Police fanned out across Milan late last month halting more than 350 vehicles, mostly luxury SUVs and Porsches.

At checkpoints the police got the driver's licence and registration, which they passed on to the national tax agency. Tax authorities will use the data to check if the cars' owners had declared enough income - and of course paid the right amount of income taxes - to justify their lifestyles.

It was at least the fifth raid targeting wealthy Italians since a December 30 sweep at the posh Cortina d'Ampezzo ski resort, where 251 high-end cars were stopped, including Ferrari and Lamborghini supercars. Rome, Portofino on the Riviera and Florence have also been targeted.

"I've been stopped three times in the last few weeks by authorities because I'm driving a luxury SUV," says Andrea, an entrepreneur in Italy's wealthy northeast. "It seems like the McCarthy era in America. You're guilty by suspicion."


The 43-year-old, who declined to give his last name for fear of attracting the attention of Italy's tax agency, now plans to sell the SUV he bought last May. He expects to get at most €40,000 ($63,800) for a car that cost him more than €100,000.

"Dealers are full of luxury cars. No one wants to buy them now."

Italian authorities are applying to luxury-car owners the same logic they displayed more than a year ago, when tax agents started tracking down the owners of yachts berthed in Italy's harbours to see if they had kept up their tax payments.

In the raid in Cortina D'Ampezzo, tax agents found that 42 luxury-car owners had declared income of less than €30,000 for 2010 and 2009. A further 19 luxury cars were owned by businesses which posted a loss in the previous year. The sweep in Florence discovered a builder with no tax record who was driving a Mercedes with his wife who was receiving social assistance. Tax officials also found a German owner of a BMW X5 SUV with no declared income, said the website of the tax agency's Florence office.

This is serious stuff for the Government, which estimates tax evasion costs the country about €120 billion a year in lost revenue.

The collection effort is part of Prime Minister Mario Monti's plan to curb record borrowing costs on Italy's €1.9 trillion debt and avoid following Greece, Portugal and Ireland which all had to seek bailouts.

Monti has also raised taxes on luxury goods, including expensive cars. The owner of a €316,000 Lamborghini Aventador, for instance, will now have to pay about €8400 a year in taxes, up of €6,600.

Marco Santucci, general manager of Tata Motors' Jaguar brand in Italy, said orders for high-end cars fell "substantially" in the final months of last year, dragged down by the taxes. Sales are shifting towards cheaper versions with smaller engines.


Demand for vehicles from the likes of Fiat SpA (F)'s Ferrari and Maserati brands and Volkswagen AG (VOW3)'s Lamborghini slumped 53 per cent last month, with just 66 supercars sold, according to Anfia, the association of Italian carmakers. The new taxes and high-profile dragnets have also sent exotic-car prices down 20 per cent, according to dealer association Federauto.

Vehicle sales may fall to the lowest level since 1985 this year on the weight of the budget-tightening measures, according to Fiat chief executive Sergio Marchionne.

Still, for Ferrari it's not the end of the world. There's plenty of demand outside Italy for Fiat's sports cars.

- Bloomberg