Introduction
The regime of temporary admission is commonly used in the yachting industry, because it allows non-EU goods (i.e., yachts flying extra EU flags) to be introduced into the customs territory of the European Union for a limited period of time of eighteen months (the so-called “period of discharge”), with total exemption from import duties and VAT. Within such period, the yacht shall be transferred outside the EU waters in order to then be able to re-enter and thus begin a period of discharge. If the yacht is not brought outside the EU waters within the period of discharge and the owner does not pay import VAT, this may constitute the criminal offense of smuggling.
According to the EU Customs Code (Regulation (EU) No. 952/2013), there are certain conditions that shall be met in order to allow the navigation of extra EU yachts in the EU waters. Specifically:
1) the yacht shall be registered outside the EU;
2) the registration shall be in the name of a natural or legal person established outside the EU;
3) the yacht shall be used by persons residing outside the EU.
The Italian Supreme Court, with its decision no. 28502/24, ruled on an interesting case regarding the legal concept of the temporary admission regime.
Italian Supreme Court, Decision no. 28502/24
The Court ruled on a case regarding the request of precautionary arrest of an extra EU yacht filed by the European Public Prosecutor’s Office (“EPPO”). EPPO alleged:
- fraudulent use of the temporary admission regime;
- customs smuggling linked to import VAT evasion exceeding €13 million.
Both the Court of Imperia and the Review Court of Imperia rejected the request for the precautionary arrest of the yacht.
In particular, the yacht in question had been in Italy for 11 years, with only occasional short trips outside EU waters. The yacht was under the temporary admission regime and import VAT has never been paid.
EPPO argued that these trips (to Montenegro) were fraudulent maneuvers to “reset” the 18-month period of discharge. In addition, it pointed out that:
- there was a 50-year berthing contract in an Italian marina; and
- the captain actually lived in Italy, because he rented a house in Italy.
If true, this would have meant the yacht should have been considered permanently imported, triggering full VAT on its value.
The Italian Supreme Court upheld the decision of both the Court of Imperia and Review Court of Imperia, rejecting the precautionary arrest of the yacht.
The Court established that:
- Every trip abroad, even short ones, legally restarted the period of discharge and were not fraudulent without clear evidence of intent;
- The yacht’s formal compliance with temporary admission rules was sufficient: it was registered outside the EU and owned by extra EU entities;
- The evidence regarding the captain’s permanent residence in Italy was not sufficient;
- Most importantly, even if the yacht owners had stretched the rules, this was tax avoidance, not tax fraud.
In particular, the short trips outside the EU shall not be considered fraudulent maneuvers, constituting a criminal offence, but a case of “abuse of law” (tax avoidance), regulated under article 10-bis of Law 212/2000. It entails the possibility to exploit loopholes or interpretations of the law, which are favorable for the individuals concerned, and it is considered legal, thus not constituting a crime.
Therefore, this ruling confirms that, in Italy, using a favorable interpretation of EU customs rules is not criminal unless fraud can be proven.
Conclusions
The case illustrates the difficulty of addressing situations where individuals or companies, particularly in sectors such as luxury goods and maritime assets, rely on the letter of the law to secure significant tax advantages.
The above decision teaches us that the line between lawful tax planning and criminal tax fraud remains crucial in Italian and EU law. By reaffirming that “abuse of law” or tax avoidance cannot, by itself, give rise to criminal liability, the Supreme Court underscores the importance of respecting formal legal conditions.
In particular, respecting the deadline for temporary admission’s period of discharge is fundamental, otherwise import VAT will be due. If not paid, the owner may be considered liable for the crime of smuggling.