Yachting VAT Note, March 2012

The View from Italia

 There was meant to be relief all round. Italy’s waters were now open to foreign boaters – tax-free at best or reduced-rate at worst. By these accounts, the uproarious drama caused by an Italian government bill introduced last December to levy a daily tax on all yachts cruising Italian waters had now reached its bathos. The tax had turned out not to be so scary after all, since its reach had been dramatically curtailed so it applies only to Italians. Look on the bright side. Italy holds up its torch in worldwide welcome to the footloose yachting community.



But just as you begin to savour all this soothing news the troubling questions start and the horizon darkens. Who is saying what exactly? What are their motives? Where is the objective proof? How does what they say now compare to what the tax authorities have published in the recent past? Besides, where do the tax authorities themselves stand amidst this effusion of euphoric opinions?


The view from Italy so far this year has not disappointed - as always, it seems to be full of airy sunshine but equally marked by telltale dark fog patches.


Smog Fest

It had all begun simply enough. On December 6th 2011 the newly appointed Italian government presented a draft Finance Bill for its decreto legge 6 dicembre 2011, n. 201, part of which envisaged a yacht berthing tax to be applied throughout Italian territorial waters. As the Bill sailed through the Italian parliamentary process it suffered the usual tumbling an d polishing. Part of the wearing of the ‘rough edges’ was reportedly driven by the lobbying efforts of the local yachting industry associations.


On March 1st 2012 a well-meaning short statement from the industry associations declared that their collective lobbying efforts had paid off - the outcome of the Bill was that the Italian government had exempted foreign owners of pleasure craft sailing through or moored in Italian waters from the planned berthing tax. The tax, due to come into effect from 1st May 2012, had been recast so it became a tax on boat ownership hitting Italian boat owners exclusively, regardless of whether their boats were flagged in Italy or abroad. Also exempted were boats belonging to hire or leasing companies. That sounded like a given and a certainty.


Not for long. What followed was a paint job. In an apparent attempt to underline the impact of the resultant Bill, some broadcasts of the original statement carried varying iterations. Discrepancies and contradictions surfaced, and conflation with the unrelated tax that is VAT has generated additional smog. Witness the fact that the tax would not apply to foreign owned vessels – great. That exemption applies regardless of whether the vessel is “private or commercial, chartering or just cruising in Italian waters” – okay. So what is a “foreign owned vessel” then - does that for example include one owned by non-Italians but registered in Italy?


Note also that there is the method of calculation of the tax whereby the annual tax rate is divided by 365 and then multiplied by the number of days which the vessel “remains in Italian waters” - nice one. So Italian ownership is not the only defining criterion for the tax then – to be taxed the yacht must also be in Italian waters? Does that mean that a vessel owned by an Italian taxpayer but kept off Italian waters (France say) will not suffer the tax?


And then consider that balefully magnetic effect of the tax, which any yacht having “Italian guests on board” would suffer. Poor Italians – they must not now be seen with their yachting pals anywhere near Italy, right? But who is that species called “Italian guest”? Are we talking an Italian national or a resident taxpayer?


Add to all that the opposite hints also being dropped that foreign vessels genuinely chartered by Italian persons would not attract liability to the berthing tax. Or that the tax would apply equally to yachts leased but not owned by Italian persons. Or that unrelated, but increasingly compounding, claim that the 6.3% reduced VAT rate which has long been reserved for financial leasing transactions would now apply to the ordinary type of short term charter common in the industry. You could be forgiven for developing a headache.


Going Nowhere Fast

We have been there before. The Italian taxation scene is notoriously tricky to read. For one thing a lot more tends to be said than is written in law – and often said prematurely. It would probably come as a surprise to many that despite all of the frantic talk the said Finance Bill, which has a new incarnation as law amendment 214/2011, has not even been approved yet, let alone signed and published into law. As yet no secondary regulations have been enacted to specify the implementing measures which will apply. And the tax administration, who after all would be the ones enforcing the law and checking the boats, have not issued their usual Circolare or Risoluzione - the basic document setting out the doctrine, policy and practice that would inform their actions on-the-ground. These are the type of objective instruments which shine a light and forestall the runaway questions that now fill the air. Their absence leaves a yawning gap that is filled with oversold versions of the truth. Publishing these documents would help to redress the balance and improve visibility as to how indeed the Italian scene has altered with the introduction of the new tax. Until then, it seems we have no choice but to wait for the Italian official machine to grind slowly.


When the smog clears and one can see clearly, the odds are that the scene would be rather prosaic because very little would have actually changed about Italy. There will be a new domestic tax on yachts for sure – the tax has to be domestic and not cross-border in order not to contravene the Single Market rules prohibiting the introduction of any charges which could have the effect of restricting trade between Member States. And there would be new running battles with the authorities, who would target abuse of the new tax, real or imagined. Ill-advised visiting yachts would be caught in the cross-fire and may trigger other liabilities and obligations, notably the VAT-related ones. They would not be expected to discharge those liabilities or obligations in anything other than the standard Italian VAT rate of 21%, which is the only valid rate for non-leasing transactions. This is because VAT is uniquely a harmonized EU tax and no Member State can unilaterally introduce a reduced rate without specific derogation – its application can translate into significant state aid and cause unfair competition.


Only a few years back Italy’s alleged prowess as a tax-free yachting destination were similarly touted despite its obvious conservative legal framework. When the local tax police started arresting a number of yachts in summer 2010 and subjecting them to the mercy of spirited prosecutors and a bewildering judicial system, many were taken aback. Memories may be short, but that has never stopped the march of the militant Guardia and the “Italian way”.


There is no doubt that Italy is an ideal, and some would say unavoidable, destination for nautical tourism. But the famed warm welcome of Italy has never been officially extended to the non-VAT-compliant boat or tax-free pleasure seeker. That is not about to change with the introduction of a domestic yacht ownership tax.


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This bulletin is prepared by Moore Stephens Consulting Limited. Yachting VAT Note is designed to keep readers abreast of current developments and trends. It is a general guide only and is not intended to be comprehensive. No liability is accepted for the opinions it contains, or for any errors or omissions. In all cases you should seek professional advice specific to your circumstances. Printed and published by © Moore Stephens Isle of Man, an independent member firm of Moore Stephens International Limited.  

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