Prepared by Egidio Filetto, Valeria De Sortis, Umberto Carrettiere and Lorenzo Ontano
Following the changes introduced by art. 1, paragraphs 725 and 726 of the Law 2 December 2019, n. 160 (as amended by art.48, paragraph 7 of the Decree-law of July 16, 2020, n.76), the VAT regulations of leasing, including financial, chartering and similar contracts for pleasure boats has been radically changed. The rule was introduced into our legal system following an infringement procedure opened by the European Commission against Italy. This made it necessary to modify the implementing rules for identifying the territoriality requirement, substantially modifying the regulatory approach.
Pursuant to articles 7-quater, paragraph 1, letter e) and art. 7-sexies, paragraph 1, lett. e-bis) (the latter applicable only in B2C relations), in case of put at disposal in the territory of the State, these services are territorially relevant for VAT purposes if the same boats are used in the territory of the Community.
Considering the practical difficulties relating to the determination of the use of a boat in the Community territory, the Italian Tax Office, with Circular no. 49 / E of 2002, had given the possibility of using percentages that indicated, on a flat-rate basis and based on the length and type of propulsion of the boat, the share of use of the asset in the community territory and therefore the part of the consideration to be subjected to VAT. However, the criterion used by Italy to determine the part of the operation that is territorially relevant in our country was not deemed compliant with EU Directives by the Community Authorities.
The legislative change is not insignificant also in consideration of the difficulty of determining the territoriality in an area that is difficult to “confine”.
By means of the rule in question (Article 1, paragraph 725 of Law 160/2019), in fact, the legislator has defined a new criterion for determining VAT territoriality in the nautical sector, abandoning the criteria of use in the Community territory on a flat-rate basis in favor of a analytical and effective use criterion. For this purpose, the legislator has delegated to Italian Tax Office the identification of suitable means of proof for demonstrating the use of the boat outside the territorial waters of the Community. The first version of the rule entered into force starting from 1 April 2020, a deadline then postponed to 15 June 2020.
According to the original rule, these new criteria were to be applied only for the identification of territoriality for VAT purposes. with reference to short-term lease, rental and similar contracts. On the basis of this version of the law, the Implementing Provision No. 234483/2020 was issued in June 2020, which dictated the criteria for identifying the territoriality rule for short-term contracts (i.e. not exceeding 90 days).
By means of the “Simplifications” decree (DL 76/2020), the legislator extended the scope of application of the rule in question also to non-short-term contracts, including financial ones (nautical leasing), also postponing the application of the new rules for transactions implemented from 1 November 2020.
By means of the Provision of 29 October 2020 number 341339/2020, the Italian Tax Office has implemented the legislation as currently in force, regulating the methods and means of proof suitable to demonstrate , in the absence of fraud or abuse, the actual use and effective use of the service outside the European Union.
It is specified that the instructions provided by the Italian Tax Office are not applicable to recreational rowing boats, personal watercraft and boats with hulls of less than 10 meters without registration.
By virtue of these innovations, in cases of use of the boat exclusively within the Italian territorial sea, VAT must be applied to the entire consideration for the service.
To understand the difference between the two versions of the same rule, the following example applies. In the event of the rental of a motorized pleasure boat of 20 meters in length, with a periodic rental fee for example of Euro 15,000, in application of the flat-rate percentages provided for by CM 49/2002, the consideration would have been subject to VAT for 40% of the total, considering the use of the boat as a lump sum for 60% outside EU territorial waters. Therefore, the taxable amount subject to VAT would have been limited to € 6,000. On the basis of the new legislation, however, VAT will be applied to the entire amount as the transaction is considered to be 100% territorially relevant in Italy for the purposes application of the Value Added Tax.
As can be seen, therefore, the flat-rate determination criterion is totally abandoned to move to an analytical criterion in which the use of the pleasure boat outside the EU remains territorially irrelevant for VAT purposes, but the burden of proof rests entirely with the taxpayer on the basis of the specific criteria indicated by the Revenue Agency.
As regards the means of proof, which can be used to demonstrate the use of the pleasure boat outside the Community territory, the provision specifies that this use must first be supported by the contract as well as by a declaration of the user issued “at the time of making the boat available”. Furthermore, the presence of additional means of proof identified by the Italian Tax Office is required, distinguished according to the duration of the contract, as well as based on the presence or absence of satellite navigation instruments.
For short-term contracts (with a duration of up to 90 days), data and information extracted from the navigation systems in use can be used. In the absence of these, it is necessary to produce at least two of the following pieces of evidence: 1) the paper or digital data of the navigation log or logbook; 2) the digital photographs of the ship’s point for each week of navigation identified by any device and detected with a frequency of at least two, for each week of navigation; 3) the documentation proving (invoices, contracts, tax receipts and related means of payment) the mooring of the pleasure boat at ports located outside the European Union; 4) documentation certifying (invoices, contracts, tax receipts and related means of payment) purchases of goods and / or services, from commercial establishments outside the European Union, relating to the use outside the European Union of pleasure boat.
For non-short-term contracts (with a duration of more than 90 days) it is necessary to show the paper or digital data of the navigation log or the official logbook or, in the absence of the latter, of an endorsed register, certifying all the movements made, the relative hours of motion, proven by the appropriate hour counter device, of the beginning and end of each movement and, possibly, the transfers carried out for tests and / or technical movements or relating to maintenance. Furthermore, for long-term rentals, at least one of the following means of proof is required: 1) data and information extracted from satellite navigation systems or transponders (for example, AIS system, “Automatic Identification System” ) in use; 2) the digital photographs of the ship’s dock for each week of navigation identified by any device and detected with a frequency of at least two for each week of navigation; 3) the documentation proving (invoices, contracts, tax receipts and related means of payment) the mooring of the pleasure boat at ports located outside the European Union; 4) documentation certifying (invoices, contracts, tax receipts and related means of payment) purchases of goods and / or services, from commercial establishments located outside the European Union, relating to use outside the European Union.
Limited to non-short-term contracts and as indicated in paragraph 1, letter e), of the Provision of 29 October 2020, the documents of proof of the effective use of the pleasure boat outside the EU must be exhibited with reference only to weeks in which the boat has moved between ports (including trips to and from the same port), with the exception of trips between shipyards or ports for technical reasons.
The documentation must be kept by the supplier and the user until 31 December of the fifth year following the one in which the declaration was presented, or, in cases of omitted declaration or null declaration, until 31 December of the seventh year following the one in which the declaration should have been submitted.
As clarified by Resolution no. 62 / E of 30 September 2020 pursuant to art. 1, paragraph 726 of Law 160/2019, the provisions in question are applicable with reference to contracts concluded after 1 November 2020. For the sake of completeness of information, we point out that the Provision of 29 October 2020 provides that the new criteria apply to contracts concluded from the day following its publication, bringing forward their entry into force by two days.
To date, some points remain open, with reference to which the Italian Tax Office has not provided official clarifications. In particular:
- the Italian Tax Office provides, only for non-short-term contracts, the possibility that the portion of the price not subject to tax is provisionally determined on the basis of a declaration provided, for each year of use of the boat, by of the user, without prejudice to the need to make the appropriate increases and decreases pursuant to art. 26 of Presidential Decree 633/1972. In the event of an increase in the VAT payable, the supplier is not subject to the payment of penalties. However, the same faculty does not seem to be provided for in cases of short-term contracts (with a duration not exceeding 90 days);
- with reference to non-short-term contracts, the rule, as well as the instructions provided by the Italian Tax Office, on a literal level, would seem to be applied only in the cases provided for by art. 7-septies, paragraph 1, letter e-bis) of Presidential Decree 633/1972 – i.e. when the provider is established in the same State in which the vehicle is made available. It is not clear whether the instructions provided by the Agency are also valid in cases where the provisions of art. 7, paragraph 1, letter e) of Presidential Decree 633/1972.
On these aspects, official clarifications are awaited from the Revenue Agency.
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