* Italy lifts cash limit for foreigners after protests
* Foreigners are biggest luxury buyers in Italy
* Cash deals leave room for tax evasion, experts say
By Svetlana Kovalyova and Antonella Ciancio
MILAN, March 8 Jeweller Mattia Cielo
opened his exclusive boutique on top Italian luxury street Via
Montenapoleone last October, only to see the flow of clients
peter out after the government curbed the use of cash.
So when Rome bowed to pressure and scrapped the 1,000-euro
($1,300) limit on cash use by foreigners after only eight weeks,
Cielo uncorked a bottle of champagne in celebration.
But with the government having fiddled around with the limit
three times in the past seven months, and a measure still in
place requiring that buyers reveal their identity for
transactions over 3,600 euros in an industry that values
discretion, he remains shaken and uneasy.
"When I learned about the news I celebrated," said Cielo,
whose diamond jewellery sells at between 1,000 and 60,000 euros,
with foreigners accounting for about 75 percent of his
"I called some clients whom I had to turn down to tell them
that our government has changed its policy and they can come
back to Milan," he said, but added:
"The damage has been done. We have had two months of hell."
The use of cash common throughout Italy has long been a
focus of Italian authorities in their fight against rampant tax
evasion, which is estimated to cost the government 120 billion
euros a year in state revenues.
Cash is not traceable on either side of the transaction and
can be a channel to launder illegal income as well as avoid
The first cash payment limit dates back to 1991, when it was
set at 20 million liras. The limit was converted into 12,500
euros with the adoption of the single currency in 2002 and
tightened and loosened several times over the years.
In response to the euro zone sovereign debt crisis that
brought Italy to the brink of financial disaster in November,
Rome appeared ready to implement the most stringent rules ever.
The new government of Prime Minister Mario Monti tightened
the screws to allow a maximum of 1,000 euros cash for both
Italians and foreigners from Jan. 1, only to scrap the limit on
foreigners altogether on Feb. 24 after an outcry from retailers.
RUSSIAN, CHINESE, BRAZILIAN MONEY
The luxury goods industry says the restrictions on
foreigners would have killed their business with flush-with-cash
foreign buyers, who were not the main target of the moves anyway
as they do not owe taxes in Italy.
Many of their clients, especially those from emerging
economies, simply refuse to use credit cards. Some have to pay
high fees or have limits on credit card use and others do not
want their activity to be tracked, tax experts say.
Brazilians, who have recently joined the club of
globe-trotting big-ticket buyers, stick to cash because of a
6.38 percent tax on credit card payments abroad, for example.
And foreigners' spending power is important. Last year,
luxury goods consumption by foreigners accounted for 51 percent
of a total of l8.5 billion euros in Italy, according to the
country's luxury industry body Altagamma.
Tourists from outside the European Union, led by Russians
and Chinese, spent around 4.5 billion euros on luxury goods in
Italy last year, Altagamma says.
The global luxury industry is expected to grow 8 percent
this year after a 15 percent rise in 2011, as European consumers
cut down on non-essential spending, analysts say.
While the luxury retailers cheered Rome's change of heart,
they said their problems would be only partially solved as long
as the limit on Italians stayed in place.
"Opening up for big clients - Russians, Chinese, Brazilians
- is very important, especially in tourist cities like Venice,
Rome, Milan," said Steven Tranquilli, director of Italian
Jewellery, Silverware and Watch Retailers Association
"But there is always a limit for Italians," he said.
REPAIRING THE DAMAGE
The effect of the various measures has been dramatic.
Jewellery sales in Italy fell by up to 30 percent in the
last four months of 2011, Federdettaglianti said in a survey in
After the 1,000-euro cap was introduced, every third client
on Via Montenapoleone refused to pay with a credit card,
according to a separate survey by the street's retail
France's oldest fashion brand, Lanvin, said their wholesale
sales in Italy were hit as buyers were scared off to other
"This measure has a psychological impact on people," Lanvin
Chief Executive Thierry Andretta told Reuters in February, when
the cash limit on foreigners was still in place. "As a result of
this, buyers prefer to go shopping elsewhere, like in Paris or
Shopkeepers' obligation to report customers' identity to tax
authorities for transactions above 3,600 euros continues to put
off customers who value privacy above all else, retailers and
Whereas a client's identity has long been required to buy a
car or real estate in Italy, jewellery has been an industry that
protected privacy - for a number of reasons, including not
wanting your partner to know about your purchases.
"People do not want to be screened. They are annoyed by
these requirements and go spend money abroad where no one is
getting on their back: in France, Germany, Switzerland," said
Licia Mattioli, the head of the Italian goldsmiths' federation
Just an hour's drive from Milan takes big spenders to
Switzerland, where there are no limits on cash payments and
non-residents can claim back an 8-percent value-added tax (VAT)
on leaving the country.
To win back these customers, luxury goods makers will have
to work hard and pamper clients ever more, said Christian
Kurtzke, chief executive of German luxury goods maker Meissen,
which plans to open its first European flagship store in Milan
Jewellery is not the only luxury industry that's been
affected as Italy seeks to squeeze revenues out of the super
rich. Rome wants all boat owners living or having regular
business in Italy to pay annual fees from 800 euros to 25,000
euros depending on the boat size.
The yachting industry contributes 3.36 billion euros to the
"I know someone who moved his boat to Monaco from central
Italy and it's more convenient for him to fly with a helicopter
twice a month there (than to pay taxes in Italy)," Cielo said.
Croatia, just across the Adriatic Sea from Italy, also
stands to benefit.
"There has been an increase in the number of Italians
leaving their boats here recently. We have many pending requests
for potential mooring," said an official of a marina at Punat,
on the northern Adriatic island of Krk, asking not to be named.
Italian luxury goods associations say the anti-evasion
measures could hit Italy's economic growth in the long term.
"When money flows to other countries, investments, shops,
jobs also move elsewhere," said Armando Branchini, secretary of
Italy's luxury industry body Altagamma.
Big cash transactions can also fuel under-the-table sales
and eventually undermine the government's anti-evasion drive.
"Cash will be difficult to control," said Antonio Tomassini,
partner at DLA Piper law firm. "Traceability is the most
effective way against tax evasion."
Gianfranco Malagoli, deputy chairman of the Italian
federation of jewellery wholesale buyers and distributors
Fedora, said the situation was made worse by the indecision and
frequent changing of the rules.
"There remains a grey zone. It happens always when measures
are first passed in a hurry and then changed in a hurry, so
people don't understand what to do," Malagoli said.
But tax experts said anti-evasion measures, however painful,
will purge the taint of undeclared and possibly ill-gotten money
from Italy's luxury market as well as help inflows into the
"Even if we do not have exact data, it is reasonable to
presume that the luxury industry may attract income that was not
reported by the buyer and therefore it is necessary to monitor
transactions," said Carlo Garbarino, professor at Milan's
"These measures are efficient even if they imply
limitations for businesses and customers," he said.