Friday, 6 April 2018

The promised fiscal land to counteract the brain drain

Rome is well worth (one less) tax. But so is Milan, Naples, and any other city that can grant asylum and offer a job to the “brains” that come back home. This rewording of the famous historical quote sums up quite well what the lawmakers intended to do: give an incentive that could convince many Italian citizens to come back, all those who carry out their “highly qualified or specialized” business abroad. And this wouldn’t apply to Italians only: the fiscal lure is extended to talent of any nationality. Indeed, any entrepreneur, professional, technician, or researcher can benefit from the reduction on the tax burden for 5 years in exchange for choosing to come and invest their knowledge and skills in Italy.

This topic was at the center of the debate in the conference “Steps to Attract Human Capital to Italy. How Can We Counteract the Brain Drain?” held at SDA Bocconi last February. Many prominent figures attended the event, such as Maurizio Bernardo, President of the Chamber of Deputies Finance Committee, Antonio Longo from DLA Piper, Francesco Rossi from Gruppo Controesodo (“the Counter-Brain-Drain Group”), and Giorgio Santini, member of the Senate’s Budget Committee, as well as Mauro Meazza, editor-in-chief of the Sole 24 Ore, as moderator.
It was an opportunity to take stock of the situation after more than two years since the decree “for the growth and internationalization of companies” (Italian Legislative Decree 147/2015) came into effect, which dedicated paragraph 16 to the “Special conditions for inpatriates”.

Talent from all over the world
Convinced of the importance that quality human capital can have for economic growth—according to Confindustria, the Italian Industrial Federation, the “brain drain” causes a loss of about 14 billions a year, a whole percentage point of the GDP, not including the loss of social and cultural value—the fiscal leverage opened the hunt for top-quality, international workers. The regulation in fact defined a reduction of 50% of the taxable wages for 5 years for high-profile employees and independent workers. All that is required is to have been a resident outside of Italy for the past 5 years and a commitment to stay for at least 2 years.
This regulation, as we already mentioned, doesn’t limit itself to calling expats back, but rather aims to make our country a magnet for talent from all over the world. The tax benefit in fact is extended to all European and extra-EU citizens with the same professional qualifications. It’s an international recruiting campaign where Italy isn’t the only player, but must compete with other countries such as France, Spain, Portugal and The Netherlands, who have similar regulations in place.

A considerable tax advantage
Several different aspects of the regulation were featured in the debate, but a salient point was the current situation of many Italians abroad who haven’t registered with the AIRE (register of Italian citizens living abroad), which is a necessary prerequisite to be able to benefit from the tax relief. In fact, few citizens transfer their official domicile to another country if they don’t plan to stay there for long (or forever) and this makes many potential “inpatriates” ineligible. It’s a particularly important aspect that AIRE is working on.

On the other hand many underlined how convenient this regulation is from a fiscal point of view. It doesn’t take much to calculate the bargain that a “prodigal child” could get from their country: if we consider an annual gross income of 65,000 euros, the savings on taxes is around 13,000 euro a year, more than a thousand euro a month for a 5-year period. Will this be enough to start an inverted exodus, if not of biblical proportions, at least big enough to make a difference for the Italian job market, its economy, and its culture?

SDA Bocconi School of Management

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