News from the EU Commission about the infringement proceedings opened against Italy in the yachtingsector
by Federico Santini*
WITH A MEMORANDUM ISSUED ON JULY 25, 2019 THE EU COMMISSIONstated that on that date it had taken further steps to end “illegal” tax breaks in the yachting industries in Italy and Cyprus as part of the Commission’s efforts to stamp out unfair tax avoidance practices in the EU. In particular, the memo stated that two infringement procedures on the issues outlined below, which were opened in November 2018, are being pursued:
– Referral to the Courtof Justice in relation to the excise duty rules for fuel in motor boats in Italy. Current EU excise duty rules allow Member States to not tax fuel used by a shipping company for commercial purposes, i.e. the sale of maritime navigation services. An exemption can apply, but only if the person leasing the boat sells such services to others. Italy breaches EU rulesby allowing chartered pleasure crafts, such as yachts, to qualify as “commercial” even if they are for personal use. These vessels can thus benefitfrom excise duty exemption on fuel used to power their engines;
– Reasoned Opinions in relation to the reduced VAT base for the lease of yachts provided by tax law in Italy (and also in Cyprus). Current EU VAT rules allow tax exemptions for services when the effective use and enjoyment of the product takes place outside the EU. However, the rules do not allow for a general flat-rate reduction without proof of where a service is actually used. Italy (and Cyprus) have established VAT rules by which the larger the boat, the less the lease is considered to take place in EU waters. As a consequence, the applicable VAT base can be substantially reduced. If Italy (and Cyprus) do not act to comply with these reasoned opinions within the next two months, the Commission may decide to bring the cases before the EU Court of Justice. The memo closes with the following comment: “Due to the size of this sector, these illegal and favourable tax regimes also run counter to the fiscal consolidation processes of these Member States”.
With reference to the first procedure, this represents the third step of the infringement procedure (the first step being the “Letter of Formal Notice” and the second the “Reasoned Opinions”), therefore the Court of Justice is now required to makea judgement on the legality, or otherwise, of the Italian rules on excise duty exemption on fuel used by yachts engaged in charter. Should the Court find the rules illegal, Italy will be obliged to adopt the measures required to comply with the judgement.
With reference to the second procedure, this represents the second step of the infringement procedure, and Italy is thus now required to inform the Commission of the measures taken to comply with EU rules by a certain deadline, usually two months.
It isworth underlining that the above measures taken by the Commission will not have an immediate impact on the VAT regime currently applicable to commercial yachts with charters starting from an Italian port, given that Italian VAT law will remain in full force until the infringement procedure is completed with an agreement between the Commission and the Italian government or with a final judgement from the Court of Justice.
UCINA, the Italian Tax authorities and the Italian Ministry of Finance have been working together since the nfringement procedures were opened, cooperating to clarify Italy’s position and to protect the future of the yachting sector. Discussions with the EU Commission must be continued so as to show the legitimacy of Italian rules and, if necessary, to make any amendments required, but without causing the collapse of an economic sector, i.e. the yachting sector, which is extremely important for our economy and in which Italy holds a leading position that is the envy of the other Member States.
Federico Santini: he is managing partner of the Santini & Partners Law Office in Rome. He is specialized in international law and maritime law, has consolidated experience in the yachting field especially in terms of super yachts transactions, the registration of yachts, international arbitration, insurance issues and tax related . He is a member of the Italian Association of Maritime Law and advisor for the most important law offices and of the international associations. For information or clarifications: [email protected]t
(The infringement Procedure – Barchemagazine.com – October 2019)