Pay up or weigh anchor? Italy's yacht owners feel the tax collector's heat

Amid one of Europe's worst economic crises since World War II, cracking down on endemic levels of tax evasion is vital for countries such as Greece, Italy, and Spain as they attempt to get their finances back on track.

In their hunt for tax dodgers, Italian tax officials have launched a campaign of on-the-spot checks of expensive yachts, amid suspicions that many of their owners dramatically under-declare their earnings.

But the crackdown has had an unexpected effect. Boat owners are simply weighing anchor, battening down the hatches, and sailing out of Italian waters to neighboring Mediterranean countries where they are free of scrutiny. Business is down by more than one-third in many of Italy’s marinas, and the exodus of the boats has cost the economy 200 million euros in lost revenue from mooring fees, port services, and fuel sales, according to Assomarinas, the Italian Association of Marinas.

That is boosting the costs already incurred by a widespread culture of tax evasion. Tax dodgers – as well as the black market – cost the state 275 billion euros annually, or 17.5 percent of GDP.

Still, said Attilio Befera, the head of Italy's tax collection agency, conducting raids on yacht marinas was effective in striking a degree of “healthy fear” into people who were trying to avoid their tax-paying duties.

A flotilla of evasion

Around 30,000 yachts have fled Italy since the campaign began in March this year, seeking refuge in Corsica and the Cote d’Azur in the west to Croatia, Slovenia, Montenegro, and Greece in the east.

Next to seeking refuge, some owners are trading in their flashy yachts and motor launches for smaller vessels that present less of a tempting target for the authorities, or are paying to have them stored in boat yards, away from prying eyes. They can then access their beloved boats on low-cost budget flights from their homes in Italy.

“We understand that Italy, like Spain and Greece, needs to recover revenue, but these inspections could be made by the Guardia di Finanza [the Italian law enforcement agency under authority of the Minister of Economy and Finance] from their desks, using computer records about yacht ownership, instead of in the marinas,” says Roberto Perocchio, the head of Assomarinas.

“This is the worst crisis in Italian boating history. The authorities are using scare tactics and creating a climate of fear. They are criminalizing the boat industry with fiscal terrorism,” he adds.

Spot checks 'necessary'

A spokesman for the Guardia di Finanza in Rome said the spot checks were necessary because not all boat records were computerized.

The agency’s officers cross-reference the details with the amount of earnings boat owners had declared to see if they could afford the purchase. The tax police pointed out that their checks had revealed startling cases of tax avoidance.

When the Guardia di Finanza officers checked 963 yachts moored in a picturesque marina in Bari, a port on the Adriatic coast, they found that 286 – nearly one-third – were owned by people who had filed suspiciously low tax returns, or no tax returns at all. In the most extreme case, inspectors found a yacht worth 1.2 million euros owned by a businessman who had never filed a tax return in his life. Another vessel, worth an estimated 700,000 euros, was owned by a company that had declared annual revenue of just 1,300 euros.

'Obsessive' authorities

Despite those discoveries, the boating sector insists that the majority of owners are honest and are being unjustly persecuted because of the sins of a few.

“It’s absolutely right that tax evaders should be caught, but just because you own a boat doesn’t mean you are dodging taxes,” says Giovanni Sorci, the director of a marina at Rimini, a popular holiday resort on the Adriatic coast.

“The authorities are obsessive. They don’t just check you once – they come back the next day, too. And there are five or six agencies involved - the police, the Carabinieri [a paramilitary police force], the Guardia di Finanza, the Coast Guard ... even the Forestry Corps!” he adds.

He said his marina had lost 40 boats in the past few months, with many fleeing to Slovenia, while others had set sail for Croatia, Montenegro, and Greece.

The anger and exasperation of many honest yacht owners was summed up by a notice placed on a boat in a marina at Rapallo, on the Italian Riviera. “Have mercy. This boat has already been checked seven times.”

Self-fulfilling prophecy

Tax evasion has gone on for decades in Italy. In many ways, it is a self-fulfilling prophecy.

A disgruntled citizen looks at the potholed roads and poorly equipped schools in his neighborhood and concludes that the government is so ineffective that it is not worth paying taxes. But by withholding money from the state, those services get even worse.

Sometimes collusion in tax dodging comes from the very top. Silvio Berlusconi, who was forced to resign as prime minister last November as Italy was swept up in the eurozone crisis, said once that it was important to “defend the rights of tax evaders,” or, as he put it more euphemistically, “companies that make mistakes.”

Mr. Befera, the head of the tax collection agency, said Italy had a  “cultural deficit” in which many Italians “give a nod and a wink” to tax evasion – something he is hoping to stop.