VAT refunds and possible implications for charter companies

In general, issues relating to VAT management, including procedures for recovering VAT credits, are of great importance to all businesses. A frequent issue arises in relation to how foreign entities with a permanent establishment in Italy can request a VAT credit refund.

In the yachting world, this issue may concern in particular – but not exclusively, of course – foreign charter companies that operate from their parent company but which, in addition, have deemed it appropriate for organisational reasons to open a permanent establishment in Italy. Consider, for example, those companies that manage their charter business from their headquarters abroad but then, through their permanent establishment in Italy, manage the various yacht maintenance and care services or provide reception and management services for the various needs of their customers.

For all these entities, there is uncertainty regarding the procedures for recovering VAT credits that may arise in Italy following the purchase of goods and services in Italy directly from the foreign parent company. There are two possible procedures that could be followed alternatively. First, the parent company could access the simplified VAT credit recovery procedure referred to in Article 38-bis2, Presidential Decree 633/1972, under which foreign EU entities can apply electronically for a VAT credit refund from the tax authorities in their own country, which then deals directly with the Pescara Operations Centre of the Revenue Agency, which handles the refund process. The second - and alternative - procedure provides that the credit generated in Italy is attributable to the permanent establishment and therefore the ordinary procedure for the refund of VAT credit for persons established in Italy must be followed, pursuant to Article 30, paragraph 2, letter e), Presidential Decree 633/1972.

There has been some confusion around this issue, partly due to a misalignment between domestic legislation and the EU directive, which was then followed by national and EU case law and practice.

First of all, it should be noted that Article 17 of Presidential Decree 633/1972 establishes that obligations relating to the supply of goods and services carried out in Italy by taxable persons not established in Italy to taxable persons established in Italy are fulfilled by the latter through the reverse charge mechanism, provided that the transaction is carried out directly by the non-resident entity without the intermediation of its permanent establishment in Italy. Therefore, if the permanent establishment is involved, the active transaction of the foreign parent company is attributable to the permanent establishment itself, which becomes the debtor of the related tax due in Italy, while the passive transaction must be invoiced to the permanent establishment, which could ideally generate the VAT credit to be claimed for refund, which, in this case, should take place according to the ordinary procedure referred to in Article 30, paragraph 2, letter e) of Presidential Decree 633/1972.

In the different case where there is no intervention by the permanent establishment, the transaction is attributed exclusively to the parent company and therefore the refund must be made following the simplified procedure referred to in Article 38-bis2, mentioned above.

It is therefore particularly important to identify the criteria on the basis of which it can be considered that the permanent establishment is involved in the transaction carried out by the parent company. In this regard, the Italian Revenue Agency, in its response to request for ruling no. 33/2025, recalls the provisions of Article 53 of Council Implementing Regulation (EU) No 282/2011, according to which ' if a taxable person has a permanent establishment in the territory of the Member State in which the tax is due, that establishment shall be deemed not to be involved in a supply of goods or services ... unless the technical or human resources of that permanent establishment are used by it for transactions relating to the supply of those goods or services taxable in that Member State, before or during the supply of those goods or services" . Therefore, a permanent establishment is considered to be involved for VAT purposes if, being characterised by a sufficient degree of permanence and an adequate structure in terms of human and technical resources, it has actually been involved in the supply of services or goods, using its own resources for transactions related to the performance of the taxable supply.

With the aforementioned ruling no. 33, the Revenue Agency went beyond previous guidelines and clarified, in line with EU regulations, that the mere existence of a permanent establishment in Italy is not sufficient to preclude simplified refunds. In order to exclude this method of tax refund, the permanent establishment must have directly carried out transactions that are relevant in Italy or, at the very least, have participated in the transactions carried out by the parent company.

Applying this principle to international charter structures, the VAT liability relevant for the purposes discussed here is transferred to the Italian permanent establishment whenever the technical or human resources of that permanent establishment are used to perform all or part of the charter service provided by the parent company. Consequently, any request for a refund of the credit generated in Italy must follow the specific procedure identified above, depending on whether or not the charter service in Italy is carried out through the intervention of that permanent establishment.

Evidently, all of the above also has an impact on identifying the entity to which the Italian operator must issue an invoice, i.e. the parent company or the permanent establishment. For this reason, it is of primary importance that an expert analyse the above issues in order to determine whether or not the activity is attributable to the permanent establishment and, consequently, the methods of passive invoicing and any recovery of VAT credit generated in Italy.