The participants at this national conference recalled, by way of introduction, that two objectives are pursued through taxation systems, namely: the social purpose of ensuring there are resources for essential community services, and the economic aim of fostering business and investment. It was underlined that these systemic objectives are undermined when fairness and certainty are wanting. While it was acknowledged that entrepreneurs are prepared to accept risk, being capable of gauging the degree to which it subsists, they baulk at uncertainty, or at the absence of a benchmark on which to base their assessment. More generally, taxpayers are not willing to tolerate an increasing tax burden unless this is matched by the provision of adequate services.
Having regard to these considerations, it was suggested that the Italian tax system unquestionably poses several problems in terms of certainty and its ability to ensure fairness, owing to tax legislation which – in the view of many – requires serious reform, starting with a revision of the relevant legislative codes. Moreover, this legislative overhaul was also viewed as needing to be accompanied by a simplification and reduction in the number of exceptions. As an example, it was deemed no longer tenable for there to be over 500 tax expenditure categories (representing around 150 billion euro worth in spending), several of which are manifest recognitions of privileged interests.
It was urged that increasing the ability of the tax system to be understood and applied by a larger proportion of the taxpayer base would undoubtedly help to claw back a tax gap that currently amounts to around 101 billion euro, attributable mainly of personal income tax (Irpef) and value-added tax (Iva). This would make it possible to put significant resources back into circulation that could be used to reduce the tax burden and make Italy more competitive.
Italy’s recent tax enabling law was described as aimed not so much at reform as at facilitating the analysis and resolution of major problems. While granting that it is only 80% implemented, the participants nevertheless acknowledged that it has gone a considerable way towards improving certainty through a series of measures ranging from clarification of the application of the “abuse of rights” doctrine and the introduction of cooperative compliance, through to delineating tax crimes and making changes to penalties. The main goal of these efforts has been to bring about a shift in paradigm, moving away from a repressive approach to one focused on prevention and collaboration between tax authorities and taxpayers. It was observed that this has succeeded in yielding results, as evidenced in the case of payments of value-added tax (Iva) and corporate income tax (Ires), which have increased at a higher rate than growth in GDP or direct consumption.
The participants were at pains to stress, however, that there is still an important 20% of the tax enabling law yet to be implemented, and that it is to be hoped that ways can also be found of applying what has been achieved so far to SMEs, held up as a very important component of the Italian business landscape.
There was also consensus on the need to systemically and effectively address the issues raised by the growing role of the digital economy. Indeed, it was seen as evident that certain categories of jobs and evaluation methods that are the product of 19th-century economic realities are ill-suited to this new context for delineating value chains and determining profits, as well as for evaluating decision-making processes, which – with the advent of machine learning and robotics – will be carried out by computers rather than by people.
It was observed that, in this new scenario, the US tax reform plan – described by the White House as delivering “the biggest individual and business tax cuts in American history” – has had the merit of producing a ripple effect, not just in consequence of the influence that the US exerts on the world economy, but also because the country is the cradle of the net economy.
The American tax reform plan revolves around two linchpins: the first of these, found in several proposals being considered by the House of Representatives – would see a reduction in the highest corporate income tax rate from 35% to 20%; and the second, proposed by the Trump administration, is a destination-based cash flow tax, that is, a tax on imports and an exemption from tax for exports. For now, these proposals that are yet to be implemented. Even so, it was suggested that the new approach is likely to have a variety of repercussions both on the domestic front and in relations with other states.
In the absence of a common European fiscal policy, it was felt that a supranational approach to these important economic and social justice issues would be desirable. With regards to simplification as well as combating tax evasion and tax avoidance, particularly by multinational corporations, it was noted that Europe has embarked on a strategy of multilateralism and the creation of mechanisms that favor a preventive approach, with a view to equipping individual countries to communicate constructively with companies. At the same time, the Base Erosion and Profit Shifting (BEPS) package, recently launched by the OECD, aims to reduce tax evasion by multinational corporations which stems from competitive fiscal imbalances between countries.
In 2016, the European Union relaunched its proposal for a Common Consolidated Corporate Tax Base (CCCTB), first mooted in 2011. The new version presents some important changes, springing from internal debate and practical insights gained since. In particular, transparency, fairness, and certainty aspects of the proposal have been strengthened. Through reduced compliance burdens for corporations, and incentives for R&D and start-ups, it is hoped to substantially enhance the contribution that a fair and consolidated taxation system can make to supporting the economy.
While such efforts are afoot to improve tax enforcement through new and more effective mechanisms, the participants also urged the necessity of initiating an in-depth debate on the future geared towards coming up with more than just new technical solutions, and opening up a crucial public policy discussion to gauge what democratic social model is preferred. If it is judged that taxing income versus consumption is the best method of ensuring redistribution and pursuing equality, then it will be necessary to discern whether to opt for a form of equality that pays no heed to absolute income levels or one that seeks to guarantee the provision of basic services. It was stressed, in conclusion, that continuing to refrain from resolving this ambiguity risks engendering a society where public spending fuels itself, until such time as globalization throws a spanner in the works.