Italy tax twists throw luxury market in disarray

Thu Mar 8, 2012 11:17am EST
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By Svetlana Kovalyova and Antonella Ciancio

MILAN (Reuters) - Jeweller Mattia Cielo opened his exclusive boutique on top Italian luxury street Via Montenapoleone last October, only to see the flow of clients peter out after the government curbed the use of cash.

So when Rome bowed to pressure and scrapped the 1,000-euro ($1,300) limit on cash use by foreigners after only eight weeks, Cielo uncorked a bottle of champagne in celebration.

But with the government having fiddled around with the limit three times in the past seven months, and a measure still in place requiring that buyers reveal their identity for transactions over 3,600 euros in an industry that values discretion, he remains shaken and uneasy.

"When I learned about the news I celebrated," said Cielo, whose diamond jewellery sells at between 1,000 and 60,000 euros, with foreigners accounting for about 75 percent of his clientele.

"I called some clients whom I had to turn down to tell them that our government has changed its policy and they can come back to Milan," he said, but added:

"The damage has been done. We have had two months of hell."

The use of cash common throughout Italy has long been a focus of Italian authorities in their fight against rampant tax evasion, which is estimated to cost the government 120 billion euros a year in state revenues.

Cash is not traceable on either side of the transaction and can be a channel to launder illegal income as well as avoid paying taxes.   Continued...

Jewellery-maker Mattia Cielo speaks during an interview with Reuters journalists in Milan January 26, 2012. REUTERS/Alessandro Garofalo