Resolution no. 2/E of January 12, 2017, issued by the Agenzia delle Entrate provides a clearer interpretation of the definition a “vessel to be used for navigation on the high seas.” First of all, the new Italian resolution follows a path already laid down in France by the so-called BOFIP law (Bulletin Officiel des Finance Publiques-Impôts) issued in May 2015 by the fiscal authorities with the intention of clarifying the right to benefit from exemption on duty excise and VAT by commercial charter yachts.
Article 8-bis of the Italian VAT Code, in compliance with the provisions of article 148 of the EU Directive 112/2006/CE, states the VAT exemption regime can be applied to those operations by "vessels used for navigation on the high seas and for carrying passengers for reward, or used for the purpose of commercial (including charter), industrial or fishing activities."
Both EU and Italian law define the word operations as:
• the supply of goods for the fuelling and provisioning of vessels
• the sales of onboard equipment, components and spare parts of vessels
• the sales, refit works, repair and maintenance works of vessels.
This issue has been examined several times already in the past by the European Court of Justice in order to identify the objective conditions relating to all kinds of commercial vessels eligible for exemption from VAT and excise duty.
Resolution no. 2/E (effectively a new interpretation of provisions already contained in Italian tax law) means that Italy now complies with the position of the above mentioned Court, which requires "effective" cruising on the "high seas" (ie. international waters beyond 12 nautical miles from the coast) and does not consider only the class, length or tonnage of the vessel to be sufficient for exemption.
More specifically, in order to be eligible for exemption, Resolution no. 2/E states that at least 70% of the total number of "voyages" in any one calendar year should be on the high seas. Exemptions are granted on an assessment of the previous year (ie. commercial vessels wishing to be exempt for 2017 will be judged according to their 2016 records).
Further clarification, however, will be required from the Agenzia delle Entrate on the new rules and procedures, and in my opinion a formal discussion should take place as soon as possible between the Italian tax authority and the national yachting associations (UCINA, FederAgenti, etc.) in order to remove outstanding doubts on the content of the Resolution. For example:
• Should the above-mentioned 70% be calculated on the number of voyages (as in the case of the French BOFIP system), or on the hours of cruising?
• If the 70% is defined as the number of voyages, what is the precise definition of "a voyage on the high seas"? This is required so the total number in any one calendar year can be calculated. The French BOFIP system, for example, provides for two kinds of voyage: "international" and "domestic." The former is considered as one that departs from French harbours but includes navigation in international waters, or that departs from French waters and arrives in another EU country (eg. Italy); the latter is defined as departing and arriving in French waters.
• What documents can be considered “official proof ” in order to comply with the 70% ruling?
• What documents or declarations should the owner company provide to the Italian supplier to be eligible for VAT exemption under the provisions of article 8-bis?
Last but not least, it is also possible to apply the resolution in advance to new builds on the basis of a declaration from the owner company that outlines the future use of the vessel. In this case, effective cruising on the high seas will have to be verified within one year of delivery of the vessel to the client.
Image by Justin Ratcliffe