The EU Court of Justice has made a ruling on tax exemptions for fuel purchased for use on commercial yachts
by Federico Santini*
THE COURT OF JUSTICE OF THE EUROPEAN UNION HAS RECENTLY ENDED the exemption from excise duty for fuel for chartered vessels, with the sole exception being when charterers use the vessel for commercial activities. On 16 September 2021, the Court of Justice ruled in case C-341/20 in favour of the European Commission and against Italy for failing to fulfil obligations detailed in 258 TFUE (European Directive 2003/96/CE) and declared that “In granting the benefit of exemption from excise duty on fuel used by private pleasure craft only in cases where those vessels are the subject of a charter agreement, regardless of the manner in which the vessels are in fact used, Italy has failed to fulfil its obligations arising from article 14, paragraph 1, letter c), of European Directive 2003/96/CE dated 27 October 1996 which restructures European rules for the taxation of energy products and electricity”.
The Court of Justice has essentially agreed with the view of the European Commission that Italy was in breach of its obligations under article 14, paragraph 1, lett. c) of the Directive 2003/96 by allowing exemptions for all forms of rent and charter, regardless of how the boat was used by the renter or charterer. This European provision specifically excludes exemptions for energy products used by private pleasure craft defined as vessels used – by their owner or by an individual or juridic entity authorized to use them by virtue of a rental agreement or charter contract – for non-commercial purposes and in particular for any purpose other than the transportation of passengers or cargo or the supply of services for consideration or on behalf of public authorities.
The Court of Justice shared the view of the European Commission which had maintained that Italy was in breach of its obligations under article 14, paragraph 1, letter c) of the 2003/96 Directive in that Italy gave exemptions to all rents and charters regardless of the final use made of the vessel.
The Commission maintained that, in accordance with case law from the Court, the subject to be taken in consideration in order to grant or to refuse the exemption from excise duty is the lessee or charterer, and not the owner or the lessor. The fact that the chartering of the vessel is a commercial activity for the owner is not relevant to the tax exemption in question. The determining factor is rather how the charterer uses the yacht, since in order to benefit from the exemption, they must carry out a commercial activity by supplying a paid service to third parties.
People who charter a yacht for recreational purposes, for holidays, shall pay full VAT on the cost of the fuel used during the charter.
On the other hand, Italian legislation, and in particular article 1, paragraph 6, of the Decree of the Ministry of Economy and Finance no. 225 of 15 December 2015 (Rules Regulating the Use of Energy Products and Lubricating Oils for Craft Cruising in the European Maritime and internal waters), as clarified by resolution no. 5/D of the Italian Customs Agency dated 15 March 2016, permits this tax exemption because chartering represents a commercial activity for the owner under Italian law irrespective of the use of the vessel by the end use, and thus also when the end use is purely recreational.
The Court of Justice, which was also supported by its previous case law, has clarified that it is the use that the final user, charterer or lessee make of the boat which should be considered in granting exemption from duty. To ensure exemption, this use must be directly related to the provision of paid services. The Court further clarified that this interpretation of article 14, paragraph 1, letter c) of the EU Directive 2003/96 is perfectly in line with the purpose of the directive, i.e. to tax energy products in accordance with their actual usage. The Court therefore found that in granting the benefit of exemption from excise duty to fuels used by private pleasure craft chartered and used by end users for non-commercial activities, the Republic of Italy has infringed the directive. Following the judgement, Italy will be obliged to adopt the European Commission’s interpretation, and people who charter a yacht for recreational purposes, for holidays, shall pay full VAT on the cost of the fuel used during the charter.
(The court’s verdict – Barchemagazine.com – November 2021)
