WRITTEN QUESTION E-2649/97 by Roberto Mezzaroma (UPE) to the Commission (1 September 1997)

Subject: Tax harmonization

The Commission is requested to turn its attention to the serious problem faced by construction companies in connection with the indirect taxation levied via the Communal Tax on Immovable Property (the ICI) in Italy.

As you may know, since 1993 this tax has been levied 'indiscriminately' on buildings, building land and agricultural land, whoever the owner might be, at a rate varying between 4 and 7 per thousand, calculated by reference to the cadastral value plus 10% in the case of buildings, or the market value in the case of building land.

The inequality to which attention is drawn is the fact that the building industry, which is already suffering the effects of a housing market that has been in the doldrums since 1992, is now liable to pay tax both on the finished product (buildings) and the raw material (building land), which is not the case in any other sector of industry.

So the ICI, in addition to having contributed to the contraction of the housing market, has considerably aggravated the already precarious financial situation of the building industry in that firms have to pay tax on unsold or yet to be constructed buildings as well as bearing the cost of the financial charges involved.

A further contradiction and inconsistency arises from the fact that, since 1 January 1993, the ICI has replaced both the ILOR (local income tax) and the INVIM (communal tax on increases in the value of immovable property), which were accordingly abolished, and hence it was supposed to operate to the taxpayer's advantage.

This measure did not, however, provide any relief for the building industry, for the following reasons. ILOR was not payable by construction companies because immovable property constituted the goods which it was the business of such firms to produce and trade in, and so the firms were not liable to pay tax on the basis of the cadastral value of such property but on the income it generated.

The ICI, however, amounts to an annual charge on the ownership of immovable property, which, while it may very well be an indicator of fiscal capacity in the case of a private citizen, is the exact opposite in the case of a building company.

What action does the Commission intend to take to resolve this problem, which seriously affects many construction companies and undoubtedly results in a large number of bankruptcies and significant job losses, and also means that the question of fiscal harmonization will not yet have been resolved for all countries including Italy, which is seriously handicapped by problems of this nature, by the date set for the introduction of the single currency?

Answer given by Mr Monti on behalf of the Commission (8 October 1997)

The Commission would recall that the Member States are free to choose and design their tax systems with the only condition that the general obligations resulting from Community law are respected. Since these obligations are not affected in the cases mentioned by the Honourable Member, the Commission dos not see any possibility of intervening on legal grounds. Moreover, the Commission, desirous to respect the subsidiarity principle, does not have the intention of initiating any political action at Community level, since the problems which have arisen for the Italian construction industry produce no direct effects beyond the national level.