When Force Blue was seized in Italy over alleged tax evasion, many megayacht owners and their advisors sat up and took notice. It also led to questions and concerns, understandably, many of which persist.

To shed some light onto Italian VAT practices, Moore Stephens prepared the following educational—and frank—overview for its clients, which Megayacht News received permission to run. The firm, which provides accounting, tax, and consulting services to yacht owners around the world, stresses that it is a general summary and recommends speaking with your agent (Moore Stephens or otherwise) to determine your best course of action.

SWITCHEROO—ITALIAN STYLE

Two steps forward, two steps back. Italy has been shaking it all about so far this year. And after all that effort, by June 21 the Italian tax police were virtually back where they started the year.

The past three months have provided a perfect illustration of the Guardia’s frantic footwork. They have been marked by a number of high-profile yacht arrests, the most dramatic of which has been of the 63-metre Force Blue, which for maximum effect the Guardia prosecuted with armed officers on gunboats and videoed. The yachts were supposedly arrested for reasons ranging from flag (non-EU) to smuggling to suspected tax evasion. But the announcement on June 21st of the conditional release from detention of the Cayman Islands flagged Force Blue to carry on with its charter trade as before, along the Mediterranean and Italian coasts, reflects continuing confusion about Italy’s perspective on the VAT rules for commercial yachts.

On the practical side, the Italian authorities have since 2004 appeared to endorse the French approach which assimilates commercial yachts meeting specified criteria to the class of “merchant” ships and exempts them from VAT. This meant that a yacht holding a commercial registration certificate from any Flag State, having a permanent crew and operating in a bona fide commercial way was neither asked to have a VAT registration in Italy nor required to undergo any kind of customs import procedure. Like in France the VAT exemption appeared to apply to such yacht owners by default, both on the supplies they made with the yacht and the goods and services they received from others. They could perform charters in Italy, buy parts and equipment and receive services of repair and maintenance for their yachts, all free of Italian VAT. It all seemed so favorable and safe, so the sudden switch to militancy has shocked the industry somewhat.

But should it really? Speaking on Italian VAT practice on yachts at a conference some years ago, one Italian expert panelist pointed revealingly to the distinction between the formal way and “the Italian way.” He was referring to the yawning gap between Italy’s VAT legislation on yachts and its on-the-ground practice. Spanning the gap is a fairyland of high hopes and wishful thinking, upon which the legal obligations of the real world crash every so often. Witness for instance the constant dogfights between Italian leasing companies and the authorities over the scope of application of the reduced-rate VAT. Characteristically, the leasing activities rely heavily on tertiary practice and extra-statutory concessions, rather than primary law, allowing the authorities to shuffle capriciously at every step. The leasing companies often have different interpretations from what the authorities think. With the advent of the new EU cross-border place of supply rules from January 2010, nobody seems to be sure anymore as to how Italian leasing schemes should actually interact with the new rules.

Little wonder then why a negative undercurrent has been washing away at this fragile picture of a VAT-free Italy for superyachts. Italy’s legislation on the VAT treatment of yachts, unlike France’s, has actually remained unchanged. The law maintains the typological distinction between classes of vessels. There is the class of “qualifying ships” which is traditionally deemed to be eligible for VAT exemption under Article 148 of the VAT Directive. This class is interpreted to include only “merchant” and “cruise” ships that go on the high seas—their activities have “export” connotations for VAT purposes. Also included are other utilitarian types like the submarine, hovercraft, dredger, fire float, light vessel, and the mobile floating dock or crane. Then there is the class of “pleasure craft” (so called because they are designed or adapted for use for recreation or pleasure), which is not exempt from VAT. Yachts, whatever their function and manner of operation, are classed as pleasure craft under this traditional view. Therefore, unless a yacht is VAT paid, or deemed VAT paid, it is non-compliant and should not be used or chartered in the EU.

Tax suspension regimes, such as Temporary Importation and Inward Processing Relief, offer conditional easements for non-EU means of transport entering the EU. And there are other very restrictive provisions for commercially used means of transport operating in the EU only for ‘the time required for carrying out the transport operations’ under Article 562(b) of the Community Customs Code. But none of these exemptions or suspensions actually caters legally for the modern “commercial” yacht that operates charters in the EU without a VAT paid status. France had realized this and amended its primary VAT and customs legislation in 2004 to reflect its true intentions. Italy has not changed its legislation, but its tacit approval over the years of yachts coming over from France has created an atmosphere fraught with ambiguity and misperception. We have tended to read Italy’s forward and backward steps where Italy was just doing things its way. That way now includes a band of spirited local Prosecutors whose stark view of the law is un-nuanced by the unscripted culture and tolerances of the yachting industry.

“IT’S THE FLAG, STUPID”

Much has been made of the EU maritime cabotage rules and the fact that some of the yachts arrested in Italy fly non-EU flags. But there is no actual evidence that the Guardia is specifically targeting non-EU flags. Instead, they are targeting tax abuse, real or imagined, amidst a severe domestic financial crisis. In an industry where over 95% of the super yachts fly non-EU flags it is statistically obvious why non-EU yachts should fall victim in any sweep.

Of course flag matters, much like any image. A lot, too, remains unclear about the vague EU cabotage rules, despite the European Commission’s assertion in 2003 that most activities of yachts fall outside the scope of these rules. But changing to an EU flag for any reason without structuring the ownership of the yacht to achieve essential EU tax compliance is like taking a placebo. Meanwhile, she may have been doing a two-minded hokey-cokey over the years, but it would be surprising if Italy were to pause now for breath.

With yachts and megayachts of varying sizes successfully avoiding the Deepwater Horizon oil spill, you may wonder why the International SeaKeepers Society is getting involved. Simple: Its proprietary SeaKeeper 1000 data-acquisition system is helping government agencies, scientists, and others collect much-needed information on dilute hydrocarbons.

With the assistance of the University of South Florida and YSI, a company that develops and manufactures sensors and related data-collection items for environmental monitoring and testing, the International SeaKeepers Society has successfully adapted a proven hydrocarbon sensor. That sensor is now working with a SeaKeeper 1000 unit aboard the research vessel WeatherBird II in the Gulf of Mexico. The goal is to map both the oil plumes and the extent to which the oil continues to spread across the water and towards shore throughout the region.

Here’s how it works. The SeaKeeper unit allows seawater (and therefore the oil) to flow through a dedicated section. The sensors within that section collect data, which is then combined with GPS data to permit rapid mapping. This information is recorded by an onboard computer and transmitted via satellite to servers maintained by the nonprofit Society. Scientists and government officials have free access to this data.

The SeaKeepers Society is collaborating with the National Oceanic and Atmospheric Administration (NOAA) to install sensors on its National Marine Sanctuaries vessels. In addition, Carnival Cruise Lines will soon add the hydrocarbon sensors to the existing SeaKeeper 1000 units on its Triumph, Legend, and Miracle ships. Cruising out of New Orleans, Tampa and New York, respectively, the ships will help in two ways. First, they’ll be operating in some waters unaffected by the BP oil spill, so that will help establish a baseline reading. Second, they’ll map the extremely dilute hydrocarbon plumes at the shelf break, in the loop current, and eventually in the Gulf Stream.

Perhaps even more significant, a smaller, portable hydrocarbon sensor was recently installed on a 21-foot boat owned by the Florida Department of Environmental Protection. This new sensor is especially promising because it can be installed on the gunwale or transom of a variety of small craft—especially the “vessels of opportunity,” a.k.a. private boats donated to the research and cleanup cause—within hours. The SeaKeeper 1000 unit requires a through-hull fitting, so unless a vessel is already equipped with it, time is not on the side of the Society nor the interested parties.

The International SeaKeepers Society is actively seeking more donations so that it can continue installing sensors on other units and help fund the related research. The nonprofit organization and its partners are also working on refinements to the sensors so that they can operate more efficiently close to shore. Visit the website to learn how you can contribute.

Rybovich’s ongoing quest to lease land from the city of Riviera Beach, up the coast from its existing facility in Florida, has taken an interesting turn.

The plan, for Rybovich to establish another megayacht-refit yard, has been undergoing review for some time. At a meeting last week, Rybovich informed town council members that it would be willing to make concessions and generate stimulus programs to make the proposal come to fruition. Rybovich has offered to pay more rent in exchange for a smaller revenue share, create a program to jumpstart yacht-repair-related businesses, and help create a community boating program to improve residents’ access to the water.

Specifically, according to The Palm Beach Post, Rybovich would pay double the amount of rent initially outlined or 3.25 of gross revenue, whichever is greater, beginning with the sixth year of the 25-year lease. In addition, 0.5 percent of all revenue — instead of 0.5 percent of revenue exceeding $10 million, as originally proposed — would be earmarked for a jobs program or community boating program. It would provide dockage and maintenance space for the latter as well. Finally, the newspaper states, Rybovich has offered to help residents start businesses related to the yachting industry, particularly Rybovich’s refit focus.

City council members are expected to meet tonight with Rybovich personnel to review the new proposals.

There’s still no word about the legal obstacles the plan faces, however. As previously reported here, when Rybovich’s expansion plans were revealed publicly, the biggest issue was whether the city of Riviera Beach could legally lease submerged lands at the marina. The state of Florida had set them aside for municipal park and recreational usage, and current laws do not include exceptions for leases.

A few months after Superyacht Auctions was founded and held its first offerings, the company, previously referring to itself as Super Yacht Auctions, is kicking off two new programs that should raise interest.

First, Superyacht Auctions is creating partnerships with yacht-brokerage firms around the world. The goal is to tap the experience of leading houses and have them serve as exclusive agents. When reached for further information, a spokeswoman for Superyacht Auctions indicated that the firm has established relationships with Seahorse International Yacht Brokers, based in Greece; Brendel Yachtmarketing (also known as Rainer Brendel), based in Germany; and Navi Sell International Yacht Brokers, in Belgium. The spokeswoman added that the firm is also actively seeking a partner in the United States. Regardless, the brokers who have agreed to becoming exclusive agents are authorized to operate both within their own country as well as internationally on behalf of Superyacht Auctions. In addition, the relationship does not preclude them from conducting business as usual with new and brokerage megayacht sales.

The partnership also has no bearing on who is permitted to bid on the various auctions that Superyacht Auctions intends to hold. In other words, other brokers are still invited to bid on behalf of their clients regardless of whether they have a relationship with the company.

The second new program is also open to all brokers, yet it still bears exclusivity: tender sales of megayachts. Superyacht Auctions will, upon request, offer a yacht for bid solely to select parties designated by the owners and/or their representatives. All bids will be sealed, of course. Superyacht Auctions says that brokers who secure the winning bid for their client will receive the same commission as if they had secured the yacht in the traditional way.

While there is no word on upcoming auctions, Superyacht Auctions indicates that the sale of the 35-meter ketch Aries is pending. This month was supposed to see the auction of a 28-meter Hakvoort as well, but no details have been released.