by Andrea Bandelli

Important measures that constitute one of the 5 pillars of the Extraordinary Plan for Productive and Corporate Repatriation elaborated by the Machiavelli Study Center have finally been included in the text of the fiscal decree that is still being finalized. The measures envisaged in the fiscal decree, thanks also to the great work of the excellent Minister of Economy Giancarlo Giorgetti and the Economy Department of the Lega in its entirety and in particular the head prof. Alberto Bagnai and Alberto Luigi Gusmeroli (one of the two relators of the delegation, a certified public accountant and head of the department's tax unit) to encourage reshoring are basically two: a significant reduction in the rate of direct income taxes for those individuals who decide to bring back to Italy part or all of the production located abroad and a reduction in the minimum tax period for the amortization of goodwill related to the activities and companies brought back home. Of course, these measures will have to find the appropriate and adequate coverage in the next budget law, but the benefits for our country are so many and so significant that they are certainly worth the effort to find them.

But let's put it in context and explain why reshoring at this historical stage is so important and its implementation indispensable for Italy, for the resilience of the public accounts and for the medium- to long-term sustainability of our debt, which let's remember amounts to more than 2,750 billion euros and with high interest rates is becoming less and less sustainable in terms of interest expense costs. Hence the need to increase GDP and the tax base to increase tax revenues by gradually lowering ordinary tax rates where possible.

Reimporting our industries

In the last few years, our country's economic system has faced first the generalized and prolonged lock-down due to the pandemic and then the war in Ukraine, which have had and will have very serious consequences on the resilience of our business fabric, its ability to preserve the integrity of value chains and the ability of our companies to maintain adequate production and employment levels. These two events have made clear the need for both businesses and national states to focus attention on analyzing the risks and critical issues resulting from the relocation of individual companies, entire production chains or parts of them. The main risks and critical issues of relocation can be summarized as follows: scarcity of raw materials and semi-manufactured goods, extended delivery times and increased logistics costs, likely disruptions in supply chains, and inability to ensure national security in strategic sectors. Recent situations in which these critical issues have been seen include the interruption in many sectors of supplies of components and semi-manufactured goods to domestic companies with related disruptions in production.

In this very context various governments in Europe and the West have devised measures and strategies aimed at incentivizing local industries, which had relocated in past decades, to bring back individual production units, entire production chains or parts of them to their homeland, with the aim of increasing both direct and induced employment, thus mitigating the long-standing and widespread problem of unemployment rates and consequently increasing the national Gross Domestic Product, while simultaneously increasing the supply chain's resistance to external shocks of any kind.

Productive and corporate reshoring: a booster for Italy

Italy is a manufacturing country, so it is clear how opportune it is to design and implement in a relatively short time a substantial plan for manufacturing reshoring that would bring back previously relocated production of goods and services to the country. At the same time, so-called corporate reshoring, which only partially coincides with the attraction of foreign investment, should also be carried out. In fact, this is a hybrid case related to a company, held by Italian citizens or with characteristics of marked interaction with the production chains present in our country or simply with an "Italian" vocation, that decides to relocate its legal and fiscal headquarters and, a prerequisite, some directional and central functions such as "research & development" and "trademarks and patents" in order to benefit from access to the promotion of the export from Italiy, in addition to all the free trade agreements in which Italy participates. By doing so, a part of the turnover could be included in the Gross Domestic Product contributing to its non-organic growth.

For Italy, therefore, the implementation of a systematic and effective policy of productive and corporate repatriation would bring a significant increase in GDP and, consequently, all things being equal, improve the Deficit/GDP ratio having raised the denominator, helping the country with the Maastricht parameters and in the complicated negotiations within the EU. In particular, the primary surplus could be strengthened structurally, making easier the reduction and sustainability of Italy's public debt.

Littoral Combat Ships. A cautionary tale (and an opportunity for Italian industry)
How to reshore. The Machiavelli Study Center's analysis

As for the reasons, the studies show that both the need to ensure adequate quality standards and differentials on labor costs and transportation are priorities for companies. When asked what motives could decisively influence further relocations to Italy, the companies responded by pointing to the reduction of the tax burden, specific labor market policies, locational supply policies, incentives for innovation and industrial enterprises, particularly financing for the purchase of machinery, and policies for the supply of skilled labor. Analysis of this set of data shows that today the labor cost variable, which had conditioned and favored most relocations, is no longer by itself a determining factor in the decision to outsource across borders, partly because of the difficulty of relocating the made-in-Italy labor needed to guarantee Italian production standards, thus making it utopian to think that the extraordinary quality of made-in-Italy can be reproposed abroad at a much lower labor cost.

It is in this very logic that the policy proposal that can recover productive sovereignty is characterized as an innovative tool (with limited burdens and a positive economic-financial impact on the state budget) and is structured, according to the analysis produced by the Machiavelli, on five pillars:

1. Single Public Subject: for a clear and simplified relationship with the PA (Internal Revenue Agency, INPS, Regions, Local Authorities, other state agencies for any prior authorization);

2. Fiscal pacts: for certitude in fiscal relations with tax breaks and prior agreements that are stable over time and ensure the attractiveness of our country;

3. Social security pacts: for labor costs that are competitive with other EU and non-EU countries;

4. Territorial pacts: for a ordered economic development of the territory, recovery of brownfields and access to regional tools to support returned activities;

5. Business court reform: for clarity, speed of justice in line with other foreign jurisdictions.

All the pillars described above are substantiated in a package of measures: in support of Italian companies that had relocated their operations and express a real and concrete interest in bringing all production back to Italy and guarantee its maintenance for at least five years, upon reaching certain conditions of investment, jobs, social and environmental responsibility extendable for another five years (productive repatriation) and also in support of companies that decide to bring their legal and fiscal headquarters as well as some group management functions such as Research&Development and/or Industrial Ownership (corporate repatriation).

Concluding, manufacturing and corporate repatriation represents an opportunity and also a necessity for our country that can be worth at least 4/500,000 new jobs and 120/150 billion in additional GDP. Therefore, it is good that this government includes in the fiscal decree specific measures to encourage reshoring, which are essential to make our country attractive to those who want to bring production back to Europe. However, there is still a lot of work to be done to complete a plan such as the one proposed by the Machiavelli Study Center that would really allow Italy and the "country system" to be very attractive and competitive with respect to the Eastern European countries that until now have been the main destination chosen by returned companies.

Supervisor for the research program on "Business Reshoring and Relocation" of the Machiavelli. Graduated in Economics (University of Florence), Certified Public Accountant, Auditor and founding partner of a professional firm specialized in corporate consulting and national and international fiscality.