Exemption from excise duties on fuels in pleasure boating: the ruling of the Court of Justice

Prepared by Egidio Filetto, Valeria De Sortis e Umberto Carrettiere

With sentence no. C-341/20 of 16 September 2021, the Court of Justice ruled on the legitimacy of the exemption from excise duty on fuels granted by the Italian legislator to operators in the pleasure boating sector engaged in the rental of their boats for recreational purposes. With this ruling, the judges rejected the facilitation provided by the internal provisions with consequences that, prospectively, can be significant for the nautical charter sector.

It should be noted that the ruling refers only to the boat rental activity and not also to the leasing one as the Customs Agency with Circular 5 / D of 2016 had already expressed itself on the matter excluding from the scope of application of the rule, and therefore of the exemption, the subjects who limited themselves to renting pleasure boats, without therefore carrying out any “transport activity”.

In detail, as we examined in our Newsletter of last July 2, on July 24, 2020, the European Commission presented to the Court of Justice an appeal for non-compliance against Italy which, in the opinion of the Commission, had not adjusted the own legal system on the subject of exemption from excise duty to the community provisions referred to in art. 14, paragraph 1, lett. c) of Directive 2003/96.

The Italian legislation, in fact, in consideration of the provisions of art. 24 of Legislative Decree 504/1995 (Unified Excise Text – TUA), from the Table attached to the same decree, as well as the implementing provisions referred to in Decree no. 225 of 15 December 2015, recognizes the exemption from excise duties on fuels also in the recreational boating sector, provided that the boats are used for commercial purposes.

According to the clarifications provided by the Customs Agency in the aforementioned Circular, this exemption was valid only in the hypothesis in which the boat had been the subject of a charter agreement, as only in this way there was a “full and immediate involvement of the operator in the management of the navigation service and in the technical management of the pleasure craft“. According to this interpretation, the exemption was therefore recognized regardless of the use that was made of the boat by the charterer.

According to the European Commission, on the other hand, “the user to be taken into consideration in order to grant or refuse the benefit of the exemption from excise duty is the lessee or the rentee, and not the lessor or the renter. For the purposes of the exemption, therefore it is not sufficient for the rental to constitute a commercial activity for the renter. Conversely, the use that the charterer makes of the boat would be decisive, which should, in order to give rise to the right to exemption, serve “directly for the purpose of providing services for consideration” “.

With the ruling in question, the Court of Justice first highlights the difference between a rental contract and a transport service contract. As reported by the Court, the latter contract “does not have as its object the provision of the boat in whole or in part, but rather the provision of services for the transfer of goods or people“.

Starting from this premise, the Court emphasizes that the exemption recognized by Community law is subject to the fact that “energy products are used as fuel for navigation operations in Union waters for commercial purposes, that is to say for uses in which a ‘boat is used directly for the provision of services for consideration“.

On the basis of the above, the EU judges, in line with previous rulings on the matter, reach conclusions which generally accept the observations presented by the Commission. In fact, as stated in paragraph 35 of the judgment in question, “in the context of a lease or charter of a vessel, in which there is, at the same time, a lessor or a renter of the vessel and a lessee or a rentee who navigates with such a boat, the granting or refusal of the exemption provided for by Article 14, paragraph 1, letter c), of Directive 2003/96 depends on the way in which this boat is used by the latter subject ( lessee or rentee), i.e. depending on whether such vessel is used for commercial or non-commercial purposes. Therefore, it cannot be considered that the chartering of a vessel with fuel, or its leasing, as a commercial activity of the renter or the lessor, gives rise to the tax exemption provided for by that provision regardless of the manner in which it is vessel is used by the lessee or rentee “.

Therefore, “to be relevant for the purpose of granting the benefit of the exemption from excise duty are the final user, lessee or rentee, and the final use of the boat by that person, and it is this use that must serve” directly for the purpose of providing services for consideration“.

Summarizing, even the Union judges, as well as the European Commission, believe that the use of the facilitation is subordinated exclusively to the actual use of the boat made by the user. Only if the boat is used by the latter for carrying out commercial activities (transport performance), the exemption is legitimate.

In the same judgment, the Court specifies that the above conclusions are not valid in the presence of contractual relationships which, although formally qualified as rental contracts, “include the provision of a set of services other than navigation services, comparable to those that they are offered to passengers on a cruise ship, and from which the contractor benefits as a person transported without having control over the use of the boat “.

In such cases, the “rentee” loses his status of dominus of the chartered boat which is used directly and exclusively for the provision of services, so that the exemption from paying excise duties would be legitimate in this case.

Therefore, starting from these conclusions, the Court of Justice considered that Italy has failed to fulfill its obligations in consideration of the provisions of Directive 2003/96, condemning our State, at the same time, to reimburse expenses.

The Court’s ruling inevitably entails considerable consequences among operators in the sector who, in general, are officially denied an important facilitation.

The ruling of the judges, however, leaves some questions open: 1) will the measures in this regard have retroactive effect with consequent recovery of the facilitations used by operators in the sector? 2) what will be the contractual relationships that, according to the Court’s statement, could benefit from the exemption from excise duty?

Questions on which a very swift legislative intervention is expected in order to clearly define not only the scope of application of any recovery activity that must be put in place by the Financial Administration, but also those contractual relationships which, according to the Court’s judgment, will still be able to benefit from the discussed exemption.

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Egidio Filetto

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