The payment of Value Added Tax (VAT) has been a near constant source aggravation and confusion for the superyacht industry in the EU, thanks in large to VAT’s lack of uniformity when applied across the various member states. In January 2018, the Italian Tax Authority issued Resolution N. 6/E/2018, which amends the nations interpretation of “sailing on the high seas” and, therefore, effects the Italian rules governing the application of the VAT commercial exemption.

“In May 2009, the European Commission sent a letter of formal notice to Italy, as Italy did not align their VAT treatment of vessels to the VAT Directive for the VAT exemption it grants to ships,” explains Carla Bellieni of Piana, Illuzzi, Queriolo, Trabattoni, the Italy-based law firm. In essence, Italy was granting exemptions to vessels that did not meet the necessary criteria of sailing on the high seas. “In Novemeber 2011, The European Commission decided to refer Italy to the Court of Justice and in 2012 Italy amended the relevant tax provisions…But, in 2012 it was not clear at all which vessels met the high seas condition.”

The Italian Authority had determined that the parameters for meeting the high seas condition were met if a given vessel was technically suitable for travelling on the high seas, regardless of whether not the vessel was actually used on the high seas. Once again, the Italian Authority’s interpretation was found to be add odds with the interpretation of the European Commission.

“In January 2017, at the request of the European Commission, the Italian Tax Authority issued Resolution N. 2/E/2017, the interpretative document pointing out, for the first time within the Italian VAT framework, some key-points of the “high seas” condition but deferring more detailed measures to subsequent guidelines,” continues Bellieni.

“Resolution N. 2/E/2017 pointed out that (i) the condition "sailing on the high seas" shall be verified on the basis of the effective use of the vessel (ii) the navigation on the high seas must prevail, i.e. it has to account for more than 70 per cent of the total number of trips of the same vessel in the same season, (iii) the analysis of the trips (in and out of international waters) is usually ex post (i.e. on the basis of the calendar year preceding the transaction) but it can also be ex ante (i.e. before the planned transaction).”

Recently, the Italian Tax Authority has issued Resolution N. 6/E/2018, “the detailed measures” from “subsequent guidelines”, in light of the requests for clarity on the conditions that are required to be met in order to benefit from the exemption. To view a brief summary of the new Italian rules on the VAT commercial exemption, provided by Piana, Illuzzi, Queriolo, Trabattoni, Click here. 

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