Italy Goes After Tax Dodgers

It's been a busy summer for Italy's undercover tax inspectors. Sporting T-shirts, shorts, and flip-flops, they have blended into the crowd at beaches, yacht clubs, and discos from Venice to Sicily, searching for that most elusive of creatures, the Italian tax dodger.

Evasion is rampant in Italy. Though it's one of the world's 15 richest nations based on per-capita gross domestic product, only 0.2 percent of taxpayers declare income of more than $250,000 a year. Prime Minister Silvio Berlusconi's government is now determined to recoup $13 billion in unpaid taxes.

Summertime, when business booms on Italy's 5,000 miles of beaches, is an ideal hunting season for tax inspectors. If you're a successful Italian tax cheat, you may well have the money to buy a yacht. Tax agents can check a yacht's registration, figure out who owns it, and find out if the owners paid the kind of taxes a guy who can afford a fancy boat should pay.

With yacht owners, "sometimes we find their [declared] annual income isn't even enough to pay for a boat slip in the marina," says Luigi Magistro, who heads the assessment directorate at the Italian Revenue Agency in Rome. "In Capri, we found a person on a luxury yacht who was officially listed as having no assets and in need of welfare." Inspectors identified beach clubs on the Amalfi Coast listed as money-losing, nonprofit organizations—nonprofits that serve haute cuisine and cocktails to beachgoers who shell out $63 a day to stretch out on a lounge chair under an umbrella.

The campaign may hamper Italy's recovery from recession, according to Fabio Pesto, the head of Federagenti-yacht, which represents Italy's yacht agents. (A yacht agent charters boats for clients, brokers sales, provides crews, and so on.) Many Italians have their boats registered abroad, and they have grown skittish as word of the crackdown has spread. Through June, visits to Italy by foreign-flagged boats longer than 30 meters fell by about half from a year earlier. Pesto says owners of foreign-registered boats typically spend about $250 million a year in Italy's ports.

The sting operation does have supporters. "It's the right move," says Pino Affer, owner of a modest beach club by an artificial lake near Milan. "Here at the poor people's beach, there are no yachts, just little pedal boats and rowboats," he explains. "I pay my taxes because the little guy always has to pay, while the big fish always ends up eating the little fish, unfortunately."

The bottom line: Italian tax inspectors are sweeping the country's beaches and yacht clubs in a quest to recoup lost revenues from tax cheats.

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