Fiat-Chrysler’s call for state support from the Italian government in response to the coronavirus crisis has triggered howls of complaint from politicians pointing out that the carmaker isn’t an Italian tax resident.
Tax justice is becoming an increasingly prominent theme of crisis bailouts — with countries ranging from France to Poland arguing that there will be no cash for companies registered in foreign tax havens.
On May 16, Fiat applied for a state guarantee to cover a €6.3 billion loan. Politicians, including the No. 2 in Italy’s Democratic Party Andrea Orlando and left-wing MP Stefano Fassina, immediately cried foul that the company officially decamped from Italy six years ago, with Fiat becoming Fiat Chrysler Automobiles (FCA) and moving its headquarters from Turin to Amsterdam.
“A company seeking huge funding from the Italian state should bring its headquarters back to Italy,†Orlando tweeted.
“How can the Italian Republic, in accordance with our constitution, dedicate a billion euros [to guarantee the loan] to some of the richest families in the world, residing in tax havens, when they forget millions of families pushed to the limit?†Fassina asked in Il Fatto Quotidiano newspaper.
“If state aid is given to Fiat, Italian citizens have the right to know whether the company moved its tax domicile to the U.K. to obtain a tax advantage” — Tommaso Faccio, ICRICT
The government tried to cool down the debate by stressing that the money would stay in Italy.
“We are talking about … Italian factories, which produce in Italy and employ a great number of workers,” said Prime Minister Giuseppe Conte, while Finance Minister Roberto Gualtieri stressed that the aid would only benefit the Italian subsidiary of the group, FCA Italy, which “has its headquarters and pays taxes in our country.”
A formal decision on aid has not been made by the Italian government, and the ministry of economic development declined to comment. Fiat also declined to comment beyond its statement, which stressed the money would be “dedicated exclusively to financing FCA’s activities in Italy” and should provide “support to some 10,000 small and medium enterprises in the automotive supply chain in Italy.”
The public guarantee to cover the loan has also been questioned on other grounds. It would allegedly allow FCA’s parent company to save cash and pay a €5.5 billion dividend that is due to shareholders before the closing of the planned merger with France’s PSA Groupe, the owner of brands like Peugeot, Citroën and Opel.
Rescue loan
The aid will be granted under a so-called liquidity decree adopted during the coronavirus crisis, and only companies based in Italy are eligible. Conte and Gualtieri say that FCA Italy fulfills this condition.
But given FCA’s complex corporate structure, aid from Rome would ultimately support the whole group, which pays taxes in several European countries, including Luxembourg, the U.K. and the Netherlands.
FCA is now a multinational group controlled by a parent company registered in the Netherlands and it is subject to British tax rules, said Tommaso Faccio, the head of secretariat at the Independent Commission for the Reform of International Corporate Taxation (ICRICT).
“If state aid is given to Fiat, Italian citizens have the right to know whether the company moved its tax domicile to the U.K. to obtain a tax advantage,” Faccio said, adding that the only way to get that information would be to publish country-by-country reporting that is not public.
According to former European Commission President Romano Prodi, the aid should be subject to Fiat’s commitment to invest in Italy. “If I spend money to build a house, I need to know where it will be built,†Prodi told Italian public broadcaster RAI.
Gualtieri said that’s already the case.
Merging plans
But Gualtieri’s promise might be tough to keep given next year’s merger between FCA and France’s PSA to form the fourth-largest automaker of the world. “A European champion,” as French Economy Minister Bruno Le Maire called it.
The deal is currently under the scrutiny of the European Commission, which will issue a decision by June 17.
But the creation of a new car company means the debate on FCA’s tax residence is “outdated” and the discussion should rather focus on the industrial plans of the new group, said Giuseppe Berta, a professor of economic history at Bocconi University and former director of the Fiat historical archive.
“How can you talk about production and jobs in Italian factories without taking into account the fact that these elements will be defined in the industrial strategy of the group that will be born in a few months?” Berta asked, while noting that strategic choices for the new entity will be determined by the new chief executive, Carlos Tavares, who currently leads the French group.
Next year’s merger between FCA and France’s PSA to form the fourth-largest automaker | Vladimir Simicek/AFP via Getty Images
According to Carlo Calenda, an Italian MEP from the Socialists and Democrats group, the merger is precisely why FCA is asking for aid.
FCA’s parent company has sufficient resources to help its Italian subsidiary restart production, but prefers to keep it in its coffers with a view to a €5.5 billion pre-merger dividend, Calenda said.
FCA declined to comment.
Gualtieri stressed that under new Italian rules, aid beneficiaries won’t be allowed to distribute dividends in 2020 but, in the case of FCA, the pre-merger dividend would come from the Dutch-registered group holding and might happen next year. The company hasn’t said anything about reducing or postponing the dividend.
But Berta said that the pandemic crisis might put into question both the structure of the merger and the size of the dividend.
For MP Fassina, however, the question is a moral one related to FCA Chairman John Elkann, the scion of Fiat’s founding Agnelli family.
“We only ask him, as we ask every company benefiting from precious and very scarce public resources, to pay taxes in the community which is up to its chin in debt to help them,†he said.
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