Yacht and fuel taxes: the European Commission takes legal action

The European Union is suing Italy in the field of the taxation of luxury yachting

The European Commission has announced a new step in its proceedings against Cyprus and Italy for the tax benefits granted to the yachting and luxury yachting sector, particularly in the supply of fuel. A distortion often pointed out by the French nautical industry.

Legal proceedings against Italy on yacht fuels

The current EU excise duty rules allow Member States not to tax fuel used by a shipping company for commercial purposes, i.e. for the sale of maritime navigation services. An exemption may be applied, but only if the person who rents the boat sells these services to third parties. By allowing chartered pleasure craft, such as yachts, to qualify as "commercial" vessels even if they are intended for personal use, Italy exempts them from fuel taxes. The European Commission considers that this practice violates EU legislation and has referred the matter to the European Court of Justice. Boating professionals from neighbouring countries and in particular the French Riviera denounced this unfair competition which, according to them, pushed yachts to stop over on the other side of the border, causing a serious loss of income.

Cyprus and Italy involved in the VAT on yachts

Before a possible referral to the Court of Justice, the Commission also sent reasoned opinions to Cyprus and Italy in the case of the VAT reduction for yacht charter. Revealed in the context of the Paradise Papers, the practice of the countries concerned is to apply a scale of VAT reduction on yacht charter, proportional to the size of the vessel. As EU rules allow exemptions when operating the vessel outside the EU, the vessel is based on the assumption of proportionality of the size of the yacht and the duration of non-EU voyages. The Commission rejects the argument and the possibility of a flat-rate reduction.