Lately, a vocal group of wealthy people have been calling for more taxes on the rich. From billionaire Warren Buffett in the States to L’Oreal heiress Liliane Bettencourt and other French high-earners asking the wealthy to pay more taxes on their incomes in order to help pull their countries out of debt, it’s inevitable that leaders will listen – and raise taxes. France announced a 3% tax increase on its top earners, and Italy followed suit. After plenty of debate, Italians earning over €500,000 annually will pay an extra 3%. Italy’s move is largely symbolic, however; only 4,437 Italians declared €500,000 or more on their tax returns. Spain is considering a similar measure, a 2% increase on high earners to raise €1.2 billion.
Unlike Buffett and Bettencourt, however, Italian footballers were not pleased with the Government’s decision to raise taxes. They threatened to strike, as Italians earning over €150,000 a year were going to be faced with a 10% tax increase.
Raising taxes on the wealthy is a contentious issue, to be sure. Even in the States, those earning US$250,000 per year protest that, in some cities – like New York City – that income is just enough to survive. Indeed, some wealthy also believe that they should not be responsible for the debts that their Governments have irresponsibly taken on, and the prospect of increased taxes leaves them looking for loopholes and other ways around taxes.
For the financial services industry, this means examining opportunities overseas for their clients, as well as searching for investments that will result in a lower tax rate and preparing Italian and French clients to pay the higher tax rates now imposed by the government. Clients may also want to shift their investments to overseas accounts if possible. If income earned in Italian investments, for example, is taxed at a higher rate, clients will naturally want to move their Italian investments to other countries. Irish investors, in particular, may not be thrilled about the idea of paying down Italian or French debt.
There are many opportunities to invest, despite the new tax increases, and opportunities to educate clients on the new taxes and how they will be affected. As an advisor, it’s important to find those opportunities for the clients. As an accountant or attorney, clients will need guidance on how to report earnings, both in Ireland and overseas. International clients will need rock-solid advice on reporting and investing as well, especially with the new tax rates in France and Italy and the potential for tax increases in Spain.
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