The European Commission stepped up its agenda to tackle tax avoidance in the yacht sector and decided to send letters of formal notice to Italy and to the UK concerning the Isle of Man, as tax breaks being applied in the pleasure craft of those regions were highlighted by last year’s ‘Paradise Papers’ leaks.
On the same wavelength of the decision to send letters of formal notice to Cyprus, Greece and Malta for not levying the correct amount of Value-Added Tax (VAT) on the provision of yachts, the EU commission decided to send formal notice to Italy for not levying the correct amount of VAT on the leasing of yachts and send a reasoned opinion to Italy because of its illegal system of exemptions for fuel used to power charted yachts in EU waters.
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.
Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs Union, said.
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In detail, the infringement procedures concern:
- A reduced VAT base for the lease of yachts offered in the tax law of Italy. 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 used. Italy has established VAT guidelines according to which the larger the boat is, the less the lease is estimated to take place in EU waters. Thus, such rule reduces the applicable VAT rate;
- Excise duty rules for fuel in motor boats in Italy. EU excise duty rules allow Member States not to tax fuel used by a navigation company for commercial purposes. However, an exemption should only apply if the person leasing the boat sells such services to others. Violating EU rules, Italy allows chartered pleasure crafts such as yachts to qualify as ‘commercial’ even when being used for personal use, which may allow them to benefit from excise duty exemption on fuel used to power its engines;
Italy and the UK now have two months to respond to the arguments put forward by the Commission regarding VAT on yachts. If they do not act within those two months, the Commission may send a reasoned opinion to their authorities.
Furthermore, if Italy does not act within the next two months on the reasoned opinion, the Commission may decide to bring the case before the Court of Justice of the EU.
