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TAXATION PAPERS An Assessment

WORKING PAPER N. 53 – 2015
of the Performance
Margherita Ebraico
(Italian Revenue Agency) of the Italian Tax
Savino Ruà
(European Commission) Debt Collection
System

Taxation and
Customs Union
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Luxembourg: Office for Official Publications of the European Communities, 2015

doi:10.2778/014143 (printed) doi:10.2778/14686 (PDF)

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 An Assessment of the Performance of the Italian Tax Debt
Collection System

Margherita Ebraico (Italian Revenue Agency) 1

and

Savino Ruà (European Commission)

Abstract: This paper provides a comparable estimate of the magnitude of tax debt in Italy and
investigates which administrative factors would contribute to explain it. It is inspired by the
work of the OECD on comparative tax administration. Our findings show that the level of
undisputed tax debt in Italy is close to the EU average, with a decreasing trend since 2008. No
more gaps are found in the administration of tax debt management in Italy, when comparing it
with that of other EU Member States. The use of technology emerges as a possible area of
further attention.

Keywords: Tax administration, Tax debt, Tax collection

JEL classification: H11, H71, H83, K34, K40,

1
The authors thank Gaëtan Nicodème for useful comments. The findings, interpretations, and conclusions
expressed in this paper are entirely those of the authors. They should not be attributed to the European
Commission and their respective institutions. Any mistake and all interpretations are theirs and theirs only.
1
1. Introduction
Since 2004 the Organisation for Economic Co-operation and Development (OECD) has
published biannually a comprehensive report on tax administration, comparing the revenue
authorities of more than fifty countries, with the most recent edition issued in 2013 (OECD,
2013). Among the various aspects of tax administration covered by the report, the OECD
deals with tax debt management.
Tax debt is a relevant topic from both a public finance and a tax administration perspective.
The overall amount of uncollected taxes has increased during the past years across the OECD.
Overall, undisputed tax debt in the OECD countries at the end of 2013 amounted to around
two thirds of a trillion of US dollars (Forum on Tax Administration, 2013). This is equivalent
to roughly 1.5% of the OECD GDP.
In its comparative reports, the OECD includes information on how tax debt recovery is
organised, on its performance and on powers for enforced debt collection. Yet, not all
countries covered by the scope of the report have provided data on their performance in
managing tax debts. This is the case for Italy. On the basis of the most recent data reported by
the Italian Court of Auditors on the performance of tax debt management in Italy (Corte dei
Conti, 2013), this paper intends to review the performance of tax debt recovery in Italy and to
put the results in a comparative perspective. In addition, this paper wishes to look more
closely at which administrative factors might contribute to explain the performance of the
Italian tax debt collection system.
The discussion is structured in five parts: first, we review previous and ongoing work done on
tax administration. Secondly, we define what we mean with tax debt collection. Third, we
estimate tax debt performance for Italy, comparing the results with those for other EU
Member States for which information is included in the OECD report. Fourth, we take a
closer look at the Italian tax debt collection system, focussing on those aspects of tax
administration that the OECD considers particularly relevant for tax debt recovery. Finally we
conclude making suggestions for further research.

2
2. Review of the Literature
Economists interested in tax administration have focused on the costs of tax administration for
governments and for taxpayers. Researchers have tried to theorize what the “optimal” costs of
tax authorities would be (Goode, 1981; Shaw, Slemrod, & Whiting, 2010; Slemrod &
Yitzhaki, 1985). There is also a significant amount of studies on costs for taxpayers or
compliance costs of taxation (Ramboll Management Consulting; The Evaluation Partnership;
Europe Economic Research, 2013). The key finding of this research is that compliance costs
generally dwarf administrative or government costs. For instance, for the US compliance
costs have been estimated at about 10 cents per dollar collected against 0.6 cents per dollar of
collection costs (Slemrod & Yitzhaki, 2002). A branch of economic research is concerned
with estimating the efficiency or the performance of tax administration, using often methods
borrowed from operational research (Alm & Duncan, 2013).
Increasing interest is being paid to an interdisciplinary research programme linking economics
and other social sciences, in particular sociology and psychology, often referred to as
“behavioural economics” (European Commission, 2014). In this area, researchers have
developed a theoretical understanding of tax administration, in connection with the study of
tax evasion. Studies have looked into the effectiveness of a service-based approach to tax
administration and have found that providing even imperfect services and information make
tax administration more effective (Vossler, McKee, & Jones, 2011).
Practitioners have approached tax administration largely from what we call a “diagnostic”
perspective, trying to identify what is wrong with it and suggesting how to fix it (Brondolo,
2009). The focus has been on developing countries, in the context of donors’ assistance
programmes, yet not exclusively. An example of this approach is the work which has led to
the set up by the IMF of the Revenue Administration Fiscal Information Tool (RA-FIT) and
its successor the Tax Administration Diagnostics Assessment Tool (TADAT). Key actors in
this field have been the International Monetary Fund and the World Bank, as well as major
international donors. The European Commission has developed its tax administration
“diagnostics” capability in recent years, initially to face the need to provide assistance to
enlargement countries (European Commission, 2007), subsequently to accompany structural
reforms in countries subject to economic adjustment programmes (Cyprus, Greece and
Portugal) and more generally to contribute to EU-wide economic reforms (European
Commission, 2013).
3
A second dimension of practitioners’ work relates to what we define as the “best practice”
approach. This way of looking at tax administration is close to the one presented above, yet
with a softer touch. The OECD has led efforts on this front which led, in 2002, to setting up
the Forum on Tax Administrations (FTA), a place for exchange of views on tax
administrations’ practices. It is within the context of the FTA that the OECD began collecting
comparative information on revenue administrations (OECD, 2013). Comparative tax
administration can be considered as a specific outcome of the “best practice” approach of
practitioners. To date, the OECD has released five editions of its comparative information
series on tax administration. It has also created a webpage with a database on tax
administrations. Comparative information is collected through surveys addressed to
participating tax authorities of both OECD and non-OECD countries. The 2013 edition of the
report covered the tax administrations of 52 countries.

3. Tax Debt Collection: Key Concepts

There is no standard definition of tax debt and various sources use terms such as recovery of
tax, tax debt collection, collection of arrears, recovery of claims, almost interchangeably.
There are two main types of tax debts, disputed and undisputed. The sum of disputed and
undisputed tax debts can be referred to as “gross” tax debt. “Net” tax debt is gross debt minus
disputed claims. Undisputed tax debt is defined as: “… the total amount of tax (including any
interest and penalties) that is overdue for payment at year-end and which is not disputed by
the taxpayer (even where enforcement action may not have commenced) for all taxes
administered by the revenue body” (OECD, 2013). Disputed tax debts are those claims which
are subject to objection, dispute, and/or litigation. Depending on the jurisdiction, tax
administrations might or might not have powers to recover them. In addition to tax debt, the
OECD mentions also social security contributions (SSC) debt and non-tax debts, for instance
“student loans and overpaid welfare benefits”. Tax debts can be collected either through
enforcement, or paid spontaneously. A definition of enforced tax debt collection is: “set of
systems and procedures assuring that tax debts which are not spontaneously paid are
collected in the simplest and most effective way” (European Commission, 2007).

4
4. Estimating the Performance of the Italian Tax Debt Collection System
Interest in performance measurement reflects changes into the way we understand
government and public service. As the OECD recalls, governments have become much more
performance and outcome-oriented during the past 20 years. Tax administrations have not
been excluded from this trend (OECD, 2013).
The OECD reports data useful to assess the operational performance of revenue bodies in the
area of tax revenue collection, refund of taxes, taxpayers’ services, tax verification activities,
tax disputes, tax debt and their collection. Focussing on this last dimension, the OECD
assesses the performance of tax debt collection by looking into various indicators.
A key indicator used to assess tax debt collection performance is undisputed tax debt as share
of net revenue collections, i.e. after tax refunds are paid. This indicator has been used by the
OECD since the 2009 edition of the comparative report on tax administration. In 2004, the
OECD gave figures for gross and net tax debt. In 2007, the indicator covered gross tax debt
only.
Using this indicator, the OECD assesses the relative performance of tax administrations in tax
debt recovery. The OECD calls it a “benchmark” ratio indicator. A value of less than 5% is
considered “low” or a good performance; above 20%, a relatively poor performance.
In addition to the level of undisputed tax debt, the OECD reports information also on debt
collected as a share of total debt for collection; debt written off (i.e. cancelled) as a share of
debt inventory; and movements in tax debts case numbers.
The OECD does not provide information on the performance of Italy when it comes to tax
debt recovery. Looking at the latest edition of the series, Italy is of the very few countries and
the only EU Member State for which no data are provided, for none of the indicators listed
above, for any of the years covered (from 2005 to 2011).
In this section we use data reported by the Italian Court of Auditors to fill in the gap. Table
(1) in appendix presents these data in details. This table reports in the first column the yearly
amounts of undisputed debt to be recovered. The total gives the sum of undisputed debts
originated during the period 2000-2012. 2 The second column gives the share of undisputed
debt for various years which was recovered in 2012. For instance, in 2012, only 1.94% of the
debt originated in that year was already repaid; 5.22% of the debt of 2011, 8.39% of the debt

2
Figures for the most recent years are not consolidated and might be subject to variations.

5
of 2010. Of the debt which was accounted in 2000, only one fifth had been recovered over
twelve years.
To estimate the ratio of undisputed tax debt and net revenue collection, we first divide the
overall debt or “carico netto” by half , as typically half of the “carico” is due to tax and the
remaining to SSC debts (Corte dei Conti, 2013). The resulting tax debt is then compared with
the figure for net revenue collection, taken from the OECD report (OECD, 2013). The ratio
we obtain is 13.2%. For previous years, the results are 8.9% (2008), 11.5% (2009) and 13%
(2010), indicating a decreasing trend.
Table (2) in appendix compares the 2011 ratio for Italy with that of other Member States. We
observe that Italy is not among the worst performers (above 20%), but rather its performance
seems average. However, if we compare Italy’s performance with that of the other largest
economies of the EU, we see that Italy’s undisputed tax debt as a share of net revenue
collection is more than double of the figure for France (6.8%), well above the level reported
for the UK (5.7%) and more than six times the share of Germany (1.8%). Overall, there is
major variety across Europe when it comes to tax debt recovery, with figures ranging from a
share of almost 90% in the case of Greece (2010 figures) to less than 2% for Denmark and
Germany.
Having estimated and compared the performance of the Italian tax debt collection system, the
question remains of which factors explain such a result. Good performance in tax debt
recovery seems associated with an extensive use of withholding taxes, effective advance
payments regimes, extensive use of electronic payment methods, extensive debt collection
powers, well-staffed debt collection function, above average investment in IT for tax
administration and wide use of technology (OECD, 2013). In the next part, we take a closer
look at the Italian tax debt collection system focussing on these aspects.

5. Understanding the Performance of the System

This part of the paper will describe the Italian tax debt collection system focussing on those
administrative characteristics which are generally associated with good performance in tax
debt collection.

6
 5.1. Institutional arrangements, organisation and strategic management
In Italy, several organisations are responsible for managing various elements of the tax
system. The OECD (OECD, 2013) describes the institutional arrangements of the Italian tax
administration as follows:
“Tax administration functions are carried out by a number of separate
government and partly government-ownedbodies due to a reorganisation of the
Public Administration (Legislative Decree 30 July 1999, n. 300) The purpose of
this reform was to separate the political guidelines (given by the Ministry of
Economy and Finance which maintains control over policy orientation) from the
managerial and operational charge (Agencies): 1) Revenue Agency (Agenzia
Entrate), with the task of managing the direct taxes, VAT and other tax
revenues; 2) Financial Police (Guardia di Finanza GDF) is responsible for
dealing with tax fraud, financial crime, smuggling, money laundering,
international illegal drug trafficking, customs and borders checks,
counterfeiting; 3) Customs Agency (Agenzia Dogane) excise and VAT on
imports; 4) Land Registry Agency (Agenzia del Territorio) with functions
relating to cadastre, cartographic Services, conservation real estate registry;
5)The State Property Agency (Agenzia del demanio) has the task of
administering the State Property; and 6) Equitalia Spa is the public company
(51% Revenue Agency and 49% “National Social Security Institute – INPS)
entrusted with the task of tax debt collection.).”

Tax debt management is entrusted to Equitalia, a public company owned by the Revenue
Agency and the National Social Security Institute. The latter was set up by the Italian
government in 2006 to perform tax debt recovery in the country. Before the establishment of
Equitalia, tax debt collection was outsourced to private collectors. Equitalia operates under
the control of the Italian revenue agency. It is made up of one headquarter (Equitalia SpA
holding) and three interregional offices (Equitalia Nord, Equitalia Centro and Equitalia Sud).
The latter three are in charge of tax collection operations on the territory of Italy, with the
exemption of Sicily, where a separate tax collection agency called Riscossione Sicilia SpA
operates. Equitalia’s stockholders are the revenue agency and INPS, the Italian SSC agency
(Equitalia, 2013). Equitalia is responsible for the collection of tax, SSC and other non-tax
related debts owed to government, e.g. customs as well as local taxes etc. It is in charge of tax
debt recovery both through enforcement and via spontaneous payments. Its four key business
performance objectives are compliance burden reduction (anti-burocrazia), improved
taxpayers satisfaction, fight against corruption, and operating costs reduction (economicità
della gestione) (Equitalia, 2013).

7
Box 1: A short history of debt collection in Italy

For a period of more than one hundred years (1871-2006), the Italian state outsourced its
tax collection to private tax collectors. In Italian, this arrangement was generally referred
to as “sistema delle esattorie” (Manestra, 2010).
The budget law for 2006 reformed the system, creating a public body “Riscossione SpA”
to perform the function of tax debt collection (“riscossione” means recovery in Italian).
This body was meant to act under the control of the Italian revenue agency. The reform
aimed at improving the efficiency of tax recovery (Manestra, 2010). As pointed by the
Italian Court of Auditors, before the reform, underperformance in tax debt collection
hampered the effectiveness of audit and verification activities (in Italian, “accertamento”),
including the fight against tax evasion. A crucial weakness of the pre-reform arrangement
was the lack of strategic and outcome-oriented planning and poor accountability of tax
collectors (Corte dei Conti, 2013).
In 2007, Riscossione SpA was rebranded Equitalia SpA. The intention of the government
was to actually improve the perception of the tax collector for taxpayers, emphasizing its
role as provider or enabler of a fairer Italy (equità means fairness in Italian).
According to the Italian Court of Auditors, tax recovery performance improved following
the establishment of Equitalia: between 2006 and 2009, enforced tax debt recovery
increased by 77%. As from 2010 however, the performance of the Italian tax collector
Equitalia began to decline (Corte dei Conti, 2013).
The worsening of the performance in tax debt collection in recent years and a more
difficult relationship between Equitalia and taxpayers has led to recent proposals for
another reform of the tax debt collection system in Italy: currently, the Italian Parliament
is examining a proposal to abolish Equitalia and transfer the tax debt recovery function to
the Italian revenue agency (law proposal 2299 of 11 April 2014).

8
 5.2. Withholding, Advance Payments and E-Payments
Withholding, advance payments and e-payments are meant to making paying taxes as easy
and fraud-proof as possible. They aim at preventing rather than managing tax debts.
The OECD Glossary of Tax Terms defines tax withholding (WHT) as a tax on income
imposed at source, i.e. a third party is charged with the task of deducting the tax from certain
kinds of payments and remitting that amount to the government. The use of WHT is
associated with high levels of compliance. The US tax administration has estimated that
individuals subject to WHT tend to report almost all of their wages for tax purposes, while
individuals not subject to WHT report less than 70% of the income (Treasury Inspector
General for Tax Administration , 2006).
Information reporting associated with WHT allows tax authorities to be informed about
transactions by third parties (i.e. not by those who have statutory liability to pay a certain tax).
Tax administrations use this information to match it with taxes actually paid, identifying
suspect tax returns and focussing audits on those. Information reporting is useful to prevent
the emergence of tax debts. Another preventive mechanism is the use of advance payments
regimes, which allow collecting the bulk of taxes due in the fiscal year in which they were
derived. Electronic payments methods are meant to reduce the costs of paying taxes,
promoting compliance, including payments of taxes due, in time.
Italy uses WHT arrangements extensively. In addition to wages and salaries, WHT are used
for interests, dividends, businesses and self-employed, royalties and patents as well as
sale/purchase of shares. Reporting is used for all these categories of income, except interests
(OECD, 2013). The bulk of taxes due for both individuals and companies due are collected
via advance payments in the fiscal year in which the income is derived. Any surplus tax
according to the tax return may either be carried forward and used to offset other tax liabilities
or refunded. Electronic payments are used often, including through direct debiting. E-filing is
used extensively. Taxpayers can access personal details online. Extensive tax-related
information can be found on the website of the tax authorities.

5.3. Debt Collection Powers

A key variable which influences tax debt collection performance is the extent of debt
collection powers available to the tax administration. To assess how powerful tax
administrations are at recovering tax debt, the OECD looks into fourteen administrative

9
powers, of which the first ten are common across OECD and non-OECD countries and the
last four are unusual:
1. Grant time to pay, for instance by allowing payment of the tax debt by instalments.
2. Make payment arrangements, to take into account of the particular financial
circumstances of taxpayers and their ability to pay.
3. Collect information from third parties. For example, credit bureaus could provide
information to tax authorities on the ability to pay of tax debtors.
4. Arrange seizure of debtors’ assets. Using this power, tax authorities can recover
claims by confiscating and selling debtor's properties.
5. Offset debits on tax credits. Using this power, tax authorities instead of paying tax
credits to tax debtors use the amount or part of it to offset the debt.
6. Obtain lien over assets. The OECD Glossary of Tax Terms defines liens as “a charge
against property, making it security for the payment of a debt, judgment, mortgage, or
taxes”. Tax administrations may apply lien over debtors’ assets to push them to settle
their debts. Usually, obtaining liens precedes seizure of assets. Liens are removed once
debts are paid.
7. Withhold non-tax payments owed by government to debtors. In this way, tax
administrations might suspend payments by other government agencies to tax debtors,
with amounts being transferred to them to settle the tax debt.
8. Require tax clearance for government contracts. This means that for being awarded
work under public procurement rules, taxpayers have to prove that they do not have
any outstanding debt with tax authorities.
9. Initiate bankruptcy. Tax claims generally take precedence over private debtors’
claims. Tax authorities are often empowered to kick off insolvency procedures against
taxpayers who have not settled their obligation in order to recover the amounts due.
10. Impose tax debts on company directors. In some jurisdictions, tax authorities are
empowered to make the directors of a company jointly and severally liable for the tax
debts of the company.
Unusual powers:
11. Restrict overseas travel by debtor, to avoid that taxpayers might leave the jurisdiction
without having paid their tax debts.
12. Close business / cancel license. Licenses and businesses are taxpayers’ assets which
can be seized.
10
 13. Deny access to certain government services.
14. Publish name of debtors.
A vast majority of countries surveyed by the OECD have at their disposal “traditional”
powers to enforce the payment of tax debts, such as seizure of assets. Only in limited cases,
powers go as far as to include the ability of impose businesses closure or loss of licence, or
denial of access to government services (OECD, 2013). Table (3) in appendix gives an
overview of tax debt collection powers in the EU. Italy is able to exercise all of these powers
except denying access to certain government services and publishing names of debtors. The
next sections provide additional information on some key powers of the Italian tax debt
collection system.

5.3.1. Liens and levies over the tax debtor's assets and power to collect taxes
from third parties
The Italian tax administration has extensive powers over tax debtors’ assets. It can register a
tax debtor's real estate mortgage at the Public Registry of Real Estate. According to the
Decree Law n. 16/2012 converted into Law n. 44/2012 this can happen in the event the total
amount owed is above € 20,000.
However, according to a recent regulatory change (Decree Law n. 5/2012 converted into Law
n. 35/2012), Equitalia is no longer able to place a lien on the tax debtor's real estate in the
event the tax debtor has applied for an instalment agreement.
There are also different types of enforcement measures aimed to the foreclosure and the
auction of the debtor’s movable and/or immovable property. Equitalia will generally start by
foreclosing the debtor’s movable property (seizure of debtor's goods).
In some specific cases, Equitalia has the power to deduct percentages of an employee’s salary
(wages or other allowances relating to the employment) if a tax debt is owed (the attachment
of wages). The percentages of the amount that can be monthly attached are set under the tax
law. These have been changed by the Decree Law 16/2012 and based/linked to the amount of
the tax debtor's salary, i.e. 1/10 if the monthly salary does not exceed € 2,500, 1/7 for monthly
sums ranging between € 2,500 and 5,000, 1/5 if the monthly salary exceeds € 5,000 .
Equitalia can also recover any amount owed by third parties to the debtor (seizure of third
parties' movable property). In this case, Equitalia notifies the third party concerned with a
formal request including an order to pay directly to Equitalia the amount due to the debtor.

11
The discipline concerning the seizure of the tax debtor's immovable property has been
modified recently. Equitalia is no longer allowed to seize the sole real property of the tax
debtor if it is his/her primary residence with exception of luxury real estate, even though they
can place a lien on it. The other real property can be seized provided that the tax debt amounts
up to € 120,000 and six months have been passed in vain from the registration of the
mortgage.

5.3.2. Tax clearance for the granting of government contracts

Another tool related to making the taxpayers/companies comply with his/her/its tax
obligations is represented by the requirement of the tax clearance for the granting of
government contracts.
According to the provisions of Legislative Decree n. 163/2006, companies that have
committed violations relating to the payment of due taxes are not allowed to participate in
tenders for public works, supplies and services.
A tax clearance certificate may be released to those taxpayers/companies who have not been
accused of any violations of tax obligations by a definitive act. It can be issued also in the
event at the date in which the certificate has been requested the claims of the Tax
Administration have been satisfied fully, including the case of ongoing payments by
instalments of overdue tax debts.

5.3.3. Withholding government payments to debtors

On the basis of Decree of the President of the Republic n. 602/1973 the Italian tax
administration can withhold government payments to debtors. This occurs in the event a
Public Administration is supposed for whatever reasons to pay a sum amounting up to more
than € 10,000. In this case, before making the payment, the Public Administration is
compelled to verify whether the beneficiary of the sums concerned has failed in the payment
of tax debts for up at least the same amount of money. In affirmative case, the Public
Administration will not proceed to make the payment withholding the due sums until the
moment when Equitalia has pursed those tax debts by enforcement.

5.3.4. Level of interest and penalties

There is also in place a quite complex system concerning the discipline of the penalties and
interests. There is a quite wide range of sanctions. Some of them are specifically aimed at
punishing strongly the taxpayer that fails to fulfil his/her tax obligations, while others foster
12
instead tax compliance. For example, in case of undeclared income or unpaid tax, the penalty
that can be charged by the Revenue Agency ranges between 120% and 240% of the unpaid
paid taxes.
A penalty can be increased by up to 50% if the offender has committed other offences of the
same nature in the previous three years. When an error or omission gives rise to several
penalties, only the highest penalty is applied but it can be increased by up to 100%. The same
applies for multiple violations of the same provision.
The offender is personally liable for the monetary penalty. As a result, managers and directors
acting on behalf of a company or other entity are personally liable for the penalty if they
participated in the violation. If the offender did not act fraudulently or with gross negligence
and did not benefit directly from the offence, his liability is limited to the lesser of € 51,645 or
25% of the penalty, provided the payment is made within 60 days after notification.
On the other hand, to encourage the taxpayer to comply with the content of the tax assessment
notices the penalties are reduced in case the payment has been paid within the due period (i.e.
60 days from the notification).
In addition, to boost voluntary disclosure the tax law sets that reduced penalties may be
applied if the taxpayer corrects the violation voluntarily. For example, if the violation is
corrected within 30 days from the due date, the penalty is reduced to 1/10 of the minimum. If
the taxpayer corrects the violation within the deadline for the filing of the return in which the
violation would have appeared, the penalty is reduced to 1/8 of the minimum. Moreover, to
stimulate the tax debtor to keep up with his/her instalments payments, the tax law states that
in case of failure a sanction up to 60% on the sum still due will be charged.
Likewise interests are aimed at giving incentives to taxpayers to pay on time (usually sixty
days from the notification of the tax assessment notice): in this case, in fact, the rate of
interest applied on the sums owed has been fixed at 3.5 %, as per Ministerial Decree of 21st
May 2009. On the contrary, the rate of interest on arrears (i.e. in case of payment beyond the
due date after the notification of the tax payment form) is currently fixed at 5.14% on yearly
base since 1st May 2014, according to the Act of the General Director of the Revenue Agency
of 10th April 2014.

5.3.5. Close businesses/cancel licenses

In the Italian tax system, the possibility of a temporary suspension of the trade license (from 3
days to one month, or in specific cases up to 6 months) with a provisional closing of the
13
business also exists under certain circumstances (i.e. no issue of fiscal invoices four times in
the course of five years, etc.). In addition, a sanction will be issued amounting up to 100% of
the unpaid tax.

5.4. Resources
The OECD (OECD, 2013) reports on the resources of national revenue bodies. Information
provided includes data on overall expenditure by governments on tax administration and
measurements of the relative cost of tax administration.
Expenditure indicators cover both the costs for salaries of staff and what the OECD refers to
as IT expenditure and human resources management costs. The sum of these three is called
“administrative costs”. To gauge the relative costs of tax administrations, the report includes a
few ratios: the cost of collection ratio, calculated by dividing administrative costs by net
revenue collected by the revenue body; administrative costs as a share of GDP; the ratio of
total taxpayers’ pollution and staff allocated to tax administration.
There is also information on the relative distribution of staff across the key functions of a
revenue body: account management, verification, tax debt collection, other tax-related
operations; non tax-related support tasks. Finally, the chapter reports information on
outsourcing experiences of tax administrations and on the non-tax related work they perform
(e.g. customs and SSC collection).
Despite the wealth of data provided, the report does not report information on the costs and
amount of staff allocated to tax debt collection in Italy. Staff and costs for tax debt collection
are therefore also excluded from the calculation of the costs of collection ratio and of the
share of staff allocated to debt recovery. The report (OECD, 2013) makes this clear:
“(…) the computed ratios significantly understate the true ratio as they do not
take account of expenditure incurred on tax related work carried out by other
agencies (e.g. the tax fraud work of the Guardia di Finanza and enforced debt
collection activities performed by Equitalia spa) that have not been quantified.”

According to Equitalia (Equitalia, 2013), in 2012 total administrative costs amounted to about
€ 887 million. Staff costs claimed a little more than € 500 million. Out of the remaining costs,
circa € 70 million were spent on IT. Staff figures are also reported: at end 2012, the figure
was 8,083 staff.

14
 5.5. Comparative Analysis
In this section, we compare the characteristics of the Italian tax collection system we have
described above with those of other EU Member States. Comparative tax administration can
help to improve the design and administration of tax system, by identifying weaknesses and
strengths.
From a comparative standpoint, the way Italy has organised its tax debt collection is unusual.
All but 7 countries surveyed by the OECD have a dedicated tax debt collection function
within the revenue administration. Out of the EU Member States, only Italy and Sweden have
an unusual arrangement, where most of the tax debt collection work happens outside the
revenue body.
The OECD indicates that reducing overall tax debt level is a government-mandated objective
that more and more tax administrations need to face. This is however not the case in Italy.
Italy uses WHT and advance payments extensively, as well as e-payments.
In the case of Italy, the OECD indicates that the country has at its disposal 12 out of 14 most
common powers of tax debt collection enforcement: Italy does not publish the names of tax
debtors and cannot deny access to certain government services. Leaving aside these two
powers, the Italian tax debt collection appears to enjoy extensive powers of enforcement.
As far as resources are concerned, to allow for comparison with other countries’ tax
authorities, we review the ratios provided by the OECD for 2011 to include estimated tax debt
collection costs. The cost of collection ratio increases by 0.3 percentage points, from 1% to
1.3%. The share of costs to GDP goes up from 0.17% to 0.23%. The share of staff devoted to
debt collection increases from zero to 19.7%. The share of IT expenditure is increased from
5.2% to 6.06%. Italy has a relatively well staffed tax debt collection system, but it spends
relatively a small amount on information technology.
To sum up, when comparing Italy with other Member States with relatively low levels of tax
debt inventories, as shown in Table (4) in appendix, we observe that Italy’s system seems to
fill almost all the administrative requirements associated with good performance in debt
recovery, with the exception of the level of investment in IT for tax administration. There is
not enough information to be conclusive when it comes to the use of technology which might
be an area deserving further investigation.

15
6. Conclusions
With this paper we have tried to contribute to the comparative study of tax administration. We
have started by estimating the operational performance of the Italian debt collection system,
adding information for Italy to the OECD data for 2011. The picture which emerges is that of
an average performer in tax debt recovery, yet with a negative trend since 2008.
However, when taking a closer look at some key administrative aspects of the tax debt
collection system, we cannot find any major gap: Italy’s tax recovery seems to be powerful
and well-staffed, and placed within a system where the use of withholding taxes, advance
payments and e-payments is widespread. From a comparative perspective, Italy has the key
administrative elements in place for performing well in tax debt recovery, with one possible
exemption: the use of technology appears limited. It is interesting to note that our findings
seem to be in line with the remarks made by the Italian Court of Auditors in its annual report
2013 which calls for a “more efficient use of ICT” in recovery (Corte dei Conti, 2013). At a
time when tax administration is becoming increasingly data-centred, this issue might be
particularly relevant for tax debt collection performance. More investigation into the link
between technology and tax debt recovery in Italy is surely warranted.
More generally, it should be recognised that there are limits to an administrative
understanding of a tax system. Tax debt collection depends on tax administration’s variables
but there are other factors which can affect its performance: among others, the overall level of
taxpayers’ compliance with tax laws and economic performance of a country matter, as
remarked by the OECD.
Further research on the Italian tax debt collection system might focus on the use of ICT;
regarding research on tax debt collection in a broader sense, we believe it could be
appropriate to deepen and expand our understanding of the work of tax administrations in this
field. It is our impression that the administrative characteristics upon which the OECD and
this paper focus are linked to what Alm calls the “enforcement paradigm” of tax
administration (Alm, 2012). According to this paradigm, emphasis is put on repression of
illegal behaviour through audits and penalties. Yet, there are at least two other key paradigms
of tax administration: “service”, which matches the role of enforcement with offering services
and facilitations to taxpayers; and “culture”, which stresses the role of morality, of social
norms, and of other behavioural economics factors in deciding whether to pay or not taxes
due (Alm, 2012 and Weber, Fooken, & Herrmann, 2014). A wider understanding of tax
16
administration could lead to focus on services provided to taxpayers when having to face debt
recovery procedures, the role of communication, perception of the tax authority etc. Finally,
we suggest that the Italian authorities when participating to the next OECD survey involve
Equitalia into the data collection exercise to make sure information on debt recovery from
Italy is added to the report.

17
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experiments, and field studies. International Tax and Public Finance 19, 54-77.

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http://web.law.columbia.edu/sites/default/files/microsites/law-theory-

workshop/files/AlmAgencyEff.pdf

Brondolo, J. (2009). Collecting Taxes During an Economic Crisis: Challenges and Policy

Options. IMF Staff Position Note.

Corte dei Conti. (2013). Rapporto 2013 sul coordinamento della finanza pubblica.

Equitalia. (2013). Bilancio consolidato al 31 dicembre 2013.

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Comparative Information Series 2010. OECD Publishing.

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OECD. (2013). Tax Administration 2013: Comparative Information on OECD and Other

Advanced and Emerging Economies. OECD Publishing.

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(2013). A review and Evaluation of Methodologies to calculate tax compliance costs .

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Adam, T. Besley, R. Blundell, S. Bond, R. Chote, . . . J. Poterba, Dimensions of Tax

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Taxation Paper, 41. European Commission, DG TAXUD.

19
Appendix: Tables

Table (1): Performance of tax debt collection in Italy

Year when debt Undisputed tax, SSC and other debt Recovered debt as a percentage of

originated (carico netto), EUR billions undisputed debt (2012)

2000 39.5 20.68

2001 21.9 20.49

2002 19.3 18.72

2003 20.8 20.44

2004 26.7 16.86

2005 37.7 13.58

2006 51.8 16.15

2007 49.7 13.24

2008 49.6 13.48

2009 59.9 10.21

2010 69.4 8.39

2011 72.8 5.22

2012 76.9 1.94

Sum 596

Notes: This table shows the amount of undisputed tax and SSC debt per year (carico netto), the amount of debt
recovered per year (volumi di riscossione) and the ratio of collected tax debt / tax debt to be recovered. For
instance, in 2012 1.94% of the undisputed debt of 2012 was recovered; 5.22% of the undisputed debt of 2011
etc. Amounts are net of the share of debt which is suspended or cancelled / written off (oggetto di sgravi o
sospensioni). (Corte dei Conti, 2013).

20
Table (2): Undisputed tax debt as a share of net revenue collection in the EU

EU country 2005 2006 2007 2008 2009 2010 2011 Movements in

ratio 2008 2011
Greece n.a. n.a. n.a. 61.1 72.7 89.5 n.a. n.a.
Slovak Rep. 43.6 45.7 49.3 48.5 59.5 63.9 67.4 18.9
Cyprus 47.5 40.0 38.6 27.8 35.8 35.8 34.0 6.2
Bulgaria 39.7 21.9 12.8 11.3 15.6 24.3 27.3 16
Malta n.a. n.a. n.a. n.a. 29.5 30.9 25.2 n.a.
Latvia 13.7 12.1 8.8 14.2 18.3 21.8 22.9 8.7
Portugal 43.9 40.2 36.5 24.3 25.3 22.5 22.2 -2.1
Hungary 14.5 14.3 15.4 18.9 24.0 24.6 21.4 2.5
Poland 8.4 7.7 7.5 10.4 11.4 17.9 18.7 8.3
Luxembourg n.a. n.a. n.a. 19.3 22.1 15.9 14.8 -4.5
Czech Rep. 20.5 19.7 n.a. 16.6 18.8 12.8 14.7 -1.9
Italy n.a. n.a. n.a. 8.9 11.5 13.0 13.2 4.3
Romania n.a. n.a. n.a. 9.1 12.9 n.a. n.a. n.a.
Spain 4.6 4.2 4.3 5.9 9.4 10.4 11.7 5.8
Estonia 10.1 7.6 7.9 8.8 13.1 5.2 10.7 1.9
Slovenia 3.7 3.4 3.6 3.8 4.3 5.2 10.7 6.9
Lithuania 6.1 4.5 3.5 3.8 8.8 10.0 9.6 5.8
Belgium 5.6 5.3 5.1 13.1 14.2 10.4 9.2 -3.9
Finland 7.1 7.1 6.6 6.5 8.0 8.0 8.0 1.5
France 7.7 8.6 6.0 6.9 6.9 6.8 6.8 -0.1
United 3.6 3.3 5.7 5.5 6.2 6.5 5.7 0.2
Kingdom
Netherlands 4.2 3.0 3.8 n.a. n.a. 4.0 3.9 n.a.
Ireland 1.8 1.5 1.6 2.4 3.4 4.4 3.8 1.4
Sweden 2.6 3.2 n.a. 2.3 n.a. 2.9 2.8 0.5
Austria 3.4 3.1 2.7 2.6 2.9 2.5 2.5 -0.1
Denmark 0.4 1.3 1.1 2.0 2.0 2.3 1.8 -0.2
Germany 2.0 1.6 1.7 1.6 1.7 2.3 1.8 0.2
Croatia n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.

Notes: The table is an adaptation of the one included in the 2013 OECD report on tax administration (OECD,
2013). Croatia is added to the table but no data are available. For Italy, data are estimates based on authors’
calculations. Data are ranked in descending order for the year 2011. Latest available figures used for Greece
(2010) and Romania (2009). “N.a.” means not available. Our estimates of the Italian undisputed tax debt as a
share of net revenue collections are in italics.

21
Table (3): Comparison of powers to enforce tax debt collection

Enforced Tax Debt

Collection
1 2 3 4 5 6 7 8 9 10 11 12 13 14
Powers, 2011

Austria x x x x x x x x x x
Belgium x x x x x x x x x x
Bulgaria x x x x x x x x x
Croatia n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a.
Cyprus x x x x x x x x x
Czech Rep. x x x x x x x x x
Denmark x x x x x x x x x x x x x
Estonia x x x x x x x x x x
Finland x x x x x x x x x
France x x x x x x x x x x
Germany x x x x x x x x x x x x
Greece x x x x x x x x x x x x x
Hungary x x x x x x x x x x x x x
Ireland x x x x x x x x x x x x x
Italy x x x x x x x x x x x x
Latvia x x x x x x x x x x x
Lithuania x x x x x x x x x x
Luxembourg x x x x x x x x x
Malta x x x x x x x x x x x x
Netherlands x x x x x x x x x x
Poland x x x x x x x x x x
Portugal x x x x x x x x x x x x
Romania x x x x x x x x x
Slovak Rep. x x x x x x x x x
Slovenia x x x x x x x x x
Spain x x x x x x x x x x
Sweden x x x x x x x
United Kingdom x x x x x x x x

Notes: This table shows with an “x” whether an EU country has or not at its disposal a certain power to enforce
tax debt recovery. “N.a.” means not available. (OECD, 2013). List of powers: 1) grant further time to pay, 2)
make payment arrangements, 3) collect from third parties, 4) restrict overseas travel by debtors, 5) arrange
seizure of debtors’ assets, 6) close business / cancel license, 7) offset debits on tax credits, 8) obtain lien over

22
assets, 9) withhold government payments to debtors, 10) require tax clearance for contracts, 11) deny access to
government services, 12) impose tax debts on companies’ directors, 13) publish names of debtors, 14) initiate
bankruptcy.

23
Table (4): Comparison of administrative aspects of tax debt collection across selected EU

countries

EU Extensive Effective Extensive Well- Extensive Above average Wide use

Member use of advance tax debt staffed use of e- investments in of
State withholding payments collection debt payments IT for tax technology
tax regime powers collection administration
function
Austria x x x x x x x
Denmark x x x n.a. x x
France x x x x
Germany x x x x x x
Ireland x x x x x x
Netherlands x x x x x
Slovenia x x x n.a. n.a. x
Sweden x x x x x x
UK x x x x x
Italy x x x x x ?

Notes: This table shows with an “x” whether an EU country is characterised or not by the administrative
practices which tend to be associated with good performance in tax debt management. The table is an adaptation
of the one on page 227 of the 2013 OECD report on tax administrations. “N.a.” means not available (OECD,
2013).

24
 TAXATION PAPERS

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