Commercial yachts: the difficult issue of VAT exemption. Those who sail “on the high seas” can enjoy it if they provide suitable “official documentation”. But what is meant by these definitions?
by Federico Santini*
In 2017 the Italian Revenue Office issued resolution no. 2/E dated 12 January 2017 providing new rules regarding VAT exemption for commercial yachts used for navigation on the high seas under article 8 bis of DPR 633/1972 (the VAT law). This magazine has already published a specific article on this subject.
In the resolution the Italian Revenue Office clarified, also based on the most recent EU judgements (Elmeka case) and on the 2015 findings of the VAT Commission, that the activity of navigation on the high seas must be “prevalent”, defined as more than 70% of the total cruises performed in each fiscal year.
The resolution states that a yacht may be considered used for navigation on the high seas if more than 70% of its cruises during the previous fiscal year were performed on the high seas; this condition must be proven by official documentation for each fiscal year.
However, the resolution did not clarify the definition of “cruise”, or what type of “official documentation” is suitable for demonstrating the prevalence of the cruises performed on the high seas.
Upon the request of UCINA, the Revenue Office issued a new resolution, no. 6/E dated 16 January 2018, clarifying that the term “cruise” refers to a journey from port to port (Italian, EU or non-EU) transporting passengers or for the purpose of its commercial activity involving passenger embarkation/disembarkation. Journeys between shipyards and/or ports made for technical reasons, even if related to the commercial activity (i.e. repositioning), were excluded for consideration as “cruises” for the purpose of resolution no. 2/E dated 12 January 2017.
It also clarified that cruises made entirely in the territorial waters of a country other than Italy are to be considered as cruises entirely made on the high seas. Moreover, the resolution emphasises that the number of cruises rather than the nautical miles travelled is to be used in calculating the prevalence of the cruises on the high seas.
The same resolution no. 6/E clarified that the term “official documentation” refers to any document provided by the owner or captain, which can precisely and coherently indicate the maritime routes travelled, including but not limited to: 1) navigation and log book kept by the captain; 2) maps of the voyages, data and information provided by satellite navigation equipment or transponder, and in particular through the A.I.S. system (Automatic Identification System); 3) commercial contracts, invoices and related means of payment. The supplier is responsible for collecting this documentation from the owner in order to issue an invoice VAT exempt, and the supplier will be liable for payment of VAT plus interest and sanctions if they fail to do so.
The resolution further provides that if the owner acquiring the supply or service is not immediately able to provide the documentation, the supplier can issue an invoice VAT exempt based on the owner’s or captain’s declaration that the yacht is effectively and predominantly used for navigation on the high seas.
However – as the resolution clearly states – if on inspection the owner’s or captain’s declaration is found not to correspond to the yacht’s official documents, the supplier will be liable to pay the VAT plus interest but excluding the sanctions.
The supplier is also allowed to provisionally invoice VAT exempt if the owner declares that a yacht under construction will be fitted out for navigation on the high seas, or that it will be prevalently used on the high seas in the following fiscal year. Again, the supplier will be liable for payment of VAT and interest if this declaration is found on inspection not to correspond to the actual use of the yacht.
In conclusion, resolution no. 6/E leaves considerable room for doubt, as it transfers to the suppliers a tax liability that should belong to the yacht’s owner each time the supply is invoiced VAT exempt based on the owner’s declaration if their declaration does not correspond to the actual use of the yacht.
Italian suppliers are likely to be reluctant to accept these declarations, and consequently yacht owners will prefer to purchase services and supplies abroad, causing considerable damage to the Italian yachting industry.
* 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