Italy: The Italian "Luxury" Tax On Business Jets

Last Updated: 13 July 2012
Article by Mark Bisset

In these days of austerity in Western Europe a worrying, though not surprising, trend is the imposition of taxes on business aircraft. In our last Aviation Bulletin we reported on the proposed extension of UK Air Passenger Duty (APD) to business aviation, and in this Bulletin we report on the new Italian tax known as "Salva Italia".

The Salva Italia tax came into force on 2 May 2012. The tax applies principally to Italian–registered private aircraft and foreign-registered aircraft at rates up to €7.55 per kg of MTOW (this highest rate applying to aircraft with an MTOW over 10,000kgs).

With regard to Italian-registered aircraft, for private aircraft the tax will be charged to the person indicated as the owner, the buyer under a conditional sale agreement or the lessee. The tax is to be paid at the moment of renewal of the certificate of airworthiness of the aircraft. If the relevant airworthiness certificate is in force at the time the law comes into effect, the amount is due within 90 days from its coming into effect and its amount is pro-rated to the remaining months of validity of the certificate during the year 2012.

With regard to non-Italian registered aircraft, the tax applies to such aircraft which spend more than 45 consecutive days in Italy. This is a considerable improvement from the original proposed 48 hours and means that the tax can be avoided by the simple expedient of moving a foreign registered aircraft outside Italy at least once every 45 days. Non-Italian registered aircraft having spent more than 45 days on Italian territory are subject to the tax on a pro-rata monthly basis, ie, 1/12 of the annual rate for each month spent in Italy in excess of the 45 days tax exemption period. The tax must be paid before leaving Italian territory.

A major exemption relates to non-scheduled commercial flights, so the tax only relates to private flights. As a consequence of this non-applicability to non-scheduled commercial flights, and possibly as a consequence of the extension of the relevant period from 48 hours to 45 days with concomitant reduction in the tax yield, a passenger tax on chartered flights (referred to as "aero-taxis") has also been introduced by the Italian legislature. The tax is €100 per passenger for flights of less than 1,500kms and €200 per passenger for flights in excess of 1,500kms. The aero-taxi tax is to be calculated per "leg". The text of the law is not completely clear on the meaning of this, but, by analogy with the words used in Regulation 261, the current wording is interpreted to mean that the amount is due on departure or arrival or both in the case of a return journey.

It has been well put that Salva Italia "must give regular travellers to Italy a feeling of déjà vu mixed with an impression of incoherence" (Giulia Mauri, Verhaegen Walravens). This is because a similar luxury tax, the 2006 Soru tax, was recently declared unconstitutional by the Italian Constitutional Court. In the last Bulletin we discussed the compatibility of UK APD with Article 15 of the Chicago Convention, and similar questions must be raised in relation to the Salva Italia. As our last Bulletin suggested, perhaps the time is overdue to revisit the court precedents in respect of the UK APD and the (subsequently abolished) Dutch Ticket Tax.

"Salva Italia" literally means "save" or "rescue" Italy and the tax is part of a series of measures introduced by the Italian Prime Minister Mario Monti to reduce Italy's budget deficit. This is of course a laudable aim, but the business aviation industry will query whether potentially disregarding international aviation legislation is the best means of achieving it. As well as being a consequence of the debt crisis in Western Europe it is also part of an international trend, with the Chinese government introducing a levy on airline passengers early in 2012 of Rmb50 (for domestic routes) and Rmb90 (for international routes). No doubt there will be further similar developments to report on in future Bulletins.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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