The European Commission said it is pushing ahead to crack down on tax evasion in the yacht-charter sector in Italy. According to Bloomberg.com, the commission sent a letter to Italy saying it does not collect the correct amount of value added tax on yacht charters. A second letter to Italy noted its “illegal” system of exemptions for fuel that is used for chartering in E.U. waters.
The Commission sent a letter of formal notice to Italy for not levying the correct amount of VAT on the leasing of yachts. It also sent a legal notice to Italy because of its illegal system of exemptions for fuel used to power charted yachts in EU waters.
The evasion of tax payment came to light in the 2017 “Paradise Papers,” which showed that wealthy individuals reclaimed VAT, citing the tax refund for business purposes, when it was, in fact, for personal use.
“It’s simply not fair that some individuals and companies can get away with not paying the correct amount of VAT on products like yachts and aircraft,” Pierre Moscovici, commissioner for economic and financial affairs, taxation and customs union at EU, said in a statement.
“Favorable 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. With this in mind, the Commission is taking action to clamp down on rules that try to circumvent EU law in these areas,” Moscovici added.
The European Commission has already cited Cyprus, Malta, and Greece for the reduced VAT charged in chartering yachts. Those countries said they would change their laws to close the tax loopholes.
If Italy does not respond to the European Commission letter in two months, the issue may be referred to the Court of Justice of the European Union.