Holiday Yachts Used to Evade VAT Payments: Finance Ministry Recovered €3.6 million
European Authorities Crack Down on Tax Evasion in Yachting Sector
The financial police of Italy's Imperia Provincial Command of the Guardia di Finanza recently conducted a massive operation against non-resident companies operating short-term boat rentals, allegedly under the flags of low-tax countries, worth a staggering €3.6 million. The operation aimed to verify the correct taxable base for VAT on invoices arising from charter agreements.
Favoring the Rich and Powerful?
Investigations revealed that many of these companies had been taking advantage of a shady regime, allowing them to apply VAT only on 30% of the agreed rental fee, reserved for instances where there is no clear proof that the vessel was used within EU territorial waters. The taxpayer is expected to determine the time spent outside EU territorial waters based on the contract and all other available evidence. However, it seems that nearly all companies simply made wild guesses.
Digging Up the Truth
With the help of the Operational Naval Command of the Guardia di Finanza in Pratica di Mare, the authorities were able to analyze data from the AIS (Automatic Identification System) tracking systems installed on the yachts. By cross-checking the actual routes with contractual documentation, the Financial Police could accurately pinpoint the portion of navigation that took place within EU waters, thus ascertaining the actual taxable base for VAT calculation.
Recovering Stolen Wealth
This investigation allowed for the contestation of significant unpaid tax from the involved companies. This case underscores the importance of cooperation between tax authorities and advanced monitoring tools in combating tax evasion within the luxury and yachting sectors.
Despite the absence of specific studies on cross-border tax evasion in the short-term rental of pleasure crafts, the Guardia di Finanza's approach aligns with their general anti-evasion strategy. They focus on missing trader fraud and carousel schemes typical of VAT fraud cases involving cross-border trade. Their methods include:
- Verifying tax residency and chain-of-ownership audits to root out sham companies or shell entities.
- Collaborating with EU authorities like the European Public Prosecutor’s Office and Europol.
- Conducting forensic financial analysis for under-reporting detection and blockchain tracking, if necessary.
- Implementing preventive measures like port inspections and mandatory reporting from marinas or docking facilities.
However, third-party jurisdictions pose challenges due to beneficial ownership opacity and tax treaty enforcement. In such cases, the Guardia may rely on Interpol Red Notices and bilateral agreements to claim taxing rights over income generated in Italian waters.
- The financial police discovered that many of the companies were taking advantage of a shady regime, which allowed them to apply VAT only on 30% of the agreed rental fee, raising concerns about favoring the rich and powerful by evading a significant portion of taxes.
- By cross-checking the actual routes of the yachts with contractual documentation, the authorities were able to accurately pinpoint the portion of navigation within EU waters, ascertaining that the actual taxable base for VAT calculation was more than the initially understated percentages.
- The Guardia di Finanza's approach to combating tax evasion in the luxury and yachting sectors extends beyond the investigation in question, focusing on missing trader fraud and carousel schemes, and incorporating methods such as verification of tax residency, collaboration with EU authorities, forensic financial analysis, and preventive measures like port inspections.
