Italian boat-builders suffer from large taxes on yachts

Posted: 4th February 2013 | Written by: Manuela Mesco, The Wall Street Journal

MILAN (Jan. 29) — Italy's campaign against tax cheats is starting to sink its €3 billion ($4 billion) boat-building industry, industry officials say.

They say that by slapping a tax on large recreational boats, targeting boat owners for audits and searching yachts moored in Italian ports, the country's tax authority caused boat sales in Italy to fall as much as 25% last year. Of course, it doesn't help that the country is in recession and that bank financing for leasing pleasure boats has all but disappeared.

The tax authority declines to comment directly on whether its campaign is hurting the country's boat and yacht makers—who are famed for their design and craftsmanship—but it says it has nothing against any particular industry or any individual who pays taxes regularly; it's just trying to stop tax evasion.

The pressure on the industry reflects a broader squeeze on the wealthy throughout Europe, as governments seek new revenue to plug stubborn budget gaps. France has introduced a 75% income-tax rate for its wealthiest citizens, while the U.K. raised its tax on homes sold for more than £2 million ($3.2 million) to 7% from 5%.

Italy's boat builders, whose luxury yachts have attracted customers ranging from film stars Brigitte Bardot and Sean Connery to the late Prince Rainier of Monaco and numerous Arab royals, were caught in the crackdown this spring as the government sought new revenues to pare its heavy debt.

The government introduced an ownership tax on boats longer than 10 meters. The nation's tax police, meanwhile, began searching yachts moored at the country's ports in order to identify their owners. The tax authority then cross-checked the owners against their declared income. If their income was suspiciously low, based on criteria set by the tax authority—the owner of a €200,000 boat was expected to have income of at least €2 million—the agency audited the owner.

Italy's boating association, Ucina, says the tax authority's criteria were too rigid. It also says the conspicuous searches of moored boats have put off boat buyers and prompted many Italians to sell their boats to avoid the hassle, says Ucina Chairman Anton Francesco Albertoni.

Riccardo Illy, chairman of coffee company Illy Group, is among those who have dumped their yachts. "I lost interest in yachting because of all this," he said last year. "If you end up being treated as a criminal, it's just better to sell the boat."

At Azimut Benetti Group, one of Italy's leading yacht makers, Italian sales plummeted to €9 million for the 2011-2012 season from €124 million three years ago. Amid flagging sales like those, Italy's boating industry lost 20,000 jobs in 2012, according to Assonat, a trade group for ports where yachts and other pleasure boats are moored.

The attention also has spooked foreign boaters away from Italy's shores, says Mr. Albertoni. They are instead mooring their boats in France, Croatia, or even Turkey, leaving more than a third of Italian moorings vacant, according to Ucina.

That's partly why the Italian government has failed to hit the targets it set out for the boat tax. Instead of raising around €155 million annually, as had originally been forecast, it generated €24 million through the first nine months of 2012.

Appearing at a parliamentary committee hearing in September, Italian Treasury Undersecretary Vieri Ceriani said the lower-than-expected tax revenue was due to a high number of boats leaving Italian ports. At the same time, boating executives say, revenues from value-added taxes on boating sales and serviceshave declined amid the industry's downturn, depriving the government of other revenues.

The boat industry's frustration recently prompted tax authorities to change tack somewhat. The government now determines whether Italians are probable tax cheats by cross checking their declared income against a broader set of spending data.

(Source: Google News: The Wall Street Journal. View the original story here.)


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