The Italian VAT regime on the leasing and chartering of pleasure vessels13 May 2022

Overview and background

The legislative changes to the VAT Rules are as follows:

• Article 1, paragraphs 725 and 726, of Law no. 160/2019 (the “2020 Budget Law”);
• Article 48, paragraph 7, of Decree-Law no. 76/2020 (the “Simplification Decree”); and
• Law no. 178/2021 (the “Budget Law 2021”).

These changes have primarily been enacted to address objections from the European Commission (the “Commission”), which had commenced legal proceedings claiming that Italy had been incorrectly applying the territorial scope criteria of Directive 2006/112/EC (the “VAT Directive”). The VAT Directive states that, for short-term hired transport, the place of supply is the place where the transport is actually used by the customer, whereas Italy had been using a flat-rate criteria (based on percentages of presumed use according to the length and propulsion of a yacht) to assess whether a leased or chartered yacht fell within the territorial scope of Italian VAT. As a result, the Commission alleged that Italy was failing to comply with Article 56 (which establishes the deemed place of supply and the definition of “short-term hiring”) and Article 59 (which establishes the deemed place of supply for a number of activities) of the VAT Directive.

The Budget Law 2020

From 1 April 2020, the 2020 Budget Law replaced the flat-rate calculation method (described above) with a criteria similar to the VAT Directive and based on where the chartered or leased yacht was actually being used by the customer.

The Simplification Decree

The Simplification Decree postponed the application of the provisions in the 2020 Budget Law to transactions carried out from 1 November 2020.

The Simplification Decree also extended the scope of application of the provisions in the 2020 Budget Law – which had originally applied only to B2B short-term services – to B2C long-term services (i.e. services lasting more than 90 days).

Implementation

The Italian Revenue Agency has provided, by Measure no. 341339 of 29 October 2020, clarity on how to demonstrate that a leased or chartered yacht’s place of actual use by the customer is outside the EU.

For short-term and long-term services, at least one of the following pieces of evidence must be provided:

i. data and information obtained from the satellite navigation or transponder systems (e.g. an Automatic Identification System);

ii. digital photographs of the yacht’s point for each week of navigation as detected by any device and taken at a frequency of at least two per week of navigation;

iii. documentation (e.g. invoices, contracts, fiscal receipts and related means of payment) proving that the yacht is moored in ports located outside the EU; or

iv. documentation (e.g. invoices, contracts, fiscal receipts and related means of payment) proving that goods and/or services were purchased from commercial establishments located outside the EU for use outside the EU.

For long-term services only, evidence of actual use outside the EU is provided through the following:

i. the leasing, financial or charter contract, or a similar document; and

ii. the hard copy of the digital data from the yacht’s navigation journal, the yacht’s official logbook or the yacht’s fully certified logbook.

The Budget Law 2021