Italy money flows to Switzerland to avoid taxes

GENEVA (Reuters) - Proposed tax hikes in Italy are spurring investors to move money out to neighboring Switzerland, partly reversing an inward flow after a tax amnesty in 2001, a top Credit Suisse CSGN.VX banker told Reuters.

Italy’s center-left government, elected earlier this year, proposed last week to hike the tax on income from stocks and bonds to 20 percent from 12.5 percent in an effort to raise badly needed revenues and meet its EU budgetary obligations.

Rome also proposed to lower the bar for applying a tax of 43 percent to personal incomes above 75,000 euros ($95,300) a year from 100,000 euros, even though people reporting those higher earnings levels represent less than 2 percent of the population because so much income goes undeclared.

“We see inflows, of course,” said Arthur Vayloyan, head of Private Banking Investment Services and Products at Credit Suisse.

“What is happening in Italy makes people insecure even in terms of mid-term outlook, forget the long term,” he told a Reuters Wealth Management Summit on Tuesday.

“This is an experience which helps offshoring and has nothing to do with untaxed money: these monies are fully taxed,” he added.

Vayloyan said the flows were not as significant as the heavy outflows that Switzerland witnessed after the previous Italian government introduced a tax amnesty in 2001/2002 as way to lure off-shore money back into the country.

The amnesty, also known as “tax shield”, allowed Italian citizens to return money from Switzerland against the payment of a one-off lump tax of 2.5 percent and was carried out in two waves.

“Regulation had a pretty dramatic effect in terms of flows. At that time we were foreseeing outflows, but we were a bit surprised by the amount being involved,” Vayloyan said.

Vayloyan said Italy’s tax amnesty turned out in any case to be an opportunity for Credit Suisse, because it forced the Swiss bank to establish locations in Italy to try and recoup the lost funds.

“It helped us to establish important on-shore locations in Italy. Had it not been for the tax amnesty, I am not sure we would stand where we are now in Italy.”