Italian police fanned out across Milan in late January halting more than 350 vehicles, mostly luxury SUVs and Porsches.
At checkpoints, including one adjacent to the fashionable Corso Como, the police got the driver’s licence and registration, which they passed on to the national tax agency. The tax authorities will use the data to check if the cars’ owners had declared enough income — and of course paid the right amount of income taxes — to justify their lifestyles.
It was at least the fifth raid targetting wealthy Italians since a December 30 sweep at the posh Cortina d’Ampezzo ski resort, where 251 high-end cars were stopped, including Ferrari and Lamborghini supercars, Bloomberg Businessweek reports in its February 13 issue. Rome, Portofino on the Italian Riviera and Florence have also been targetted.
“I’ve been stopped three times in the last few weeks by authorities because I’m driving a luxury SUV,” says Andrea, a Range Rover owner and entrepreneur in Italy’s wealthy northeast. “It seems like the McCarthy era in America. You’re guilty by suspicion.”
The 43-year-old, who declined to give his last name for fear of attracting the attention of Italy’s tax agency, now plans to sell the SUV he bought last May. He expects to get at most €40,000 ($52,400) for a car that cost him more than €100,000. “Dealers are full of luxury cars. No one wants to buy them now,” the businessman said.
Italian authorities are applying to luxury car owners the same logic they displayed more than a year ago, when tax agents started tracking down the owners of yachts berthed in Italy’s harbours to see if they were current on their tax payments.
In the raid in Cortina D’Ampezzo, tax agents found that 42 luxury car owners had declared income of less than €30,000 for 2010 and 2009. Another 19 luxury cars were owned by businesses which posted a loss in the previous year. The sweep in Florence discovered a builder with no tax record who was driving a Mercedes with his wife who was receiving social assistance. Tax officials also found a German owner of a BMW X5 SUV with no declared income, according to the website of the tax agency’s Florence office.
This is serious stuff for the government, which estimates that tax evasion costs the country about €120 billion a year in lost revenue.
“The ownership of a luxury car highlights a level of spending and a standard of living that are often not reconcilable with the income declared by the owner,” said Carmelo Piancaldini, a manager in the inspections unit of Agenzia delle Entrate, Italy’s tax authority. “If one is transparent with the tax agency and buys a luxury car, he doesn’t have to worry.”
The collection effort is part of Prime Minister Mario Monti’s plan to curb record borrowing costs on Italy’s €1.9-trillion debt and avoid following Greece, Portugal and Ireland which all had to seek bailouts.
Monti has also raised taxes on luxury goods, including expensive cars. The owner of a €316,000 Lamborghini Aventador, for instance, will now have to pay about €8,400 a year in taxes, an increase of €6,600.
While tax authorities reject being the cause for a slump in car sales, the measures are having an impact. Marco Santucci, general manager of Tata Motors’ Jaguar brand in Italy, said orders for high-end cars “decreased substantially” in the final months of 2011, dragged down by the taxes. Sales are shifting towards cheaper versions with smaller engines, he said.
Demand for vehicles from the likes of Fiat SpA’s Ferrari and Maserati brands and Volkswagen AG’s Lamborghini slumped 53 per cent in January, with just 66 supercars sold, according to Anfia, the association of Italian car makers. The new taxes and high-profile dragnets have also sent exotic car prices down 20 per cent, according to dealer association Federauto.
“Extra taxes and fiscal raids are hurting the demand for supercars and killing the second-hand market,” says Filippo Pavan Bernacchi, head of Federauto.
The slump in luxury sales adds pressure on the Italian auto market as the economy teeters on the brink of recession. Sales may fall to the lowest level since 1985 this year on the weight of the budget tightening measures, according to Fiat Chief Executive Officer Sergio Marchionne.
Still, for Ferrari, which earns higher profit margins than any other Fiat unit, it’s not the end of the world. There’s plenty of demand outside Italy for the company’s sports cars. “Italy isn’t a concern for Ferrari as it sells its cars abroad,” Marchionne said last month in Detroit. Relying on Italy would be a problem, because “demand is not there — austerity is impacting everywhere in the country.”
Monti’s new luxury vehicle tax targets owners of cars whose engines have more than 251 horsepower. The tax may raise about €165 million this year, according to Unrae, Italy’s association of foreign car makers.
“It’s hard to imagine that any other European country having luxury car producers contributing significantly to employment would have introduced a tax” on supercars, says Maserati CEO Harald Wester. The government also increased duties on fuel. All told, the extra levies will cost Italian drivers €5.1 billion by the end of 2012, Unrae estimates.