Fuel tax exemption for Italian yachts ruled illegal

LUXEMBOURG (CN) — An Italian law allowing charter boats to fill up tax-free violates EU regulations, the bloc’s top court said Thursday. 

The distinction stems from a provision of the 2003 Taxation of Energy Products and Electricity Directive that says taxes must be paid on fuel used for private recreation, while EU regulations extend an exemption on fuel used for commercial navigation.

Though Italy regarded the act of renting a boat as a commercial activity, including all charter boats in the exempt category, the European Commission wanted Italian authorities to check if a vessel was rented for commercial or pleasure reasons and tax its fuel accordingly. In its role as the EU’s executive body, the commission launched an infringement investigation into Italy’s fuel tax rules in November 2018, following the release of the Paradise Papers. 

The cache of some 13 million documents, mostly related to offshore investments, revealed the tax-avoidance schemes of a wide range of politicians and celebrities, including Mark Zuckerberg, Queen Elizabeth II and U2 singer Bono. Colombian singer Shakira was charged with tax evasion in Spain following revelations that she hadn’t paid any income tax in the country, despite living there with her Spanish husband. 

"Favourable tax treatment for private boats and aircraft is clearly at odds with our commonly agreed tax rules and heavily distorts competition in the maritime and aviation sectors," Pierre Moscovici, then-commissioner for economic and financial affairs said at the time. 

The Luxembourg-based European Court of Justice sided with the European Commission on Thursday, saying that the fuel tax regulation was based on how the vessel is used by the end user, and that the exemption for boat rentals was incompatible with EU tax rules. 

“The fact that the chartering of a vessel is commercial activity for the owner is irrelevant in respect of the tax exemption in question,” a five-judge panel wrote on behalf of the court’s eighth chamber. A copy of the decision is not available in English.

Italy’s more than 4,000 miles of Mediterranian coastline makes it a popular destination for pleasure boats. Italy has also been dinged by the commission for tax schemes allowing the owners of larger yachts to pay less value-added tax. Before the U.K. left the union, the EU had also gone after it for letting pleasure boaters use tax-free fuel intended for commercial vehicles. 

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