VAT

Navigation on the high seas and VAT exemption

With recent Resolution dated 12 January 2017, no. 2/E, the Italian Tax Authorities provided important clarifications on the meaning of the expression “vessels used for navigation on the high seas” in order to apply VAT exemption, as provided for by art. 8bis, lett. a) of Presidential Decree dated 26 October 1972, no. 633. These are important clarifications for the navigation sector but, though they are perfectly understandable in theory, they lead to some operating problems in practice.

In Resolution dated 12 January 2017, no. 2/E, the Italian Tax Authorities have come into line with European law, which recognises VAT exemption in the case of vessels that, besides having been designed for navigation on the high seas, also navigate actually and mostly beyond 12 nautical miles from the coast – considered, by international convention, the limit of territorial waters by most countries.

The Tax Authorities specify that a vessel can be deemed as “used for navigation on the high seas” if in the previous year, it navigated over 70 percent on the high seas (i.e. exceeding the 12 nautical miles limit). This condition must be proven by official documentation for each taxable year.

However, it is clear how it can be difficult for those economic operators selling goods or providing services related to a vessel to understand if, in the previous FY, this has navigated on the high seas for over 70% of its total navigation in the period.

For further information, please contact Mario Spera.

VAT
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