Temporary admission of yachts – New criterion for interrupting the clearance period recognised as valid by the courts

In a judgment delivered on 4 March, the Liguria Regional Tax Court of Appeal upheld the defence argument put forward by a non-EU company regarding the criteria for interrupting the temporary admission period.

This argument immediately caused quite a stir and was met with great acclaim from all operators in the sector and, in particular, from those who had long highlighted how the practice of the Italian tax authorities not only diverged from that of other European countries but was also in conflict with EU principles.

In particular, the judgment in question was handed down in the context of a tax dispute concerning the challenge to a notice of assessment, accompanied by a demand for payment of import VAT, for breach of the temporary admission regime, as provided for in Article 250 of Regulation (EU) No 952/2013 and Articles 212 et seq. of Regulation (EU) No 2446/2015, on the factual ground that the vessel had remained in the territorial waters of the European Union for a period exceeding 18 months. This calculation of time – in particular – did not take into account the yacht’s temporary departures from Union waters during that period.

On the matter, the court, upholding the defence’s arguments, ruled that entry into international waters and exit from the customs territory of the European Union is in itself enough to interrupt the period of temporary admission. In fact, no national or EU provision, for the purposes of determining the interruption of the so-called clearance period, makes exit from the customs territory conditional upon entry into territorial waters or even into a port of a third country, a condition which is, however, made relevant by the practice followed by the Italian tax authorities.

On this point – the judgment continues – it is important to highlight, ‘by legal symmetry’, that just as entry into the territorial waters of an EU Member State is sufficient to trigger the start of the temporary admission procedure for a vessel, so too is exit from the customs territory of the Union – meaning merely entry into international waters – sufficient to terminate the temporary admission regime.

In fact, the judges, accepting the defence's arguments, noted that for the purposes of completing the export procedures for vessels, customs legislation refers exclusively to ‘exit from the customs territory of the Union’ and not to entry into the territorial waters or port of a third country.

In conclusion, therefore, the second instance judges, contradicting the position of the court of first instance and, with it, the established practice of the Italian tax authorities, found that the absence in the relevant legislation of any reference to the need to reach the territorial waters and/or dock at the port of a third country allows for the conclusion that exit from the customs territory of the Union is in itself sufficient to complete the export formalities for the vessel and the consequent termination of the period of temporary admission.

On the other hand, the argument set out here would not even be at contradiction with the clarification provided by the Customs Agency itself in Circular No. 14D/2016, which states that the export of a vessel is deemed to have taken place and is proven by demonstrating that it has reached international waters and therefore “having crossed the twelve-mile limit demarcating the EU customs territory, accompanied by satellite detection of the vessel’s position in international waters” or “Alternatively to the above, the declarant/exporter shall provide the customs office with documentation proving the vessel’s arrival at a third-country port”. This circumstance, read in conjunction with the absence of provisions requiring – for the purposes of interrupting the clearance period – that the vessel reach territorial waters or even dock in the port of a third country, can only lead one to consider the interpretation given by the court hearing the case to be entirely reasonable.

In view of the above and the considerable debate the judgment has generated in legal circles, it is hoped that the tax authorities will acknowledge the correctness of the interpretation given by the Court of Appeal and, consequently, revise their position by issuing an adhoc circular or, in any event, an official document setting out their practice. Similarly and consequently, it would be hoped that the tax authorities would withdraw from all pending tax disputes concerning the same issue.

• The tax court's position is, moreover, confirmed by the Guidelines adopted by the European Commission (“Rules for private boats”), which clarify that, in order to interrupt the clearing period, it is sufficient to “sail the yacht out of the EU”.

• However significant and destined to mark a break with the past, it cannot be assumed that the judgment in question has resolved every doubt regarding the application of the legislation in question. Indeed, it should first be noted that the customs authorities are within the time limit to appeal the judgment before the Supreme Court of Cassation. Moreover, a genuine change of direction would be represented by the issuance of a circular by the financial administration endorsing the position of the case law and thus making it clear to operators that complying with the position expressed in the judgment does not – at the very least – entail a risk of litigation.