Italy Minister Chasing Evaders Shows Home Value Below Market
By Lorenzo Totaro & Vernon Silver - Dec 20, 2012 4:58 PM GMT+0100http://www.bloomberg.com/news/2012-12-19/italy-minister-chasing-tax-evaders-shows-home-value-below-market.html
Italian Finance Minister Vittorio Grilli, appointed by Prime Minister Mario Monti to spearhead a drive to prevent tax evasion, purchased his 14-room home in Rome at a price less than the reported market values in his neighborhood and dwarfed by his mortgage, according to records of the 2004 transaction.
Documents signed by Grilli and filed with the Italian land registry say he paid 1.065 million euros ($1.42 million) for the ground-floor apartment with a garden in the hilltop Parioli quarter. Government archives show he obtained a mortgage of 1.5 million euros, or 41 percent more than the registered purchase price.
Documents signed by finance minister Vittorio Grilli and filed with the Italian land registry say he paid 1.065 million euros for the ground-floor apartment with a garden in the hilltop Parioli quarter. Photographer: Alessia Pierdomenico/Bloomberg
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Italian property sales often are reported to be less than the actual price paid to reduce taxes or skirt controls on money laundering, according to the website of the finance police, which reports to Grilli. Monti picked Grilli in November 2011 to help shore up the nation’s finances. Grilli’s crackdown has included inspections of yachts at marinas and checks of Lamborghini and Ferrari sport cars at the Cortina d’Ampezzo ski resort. Grilli increased the collection of delinquent taxes by 9 percent to 5.79 billion euros in the first 10 months of 2012 from a year ago.
Grilli, 55, said in a statement that the matter of his home purchase “at best could be considered local unfounded gossip.” He said he’s involved in divorce litigation and that allegations about the value of his assets may interfere with the case. His wife, Lisa Lowenstein, who lives in New York, declined to comment on Grilli’s statement.
‘Unprofessional and Wrong’
“It is unprofessional and wrong to criticize the financial arrangements related to the purchase of a property without knowing anything about the other standard aspects of typical client/bank relationship that underlies any commercial transactions involving loans and guarantees,” Milan-born Grilli said in an emailed statement sent Dec. 3.
“All the money related to that or any other transaction I have ever been involved is perfectly legal,” Grilli wrote. “I have never been involved in money laundering operations of any sort.”
Banca Monte dei Paschi di Siena SpA, the bank he originally borrowed from, said in an e-mailed statement that it doesn’t lend funds that exceed a purchase price. In 2004, the Siena- based bank offered loans that were capped at 95 percent of a purchase, the company said in a written response to generic questions about loan policy, before being told the query was for a story about Grilli. The bank declined to comment on Grilli’s loan.
Milan-based Intesa Sanpaolo SpA (ISP), Italy’s second-biggest bank, has held the mortgage since 2010, the records show.
Banking Association
Italian banking regulations limit mortgages to 80 percent of a home’s value unless the borrower puts up collateral, which raises the cap to no more than 100 percent, according to the Bank of Italy. Loans exceeding 80 percent of a home’s value comprised 1.7 percent of mortgages outstanding in Italy at the end of 2006, according to the central bank.
The Rome-based Italian Banking Association said legal restrictions on mortgages have prevented it from advising member banks to lend more than 100 percent of a property’s value.
Underreporting a home sale price doesn’t necessarily reduce taxes, in part because property levies are based on separate tax-roll numbers that are generally lower than market values, according to the finance police website. At the same time, “the only lawful and proper behavior is to declare the entire agreed price in the sale documents,” the site says.
Transactions have been rife with idiosyncratic reporting. Buyers sometimes agree to pay a portion of the purchase on the side in exchange for a discount, said Luca Dondi, head of the real estate research unit at Bologna-based institute Nomisma.
‘Bad Habit’
Such side payments can allow a buyer to channel previously undeclared funds into a property, according to Dondi, who wasn’t commenting specifically on Grilli’s transaction.
Senator Elio Lannutti submitted an “urgent” written query to Monti today in the Rome-based parliament, asking whether Grilli “fell into the bad habit of declaring a purchase price that is lower than the one actually paid.” If that was the case, “Grilli would be more similar to the average Italian, while his behavior would distance him from the one required by a state representative.”
Grilli has decried financial shenanigans and taken personal responsibility for leading Italy’s crackdown, which is employing new software to find anomalies in residents’ transactions.
“This government changed the rule of the game,” he said in a Nov. 7 speech in Munich. “We have our I.R.S., the internal revenue service, that depends on me, on my ministry. We now have full tools to monitor all financial activities, so your bank accounts, your transfers, everything.”
The apartment in Parioli, an embassy-filled enclave north of Rome’s ancient walls, measures 310 square meters (3,336 square feet), according to Grilli’s financial disclosure on the Italian Treasury’s website. The ceilings are 3.46 meters high, or about 11 feet, 4 inches, blueprints in the property records show. The 14 rooms include a kitchen and four bathrooms, according to the documents.
Price Range
In the first half of 2004, the value of homes in the neighborhood classified as “ordinary” -- excluding luxury properties or those in a degraded state -- ranged from 4,800 euros to 5,800 euros per square meter, according to a finance ministry database. An apartment the size of Grilli’s would have been worth between 1.49 million euros and 1.8 million euros by that measure.
For luxury properties in Parioli, declared prices in 2004 were as high as 7,340 per square meter, according to Nomisma. At 1.065 million euros, Grilli’s declared price was less than half that, at about 3,435 euros per square meter.
“There is no doubt that such a price is quite low for that part of Rome,” says Nomisma’s Dondi, who was told the apartment’s address, measurements and date of purchase. At his request, he wasn’t told the name of the owner.
‘Below Street’
The seller of the property was Massimo Tosato, executive vice chairman of London-based fund manager Schroders Plc (SDR) and a member of the board of overseers at Columbia Business School in New York. Tosato’s assistant at Schroders in London said he declined to comment.
Grilli said in his statement that it’s “wrong to speculate about the 2004 value of a property without having detailed knowledge of what the property was back then and of its past state and conditions. For example, my home lies below street level, needing substantial structural and architectural work to bring it proper living conditions.”
Raffaele De Paola, lead agent for Parioli at the Tecnocasa network of real estate agencies, said that even if the apartment “needed a total renovation, that price is low.” He said the value of the apartment was at least 2 million euros in 2004.
De Paola was shown an architectural drawing of Grilli’s apartment and told the address. At his request, he wasn’t told the name of the owner.
Declared Assets
Grilli, who has spent most of his career in civil service, bought the apartment in Rome after returning to government work from London, where was a managing director and head of Italianinvestment banking at Credit Suisse (CSGN) First Boston for about a year from 2001 through 2002.
The apartment is one of the few assets Grilli declared in his financial disclosure posted on the Treasury website. He reported that he had a life insurance policy and owned no stocks or mutual funds. His other assets included three automobiles --a 2009 Rover, 1994 Jaguar and 1975 Volkswagen --and a 9.6-meter sport boat.
Grilli worked at the Italian Treasury from 1993 through 2000 before joining Credit Suisse First Boston. After returning to Rome in 2002 to serve as Italy’s general accountant, he became head of the Treasury under the governments of Silvio Berlusconi and Romano Prodi, helping to craft an emergency budget last year. In the Monti administration, Grilli first served as deputy finance minister and then replaced Monti as finance minister in July when the premier decided he wanted someone dedicated full-time to the post.
Grilli, who holds a doctorate in economics from the University of Rochester in New York, said in October that he won’t seek a government post or a Treasury position after Italy holds its general elections, which are due in February.
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