Applying the VAT Exemption to Pleasure Craft

Resolution 95/E, adopted on March 14 2008 by the Revenue Office, addresses the issue of whether the value added tax (VAT) exemption regime provided by Article 8(2) of Presidential Decree 633/1972 applies to the sale of pleasure craft. The Revenue Office has no legislative power and may issue only non-binding resolutions and opinions. However, it has stated that the purchase of pleasure craft in order to enter into a charter agreement for commercial purposes may benefit from the VAT exemption regime, provided that the purchaser uses the pleasure craft for such charter activities.

The resolution originates from a request for interpretation by a company that asked whether the regime applied to the sale or lease of pleasure craft used exclusively for commercial activities, specifically for charter agreements. The opinion in the resolution contains an excursus into the applicable provisions of the law and their interpretative evolution.

The Revenue Office begins its excursus by observing that Article 8(2) provides that VAT does not apply to the sale of goods or the rendering of services relating to vessels used for commercial purposes. The provision expressly excludes transactions relating to pleasure craft, as they are used for sport and/or recreation.

Law 171/1989 (as amended), which regulates lease and charter agreements relating to pleasure craft, provides that such use must be indicated in the registers in which the pleasure craft is recorded and on its navigation licence.

Following the enactment of the law in 2002, the Revenue Office issued Resolution 94/E, in which it clarified that the exclusion of pleasure craft from the VAT exemption regime did not apply to such craft when used for commercial charter agreements.

Law 172/2003 provides that, if operated exclusively in international waters for charter agreements and for tourism purposes, pleasure craft with a hull longer than 24 metres and a gross tonnage no greater than 1,000 tons may be enrolled in the International Register created by Decree-Law 457/1997 - which, in its original wording, restricted enrolment to vessels used only for commercial activities in international waters.

The right to enrol pleasure craft in the register represents a further legislative acknowledgement that pleasure craft may also be used for commercial activities. The Revenue Office concludes its opinion by stating that the VAT exemption regime may be generally extended to such pleasure craft, provided that they are enrolled in the register. Referring to the specific query on which it was asked to provide its opinion, it states that the sale or importation of pleasure craft as described above qualifies for the VAT exemption regime, provided that the purchaser uses the craft for charter purposes as stated.

For further information on this topic please contact Gianfranco Puopolo or Lucilla Margherita at PGR&B Puopolo Geffers Rosen & Bosin by telephone (+39 02 7601 3359) or by fax (+39 02 7602 7478) or by email (g.puopolo@pgrblaw.com or l.margherita@pgrblaw.com).