EU commission targets superyacht tax breaks in Italy
The European Commission took aim at the superyacht industry in Italy on Thursday, bolstering the EU’s efforts to combat tax avoidance in the wake of the ‘Paradise Papers’.
The Commission sent a letter of formal notice to Italy for not levying the correct amount of VAT on the leasing of yachts and also sent a reasoned opinion because of its illegal system of exemptions for fuel used to power charted yachts in EU waters.
Pierre Moscovici, commissioner for economic and financial affairs, taxation and customs union, said: “It’s simply not fair that some individuals and companies can get away with not paying the correct amount of VAT on products like yachts and aircraft.
“Favourable tax treatment for private boats and aircraft is clearly at odds with our commonly agreed tax rules and heavily distorts competition in the maritime and aviation sectors. With this in mind, the Commission is taking action to clamp down on rules that try to circumvent EU law in these areas.”
Current EU VAT rules allow Member States not to tax services when the effective use and enjoyment of the product is outside the EU. But the rules do not allow for a general flat-rate reduction without proof of where the service is actually used. Italy has established VAT guidelines according to which the larger a boat is, the less the lease is estimated to take place in EU waters. As a consequence, such rule greatly reduces the applicable VAT rate.
Current EU excise duty rules allow member states not to tax fuel used by a navigation company for commercial purposes, i.e. the sale of sea navigation services. However, an exemption should only apply if the person leasing the boat sells such services to others. In breach of EU rules, Italy allows chartered pleasure crafts such as yachts to qualify as ‘commercial’ even when being enjoyed for personal use, which may allow them to benefit from excise duty exemption on fuel used to power its engines.
In March Cyprus, Malta and Greece were also targeted by the commission for similar yacht VAT infringements. All three countries reassured the Commission that legislation would be amended
Italy will be given two months to respond. If it does not act within that time then the EU may take additional steps which may include bringing the case before the Court of Justice.