billion euros in assets Italians have stashed abroad, mostly in European offshore banking hubs Switzerland and Luxembourg.

"It seems that in international terms the Italian tax amnesty is rather attractive in both in terms of anonymity and for the tax rate," Bruno Zanaboni, secretary general of the Italian Private Banking Association, told Reuters.

Britain and the United States, at the forefront of the fight against tax evasion, have launched programmes for voluntary tax disclosure that allow citizens to come clean with a one-off deal and no criminal charges.

France, traditionally averse to tax amnesties, opened for the first time this year a liaison office for tax disclosure.

But nowhere in the western world is the offer as generous as the Italian one.

The centre-right government is telling Italians, "'Go back, do a bit of homework, find out how much money you've got, and this is what it's going to cost you. It's not a significant amount of tax we're asking,'" said Filippo Noseda, a partner in the London wealth planning team of Withers, a law firm specialising in private finances.

The amnesty is the third under the leadership of Prime Minister Silvio Berlusconi. Amnesties in 2001 and 2003 imposed one-off tax rates of 2.5 percent, half that of the new measure, and about 80 billion euros was repatriated in total.


The amnesties became a real threat for international wealth managers and prompted large Swiss players such as UBS and Credit Suisse Group AG to move into Italy to capture on-shore wealth there.

Walter Bechtold, head of Credit Suisse's Private Banking arm, said on Thursday the bank had retained 80 percent of its Italian funds that went back into the country.

"We hope to do the same this time," he added.

Analysts expect the Italian tax amnesty to only marginally depress overall private banking assets in Switzerland.

But it may have a larger impact on the private banks located in the Swiss canton of Ticino, which is just across the Italian border and is a traditional offshore centre for Italians.

"Italy's 2001 amnesty drove initial net outflows equivalent to 1 percent of private banking asset under management for the Swiss private banks, while Italy's 2003 amnesty and Germany's 2004 amnesty had a negligible impact," said Keefe, Bruyette & Woods analyst Matthew Clark. "Hence we tend to view the threat posed to the listed Swiss private banks from potential tax amnesties as manageable as well as being balanced by M&A and poaching opportunities."


Zanaboni said 80 billion to 100 billion euros could return to Italy under the planned measure. If approved by parliament, it would run from Oct. 15 to April 15.

Under the Italian measure, the rate of one-off tax is 5 percent. That is based on a deemed income of 2 percent a year, which is then taxed at 50 percent.

The tax measure also provides confidentiality since funds can be transferred to Italian banks who then pay the taxes on behalf of the account holder.

Adhering to British and U.S. amnesties is more complicated. Those signing up have to calculate their payments based on underlying assets, where rates can differ widely for capital gains and income, for example.

Set to start in September, Britain's amnesty calls for payment of taxes due plus a penalty of 10 percent for those who could not take part in a 2007 amnesty. Those who had the chance to take part will pay a higher penalty.

The U.S. scheme, which started in March and runs to September, offers lower fines and no criminal charges.

A French amnesty, the country's first, allows anonymity only in the first contact with authorities. Those paying taxes pay a penalty but less than that normally levied.

Estimates of how much wealth is held abroad range widely. The Italian Private Banking Association puts the figure at 278 billion euros, with about 45 percent of it in neighbouring Switzerland.

However, Bologna's Magstat consultancy, which specialises in private and investment banking, estimated the amount at 400 billion to 500 billion euros.

Italy's measures come as it and other cash-short Group of 20 have declared war on bank secrecy. At an April meeting in London, they backed the naming and shaming of tax havens and told them to cooperate on tax matter or face sanctions. Switzerland and other bank secrecy strongholds agreed ahead of the summit to ease their secrecy laws.

(Additional reporting by Lisa Jucca in Zurich, Editing by Sitaraman Shankar)

Copyright 2009 Reuters

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