Limitation of dividends in Italy

«The Economist», 16 settembre 1916, p. 481

An interesting experiment has been made in Italy – writes a Turin correspondent – in the compulsory limitation of dividends distributed to shareholders and partners in joint-stock companies, limited companies, and other trade societies. A decree of February 7, 1916, put a limit of 8 per cent, per annum of the paid-up capital on the dividend which companies and trade societies could distribute among their shareholders and partners until further notice. The 8 per cent, dividend could be exceeded only in the case of companies which in the last two peace years had distributed a higher dividend; but in this case the dividend could not be higher than the mean peace dividend. The aim of the decree was to increase compulsorily the reserves of joint stock and other industrial and commercial companies, so that, at the return of peace, they might be able to meet the problems that will then arise. A slight relaxation in the interpretation of the decree was made when the Minister of Trade consented that the tied-up profits could be used for increasing the paid-up capital. Some companies have distributed among the shareholders a bonus in wholly paid shares, the payment being made with the profits exceeding the statutory 8 per cent. But a recent startling case of evasion of the decree has attracted the attention of public opinion. The Società di Navigazione Alta Italia (North Italian Shipping Company), domiciled in Turin, which perhaps was the shipping company which had benefited most by the war (the profits for 1915 were 15 million lire on a capital of 3 1/2 millions, and it had already distributed, before the decree of February 7^th, an interim dividend of 40 per cent.), finding itself thwarted in the distribution of its profits, had recourse to a most ingenious device. The shareholders’ meeting dissolved the company, and put it into liquidation. The aim was to sell the ships and other assets of the company, and distribute the proceeds, and, with them, the big profits earned. The resolution led to much talk in business circles, and to violent denunciations in the daily Press. The Government felt obliged to intervene. A new Royal decree of September 3, 1916, put the companies which, by means of dissolution or of other expedients, seek to elude the statutory limitation of dividends, under an official receiver. The receiver will put the case before the Court; and the Court, if the dissolution is in fraude legis, will declare it void. The directors in charge at the moment of the dissolution, and those who were in charge for the 18 months previous to dissolution, will be personally and jointly responsible for the payment of the income and excess-profits tax due by the company. There the matter stands for the present. The attempt at evasion of the decree has been repressed, but the necessity of a more equitable formulation of the law is keenly felt in commercial and industrial circles. The business world feels also – and the recent stock exchange quotations reflect this feeling – that an authoritative assurance is needed that the profits put to reserve will not in future be absorbed by retrospective taxation. Business men are willing to pay the income and excess profits tax, but desire that the amount shall be known and certain, so that the remainder of their profits can be put to some use. The past Minister of Trade, Signor Cavasola, had given public assurance that the sole intention of the Government, when they issued the decree for the dividend limitation, was to benefit companies by increasing their reserves. But a section of the public Press is every day clamouring for a complete confiscation of the excess profits, and the clamour, though raised only in the extremist or socialist newspapers, frightens the companies and business men. It would be in the public interest if some means could be devised to give security to industry, for nothing checks enterprise so effectively as uncertainty concerning fiscal measures.