Ultimately, many banks will not pay tax on “additional profits”

In recent weeks, several Italian banks have announced that they will not pay the so-called “additional profits tax”, introduced in August to tax the additional income obtained with the general rise in interest rates on mortgages and loans . The banks have decided to exploit a possibility expressly provided for by law as an alternative to payment: they will use two and a half times the sum they should have paid to the State to increase their reserves, a practice which in short serves to make their balance sheets stronger.

This option had been inserted during the conversion in Parliament of the decree-law with which the tax had been introduced: a modification which had profoundly changed the measure compared to the original version, intended precisely to collect resources to allocate to those who have difficulty paying their mortgage payments and reducing their taxes. In this way, not only will the resources collected be low, since many banks will not pay the tax, but banking institutions will strengthen their balance sheets using the money that, in the initial intentions of the government, should have ended up in the coffers of State.

The decree-law provided that banks would have to pay the State 40 percent on the difference between the interest margin obtained in 2023 compared to that of 2021. The interest margin is the difference between interest rates paid to the bank by its customers, such as those for personal mortgages and business loans, and those the bank pays to those who lend it money, such as rates on deposits and current accounts. Let’s take an example: a bank in 2021 lent money at 5%, and paid 2% interest on its current accounts: its margin was therefore 3%. In 2023, it charged 7% on loans and paid 2.5% on current accounts, therefore with an interest margin of 4.5%. The difference between the two margins – 4.5% and 3% – led to an increase in profit, of which the State requested 40% as an extraordinary tax.

The rule was widely criticized because it was considered too onerous for banks and because it risked passing on the cost to customers by increasing commissions on their services.

The converted decree-law, however, provides that banks can set aside a sum equal to two and a half times the amount of the tax. This sum will end up in “unavailable reserves”, which banks must keep as a precaution and which can only be used to cover possible losses. They constitute a very important element of the bank balance sheet, they serve to prevent banks from entering into crisis or even going bankrupt due to events that could compromise them, such as a financial crisis. After that of 2008, European laws introduced increasingly strict constraints on these reserves, resulting in an improvement in the solidity of bank balance sheets.

According to the converted decree law, if banks were to use these sums to do something else, such as distributing profits to their shareholders, they would be forced to pay the tax originally due and pay a penalty.

Second the estimates that circulate the 12 Italian banks listed on the stock exchange owed the State a total of 1.8 billion euros. These banks alone cover around 75 percent of the market and are therefore representative of the sector. According to an estimate by Deutsche Bank, the tax owed by all other institutions would amount to around €300 million, and the total amount collected through the “additional profits” tax would therefore have been one little more than 2 billion euros.

Since the beginning of November, alongside the quarterly publication of accounts, many listed banks have declared that they do not want to pay the tax and prefer to strengthen their reserves: among these are Intesa Sanpaolo, Unicredit, BPER, Banco BPM , M.P.S. Furthermore, according to an analysis published by lavoce.info , bank profits in recent months have been so high that they have allowed a generous distribution of dividends to shareholders, and higher provisions than those required by law. So the state effectively forfeited economic revenue by forcing the banks to do something they probably would have done anyway.

In addition to being necessary to raise resources, the tax on banks’ “additional profits” also had political value. The increasing cost of mortgages is an issue that has had a major impact on people’s lives, and it is for this reason that the government has widely publicized this measure. Prime Minister Giorgia Meloni had repeatedly defined it as a measure of social equity against the “unfair margins” of banks and necessary to raise resources to help people in difficulty increase their mortgage repayments.

Source: ilpost

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