I’ll explain how Tax Free Shopping works (badly).
The letter from Arturo Aletti, former CEO of the GlobalBlue Italia company from 1989 to 1998, on Tax Free Shopping
Dear director,
My comments on the social network favors suggestions from stakeholders, passing them off as exclusive bearers of expertise.
Let's clear up any misunderstandings straight away: all my compliments to Airbnb and the Public Affairs company Utopia: they do their job and their interests very well. What is wrong, in my opinion, is the forced involvement of the Ministry of Tourism.
Let me introduce myself: I was a pioneer in the introduction and development of TaxFree in Italy, already CEO of the GlobalBlue Italia company (TaxFree refund leader) from 1989 to 1998 and then senior advisor until 2013 of Fintrax Group, the Irish rival, now Planet.
Let's get to the substance of the matter. In a country where, as stated several times by Altagamma, 60% of retail purchases of Luxury/Fashion/Accessories (which are not necessarily only Made in Italy) are made by tourists, it is clear that tourists are attracted by shopping and not only from art, culture, the sea, the landscape, the cycle paths, the historic trains and the food and wine: when they are in Italy they take advantage of it to go shopping and this activity is a must for the vast majority of visitors, with significant economic and employment benefit in the territories, being, in the case of foreigners, exports with maximum added value because they are made at retail prices.
Now I ask myself: what sense does it make for a Ministry of Tourism to sponsor Made in Italy, to obtain which it is not essential to come to Italy, given that it is now found all over the world?
Wouldn't it be more appropriate to sponsor Purchased in Italy, that is, what can only be done by coming to Italy?
And here's where the problem falls: since the Strategic Plan for Tourism 2020, presented by Minister Gnudi in 2013, with the help of Boston Consulting, in "Action 54" a more intelligent use of resources such as those for the reimbursement incentive was suggested VAT/Tax Free Shopping, for which a huge waste has been ongoing for years, from which some dominant multinational intermediaries essentially benefit, rather than the tourists to be attracted in competition with our other competing countries.
Basically, what happens?
The activity is regulated by art. 38 quater Presidential Decree 633/72 , transposing a Community Directive. In summary, it says that tourists who are citizens or residents outside the EU, if they make retail purchases in Italy spending at least €154.95 in each financial year, are entitled to immediate relief or VAT reimbursement.
The merchant must issue an invoice and, when he receives it stamped by a Customs when leaving the EU, he has the right to deduct the VAT from his periodic declaration.
What happens though?
It happens that some dominant multinational intermediaries propose to merchants (including obviously luxury/fashion/accessories brands) to take care of this procedure, both in terms of promoting the benefit to tourists and for digital invoicing (digitized since 2017). with the Otello delle Dogane system) in the shop. So, in short, when a Chinese, an American, or a Swiss or an Italian resident outside the EU makes a purchase, the TaxFree digital invoice is triggered which provides for the transfer of the VAT credit (remember that 22% VAT is included in the price in shop is equivalent to 18.04% of the price itself) which is relieved (rarely) or refunded at the airport (mainly) by the TaxFree organization in charge, chosen by the shop and almost never benefited by the unsuspecting tourist at inferior conditions.
For spending amounts of €1000.00 (average over millions of transactions) the reimbursement is 11/12% instead of the 18.04 that the intermediary collects from the shopkeeper on a periodic basis.
The intermediary then recognizes part of the difference in the form of a bonus on turnover and this explains why an increase in refunds compared to the VAT due is viewed badly by intermediaries and is not supported by the CFOs of the large Luxury/Fashion groups: too much convenient to cash in millions of euros on ongoing business, rather than betting on a boom in tourist purchases in the future.
So, and finally, what should an intelligent country do?
It should provide for an increase in actual refunds to tourists, compared to the VAT that it refuses to collect because it is due to them: if it did so more and before its other competing countries, it would become the most convenient and attractive destination in the world for tax-free shopping.
All at zero additional cost for the State and with excellent satisfaction for Airbnb/Hotels/Restaurants and all related tourism sectors, including artisans.
From the time of Gnudi to today no one has had the courage to do so: neither the Renzi government, despite Franceschini having included this hypothesis in art 13bis of the ArtBonus law in 2014, nor the League, nor the 5 Star Movement, despite both having promised in their 2018 election programs.
The only one who neither promised nor ever thought about this provision is Fratelli d'Italia.
But when I went to explain it 6/7 months ago to their Tourism manager I found on a chair in his office at the parliamentary groups a folder headed Utopia on the main TaxFree refund intermediary.
In fact, the Minister of Tourism seems to listen more to them, as demonstrated by the Airbnb/Made in Italy operation.
Sorry for the length, but I tried to summarize a long story à la Don Quixote.
Friendliness
Arturo Aletti
PS:
As regards the estimate of the turnover and consequently of the lack of VAT revenue by the State, I would like to point out that:
1) the estimate of tourist spending in Italy continues to be made officially by BankItalia through border interviews with a sample of tourists. Never by interviewing, for example, the acquiring circuits through which paper and digital payments pass, which also know the place/date/amount of the expenditure, as well as the country of issue of the card or device and the merchant category of the merchant.
2) the periodic data on TaxFree issued by the main intermediaries are never quantitative, but only percentages
3) in one of the Altagamma summits in 2018, in the presence of the CEOs of the main brands, the Marketing Manager of the main intermediary was asked "how much is Tax Free Shopping worth in Europe?"
He didn't answer. To which the General Secretary Altagamma said "well, I'll say it: it's worth 50 billion euros and Italy accounts for over 16%".
4) in the 2019 Customs blue book presented with great fanfare by Minenna in September 2021 we read that the TaxFree digital invoices released from the Otello system were 5.5 million. Given that the average value was €1000 each and that these were only invoices leaving the EU directly from Italy, to which must be added all those leaving the EU from airports or customs in other EU countries, it can be safely estimated that the Tax Free Shopping in Italy is worth at least 8/9 billion/year and 18.04% of this amount is VAT not collected by the State.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/vi-spiego-come-funziona-male-il-tax-free-shopping/ on Fri, 15 Sep 2023 03:35:24 +0000.