Prepared by Carlo Romano, Maurizio Foti and Giulia Faustini
The nautical sector represents an area of high strategic and economic relevance for Italy; the pleasure boats industry has strongly contributed to increase the country’s GDP thanks to the great performance registered in the last years: in fact, 2019 ended up with a turnover of 4,78 billions of euro (+12% compared to 2018) and with the nautical industry contribution to the GDP increased by 2,22% (+11,9% compared to the previous year); despite the economic difficulties resulting from the current pandemic emergency, also in 2020 the nautical sector has already reached the volumes of 2019.
The nautical sector, and the leasing of pleasure boats in detail, has always been subjected to a strict and deep audit and investigation activity carried on by the Italian Revenue Agency. The several liability of the supplier and the user for VAT purposes applied to the fees and the amounts owed in case of repayment has induced all the companies of the industry at stake to manage rigorously their activity with internal processes that can reduce the tax risks (in this regard, it is important to highlight that, when the supplier does not pay VAT, the user or the principal will be in charge of the VAT regularization pursuant to Article 6, paragraph 8, of the Legislative Decree 18 December 1997, n. 471).
From a tax point of view, the leasing of pleasure boats allows both individuals and companies to get a VAT reduction to leasing, rental and similar services of non-profit pleasure boats (according to Article 7-quater, para. 1, lett. e-bis) and Article 7-sexies, para. 1, lett. e-bis) of the Presidential Decree no. 633/1972) and of pleasure boats used for commercial purposes (According toarticle 8-bis, para. 1, lett. a) and e) of the Presidential Decree no. 633/1972).
Instead, services of leasing, rental and similar of pleasure boats used for commercial purposes are not taxable for VAT purposes, according toArticle 8-bis, para. 1, lett. a) and lett. e)of the Presidential Decree no. 633/1972 (according to which these operations are similar to the supply of good for export outside the scope of VAT), if two specific conditions are met (see the Resolution no. 2 issued by the Revenue Agency in 2017 and the Resolution no. 6 issued by the Revenue Agency in 2018):
- the boats must be used for commercial purposes (according to Article 2 of the Legislative Decree no. 171/2005;
- the boats must be used for the navigation on the high seas (i.e. beyond 12 nautical miles from shore for most of 70% of the travels).
The verification of these two conditions necessary for falling outside the VAT scope pursuant to Article 8-bis, lett. A) and e) of the Presidential Decree 633/1972 (i.e. for the commercial activity and navigation in high seas) is the focus of the audit and investigation activities carried out by the Italian Revenue Agency (sometimes with cross-examinations between suppliers and users which have several liability). In order to avoid tax assessments for VAT purposes, all the subjects involved in operations regarding services of leasing of pleasure boats must own the relevant documentation that gives evidence of the aforementioned conditions.
How to prove the use for commercial purposes?
In order to prove that the boat is intended only for commercial purposes, the user must provide the Italian Revenue Agency with commercial contracts, invoices and the relating methods of payment (see Resolution no. 2 issued by the Revenue Agency in 2017 and Resolution no. 6 issued by the Revenue Agency in 2018). Providing evidence of the existence of such requisite, and retrieving the relevant documentation, may be more complicated for the supplier/lessor especially if, for example, during the years the owner of the boat has changed. If the supplier/lessor has not managed to collect all the necessary documentation, he could provide the documentation proving that the boat is registered for commercial purposes, the statement of the owner, pictures and brochures of the boat which show the type of boat (i.e. cruise ship, etc.).
How to prove that the boat is for navigation on the high seas?
In order to prove this requirement, the supplier must provide the Italian Revenue Agency with the documentation showing the courses of the audited or investigated pleasure craft, as, for example: the navigation log or the log sheets filed by the master of the ship, the maps of every travel, all the data and information extracted from the navigation satellite systems (see Resolution no. 2 issued by the Revenue Agency in 2017 and Resolution no. 6 issued by the Revenue Agency in 2018). However, if the supplier is not able to collect this documentation, he can provide a statement of the owner of the pleasure craft, or of the master of the vessel or anyone who is in charge of the vessel, that confirms that the latter actually is used mainly for navigation on high seas purposes (this statement is fundamental in case the pleasure craft is still under construction and its final destination is not certain but only forecasted). As far as the supplier/lessor is concerned, further documentation to be provided I represented by the class certificate issued by the Competent Maritime Authority, that states that the boat is allowed to travel in international waters.
And what about penalties?
If the Italian Revenue Agency finds out that one of the two requirements for falling outside the VAT scope pursuant to Article 8-bis, lett. a) and lett. e) of the Presidential Decree 633/1972 is missing, the supplier/lessor shall pay the higher taxes, interests and penalties as subject to tax. In particular, the Italian Revenue Agency can challenge: i) untrue invoicing referred to operations subject to tax, whose amount of tax has not been included in the invoice (punished by way of a tax penalty from a minimum of 90% to a maximum of 180% of the higher tax due, according to Article 21, paragraph 1, of the Presidential Decree n. 633/1973 and ii) untrue tax return punished by way of tax penalty from a minimum of 90% to a maximum of 180% of the higher tax due. However, these penalties will not have to be paid by the supplier if the latter certifies his diligent behavior, according to Article 5 of the Legislative Decree no. 472/1972 (see Resolution no. 6/E of 2018), and demonstrates for example that the user ex ante was holding the relevant documentation or ex post the correct VAT regularization, in case the conditions for falling outside the VAT scope are not met anymore.
Conclusions
In the light of the particular attention given to the nautical sector, it is fundamental that the taxpayer is farsighted and equipped with all the relevant documentation in order not to be challenged by the Italian Revenue Agency. To this end, the taxpayer must keep monitoring the regime , case-law and all the recommendations of the Revenue Agency and the Tax Officers. In this regard, it is important to highlight that the Budget Law for 2020 (Law no. 160/2019) – as amended by Article 48, paragraph 7, of the Law Decree no. 76/2020 – with reference to the services of short and long term leasing, rental and similar services concerning pleasure boats (according to Article 7-quater, paragraph 1, letter e) and Article 7-sexies, paragraph 1, letter e-bis of the Presidential Decree no. 633/1972), clarifies that all the provisions of services performed starting from November 1st, 2020 shall be considered as not taxable for VAT purposes, if the taxpayer is able to demonstrate the actual useof the services outside the EU territory (through the proper methods identified by the Note no. 234483 issued by the Revenue Agency on June 15th, 2020).
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