Chartering of pleasure boats for commercial use: exemption on excise duties on fuels at risk

Prepared by Egidio Filetto, Valeria De Sortis and Umberto Carrettiere

During the first months of 2021, the players of the recreational boating sector engaged in the chartering of their boats for recreational purposes have often been denied the recognition of an important tax advantage by the fuel distributors. We are talking about the exemption from the payment of excise duty on fuels, with a consequent increase in costs for the players themselves.

This “position” is attributable to the fact that the European Commission has filed an appeal with the Court of Justice against the Italian State, arguing that the exemption from excise duties granted to subjects who carry out charter activities for recreational purposes is in contrast with the provisions of Directive 96 of 2003 regarding the taxation of energy products and electricity. The Commission’s thesis would also seem to be shared by the latest decisions of the Italian Supreme Court (take for example the Sentences no. 23226 / 2020 and no.24728 / 2020).

The internal legislation, Table Annexed to Legislative Decree no. 504/1995 (Consolidated Law on Excise Duties – TUA), provides, on the basis of the provisions of Article 24 of the same Decree, an exemption for energy products used “as fuel for the navigation in EU marine waters, including fishing, with the exception of private recreational boats, and uses as fuel for navigation in inland waters, limited to the transport of goods, and for the dredging of waterways and ports “.

In order to better define the “recreational boats” excluded from the benefit of this exemption, Decree no. 577 of 1995 had provided a first notion defining them as “the boats that are used by the owner, by the natural or legal person who can use them under a lease contract or for any other reason, for non-commercial purposes and in particular for purposes other than the transport of passengers or goods and the provision of services for consideration or on behalf of public authorities “.

This notion was modified with the issue of Decree no. 225 of 15 December 2015. In art. 1, paragraph 6, of this Decree, it is in fact provided that the exemption does not apply to “energy products used by private recreational boats, except for supplies to units used for the exclusive commercial purpose by means of a charter contract that carry out the navigation referred to in paragraph 3, provided that the necessary hiring of the exercise occurs as well as the use of the same unit directly by the person carrying out the rental activity “.

The meaning of this provision had been clarified by the Customs Agency which, through Circular no. 5 / D of 2016, specified that, “It is essentially required that the ultimate purpose of the use of the nautical vessel on which the exempt fuel is used maintains the recognized commercial qualification through the full and immediate involvement of the operator in the management of the navigation service and in the technical management of the recreational craft “.

Therefore, it is understood that the Customs Agency excluded from the scope of the rule (and therefore from the exemption) the operators who limit themselves to renting recreational boats, without therefore carrying out any “transport”.

In fact, it is recalled that, although the article 2 of the Recreational Nautical Code (Legislative Decree n. 171 of Legislative Decree 18 July 2005) defines both chartering and leasing as commercial activities, only in chartering, pursuant to art. 47 of the Nautical Code, the charterer remains in the availability of the boat obtaining that “full and immediate involvement” required by the Agency. On the other hand, in the lease agreement, in accordance with the provisions of art. 42 of the same code, the lessor is limited to transferring the enjoyment of the recreational craft for a certain period of time.

Therefore, according to the guidelines of the Financial Administration, the exercise of commercial activity – an essential element to take advantage of the subsidy – had to be assessed by the lessor and charterer, with the possibility of using the exemption only for the latter subject, to the detriment of the former.

The regulatory framework described above was almost stable until November 2018 when the European Commission opened an infringement procedure against Italy. In fact, according to the Commission, the recognition of the exemption from the payment of excise duty complies with Community law (Article 14 of Directive 96 of 2003 on the taxation of energy products and electricity) only if the person who takes possession of the vessel exercises a commercial activity. On the other hand, according to Italian law, the application of the exemption is possible even if the chartered boat is used for private purposes. Consider the following example: according to Italian legislation, as interpreted by practice, the charterer Alfa Charter Srl can take advantage of the exemption from excise duties on fuels, although Mario Rossi is a private individual who uses the boat for private purposes. According to the Commission’s interpretation, on the other hand, Mario Rossi must also carry out a commercial activity through the chartered vessel, in order for the exemption to be recognized.

The lack of regulatory intervention by Italy on the basis of the considerations of the European Commission led the Commission to present a specific appeal (Case C-341/20) to the Court of Justice in July of last year.

This framework of uncertainty has provoked a prudent attitude on the part of some fuel distributors who have preferred to disapply, independently and preventively, the exemption in order not to incur any recovery of higher taxes by the Financial Administration, following of a possible unfavorable ruling by the Court of Justice.

In order to resolve these doubts, at least in the short term, with the opinion of last May 28 (n.169336 / RU), issued following a request for clarification by some trade associations, such as Assopetroli – Assoenergia, CNA and Federagenti , the Customs and Monopolies Agency has clarified that recreational craft used exclusively for rental will be able to continue to refuel without excise duty as required by the current regulatory framework (Legislative Decree no. 504/1995 and MEF decree no. 225/2015, referred to above).

Pending a ruling by the Court of Justice, it seems that the players in the sector, based on the above opinion and in consideration of the fact that to date there is no legal prohibition, can therefore continue to apply the exemption from excise duties. As regards the possible future scenarios, it is currently not possible to predict whether, in the event of a possible decision by the Court of Justice that confirms the Commission’s thesis, the Italian State will be forced to proceed with the recovery of uncollected excise duties. However, it is not excluded that the Court may limit the effects of the scope of a possible sentence that accepts the remarks presented by the Commission.

It should be borne in mind that an unfavorable ruling by the Court of Justice, together with the recent reform of the VAT system on the leasing of recreational boats, risks further aggravating the conditions of a sector already severely tested by the effects of the pandemic.

In the short term, therefore, the intervention of the Customs and Monopoly Agency will allow the nautical sector to save the current tourist season having traced a favorable orientation for the application of the exemption until the final ruling by the Court of Justice. In any case, legislative interventions are expected to provide appropriate guidelines to operators in the medium-long term.

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For a deeper discussion, please contact:

Egidio Filetto

PwC TLS Avvocati e Commercialisti