San Marino Says Italy's Crackdown on Tax Evasion Threatens Its Economy

San Marino, the world’s smallest republic, complained that it’s being unfairly punished by Italy’s campaign to crack down on tax evasion.

San Marino, which has a population of 31,300 and is surrounded by the Italian regions of Emilia-Romagna and Le Marche, said 5 billion euros ($6.1 billion) flowed out of the nation during its larger neighbor’s tax amnesty. Italy will require companies operating in San Marino to report their revenue from doing business there starting July 1.

“It’s as if Italy wants to paint us as a country that doesn’t want to cooperate,” Antonella Mularoni, San Marino’s foreign secretary, said today during the first press conference ever called by the republic in Rome. “The Italian position has become incomprehensible.”

The new reporting requirements are a “commercial embargo,” said Marco Arzilli, the secretary for tourism and economic planning. The 5 billion euros that left San Marino represent about a third of the total funds managed by the republic’s financial system, and they won’t probably come back, said Pasquale Valentini, the finance secretary.

Italy is aiming to collect 1.3 billion euros in revenue from increasing its fight against tax evasion in 2011. The seven-month tax amnesty that ended on April 30 lured 95 billion euros back to the country last year from abroad.

Italy has refused to sign a treaty on rules regarding double taxation with San Marino though technical negotiations ended successfully in June of last year, San Marino said today.

The San Marino government said it has passed laws to increase transparency, including the abolition of anonymously held companies. It was removed from an Organization of Economic Cooperation and Development black list of tax havens last year and also from a watch list compiled by the Financial Action Task Force, the international organization that coordinates anti- money laundering policy.

About one-fifth of San Marino’s 1.5 billion-euro economy is based on banking. It was recognized by Italy as a sovereign state in 1862.

To contact the reporter on this story: Steve Scherer at sscherer@bloomberg.net

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