Both countries have failed to levy the correct amount of VAT on the leasing of yachts

The European Union Commission (EUC), in its ongoing mission to rid the EU of “unfair tax avoidance practices,” is taking steps to end illegal tax breaks in the yacht industries of Italy and Cyprus.

A statement for the EUC claims that both countries failed to levy the correct amount of VAT on the leasing of yachts, while the Commission further referred Italy to the EU Court of Justice for its failure to address an illegal system of exemptions for fuel used for charter yachts plying EU waters.

In its referral to the court, the EUC states: “In breach of EU rules, Italy allows chartered pleasure crafts, such as yachts, to qualify as ‘commercial’ even if they are for personal use. This situation may allow them to benefit from excise duty exemption on fuel used to power their engines.”

The EUC issued its opinion on the VAT tax, warning the two countries that without corrective action in two months, the Commission will be referring the two countries for violations before the EU Court of Justice.

“Cyprus and Italy have established VAT rules according to which the larger the boat is, the less the lease is estimated to take place in EU waters. As a consequence, the applicable VAT base can be substantially reduced,” the statement reads.

“Due to the size of this sector, these illegal and favourable tax regimes also run counter to the fiscal consolidation processes of these Member States,” and provide an unfair competitive advantage according to the EUC release.

The announcement concludes: “When it comes to VAT, recent Commission initiatives seek to put in place a single EU VAT area which is less prone to fraud and would enhance cooperation between Member States. The issue of VAT fraud transcends national borders and can only be solved effectively by a concerted, joint effort of Member States.”