The Italian Yachtmaster Association convened its first Legal Day in April and invited a number of experts to discuss some of the most confusing aspects of chartering in Italian waters.
Alessandro Mazzoni, CEO of SOS Yachting, and SOS Yachting’s legal adviser, Ezio Vannucci from Moores Rowland Partners, took part together with representatives from Pesto Sea Group, Agenzia Marittima De Felice, San Giorgio Shipping Service, Yacht Welfare and Femobunker.
Bearing in mind that fiscal representatives are jointly and severally liable, together with the owning company (OC), for all VAT fines and interest due in respect of transactions and returns, the aim of the meeting was to establish a common approach and, where possible, provide practical guidance on the above issues.
The following topics were discussed at length:
• VAT on charter fees
• Invoicing charter fees
• Navigation in international waters
• Delivery/redelivery fees and APA
• Cash on board and cash declaration.
Taking a step backwards, although Directive 2006/112/EC (the “VAT Directive”) has been adopted by all EU countries, it is applied differently in each Member State. This is very confusing for industry players who are expected to comply with sets of different rules in each country they operate.
In addition, in the case of grey areas, tax authorities are slow to respond. Italy is no different with the added glitch that some regulations are subject to different interpretations from port to port.
VAT on charter fees
Experts agree that following the introduction of the new "place of supply rules", charter fees are subject to VAT in the Member State where the yacht is made available to the charterer (see article 56 EU VAT Directive 2006/112/CE and article 7 quarter Italian VAT Law, Presidential Decree 633/1972),
Accordingly, for yachts over 24 meters, the following VAT percentages apply to the charter fees on short-term charters (under 90 days) beginning in Italian waters or entering Italian waters from a non-EU port: 1. 6.6% (22% VAT on 30% of the charter fee) on charters beginning in an Italian port with an itinerary both within and outside the 12 nautical mile limit for EU waters and the itinerary is detailed in the yacht’s log or stored electronically; 2. 22% on charters beginning in an Italian port with an itinerary entirely within the 12 nautical mile limit; 3. 0% on charters beginning in another EU port outside of Italy which includes Italian waters (VAT is due only in the Member State of embarkation); 4. 22% pro-rated on the time spent in Italy, on a charter beginning in a non-EU port, e.g., Turkey, with an itinerary including Italian waters.
All non-resident owning companies (OC) carrying out charter activities in Italian waters and departing from Italian ports or from a non-EU Member State but cruising in Italian waters must register for VAT either directly or by appointing a fiscal representative in Italy (pursuant to article 17 of Italian VAT Law, Presidential Decree 633/1972).
Invoicing charter fees
The VAT percentages relating to charter fees depend on the actual use of a yacht and on the contractual provisions undersigned by the parties on a case-by-case basis. The date of supply of services for VAT compliances and is the date of payment (albeit partial payment) of the charter fee to the OC. Captains were strongly advised to keep on file all documents and information instrumental to substantiating the VAT computation and payment deadlines.
Navigation in international waters
If the charter includes navigation in high seas, the Italian tax Agency has established percentages to be applied (22% on 30% of the charter fee for yachts over 24m) when cruising outside EU waters since it’s not possible to determine the exact itinerary within and outside of EU waters. It is accepted that ‘touch and go’ would constitute an “abuse of right” and the navigation must be logical and reasonable in the context of the charter. Captains must be able to substantiate navigation in high seas (log book, IT tracking).
The contract should always reflect a charterer’s intention to navigate in high seas even if the exact itinerary has not been determined in advance. The OC has to approve the VAT reduction and is liable for any outstanding VAT.
Delivery/redelivery fees and APA
The general view was that delivery and redelivery fees in particular and APA in general be treated as a lump sum the OC requires the client to pay to cover the charter operating costs. Being a lump sum, such ancillary charges are subject to VAT at the same percentage as the charter fee. The same criterion must be applied to all expenses covered by APA which cannot be reported as ‘disbursements’ in the APA Report submitted by the Captain at the end of the charter because VAT was not paid at source.
The supply of duty-free fuel to commercial yachts remains a grey area. Bunkering rules are very complex and individual vendors typically check compliances only with the local customs office. This means that instructions regarding duty-free bunkering can vary from port to port with a resulting confusing message to end users.
At the present time, or until Customs in Rome has clarified some provisions included in the Circular n. 10/D of July 2014, Captains were advised is to consider the advisability of taking on duty-free fuel in Italy. Clarification on the Circular is expected before the summer.
Cash on board and cash declaration
Unlike the previous issues, cash onboard and cash declarations are not fiscal issues but concern the transfer of funds in the context of anti-money laundering regulations. Reporting cash on board is the captain’s duty and he/she must advise guests that all cash must be declared to Customs.
Should a guest fail to comply, following an inspection, the captain will be deemed liable and in case of a fine could claim compensation from the client. Captains are advised to coordinate formalities related to cash on board in advance through a Maritime Agent in order to avoid any charges during an inspection in Italian waters.
All in all, the consensus was that regulations are here to stay and industry professionals must adapt to the changed circumstances. In this context, it’s important to remember that EU tax agencies and customs can (and do) backdate inspections to cover the past 5 years. Grey areas will be clarified over time so due caution should be exercised over the years especially with regards to issues which are known to be tricky. It might be a case of penny wise and pound foolish.