The VAT Treatment Of APAs

According to a very common practice, in the case of charter agreement for pleasure yacht, the client makes available to the captain or the charter company a sum of money - usually amounting to around 25% of the cost of the charter - to be used for expenses of a different nature that will be incurred during the charter period and that are not known in detail at the beginning of the charter. This sum, commonly referred to as APA - or advance provisioning allowance - thus represents nothing more than an expense fund managed by the captain or charter company for the client's needs.

The treatment of these sums for VAT purposes calls for considerations that cannot disregard the nature of the APA itself. On this point, several phases must be distinguished, namely that of the payment of the APA by the client, that of the making of the expenses, and that of the final balance, the phase in which, at the end of the charter period, it is determined whether the amount of the APA has been in excess of or less than the actual expenses and, therefore, whether the client is entitled to a refund of part of the amount paid or is required to pay a balance.

First, it should be clarified that the payment of the sum of money by way of APA by the customer does not represent the payment of consideration for the supply of goods or services. It is therefore not relevant for VAT purposes. Rather, that payment takes on the nature of a movement of money which is by its nature excluded from the scope of VAT pursuant to Article 2(3)(a) of the VAT Code under Presidential Decree No 633/1972.

On the other hand, all expenses directly related to the charter, of a variable nature, which are borne by the customer and cannot be predetermined in advance at the beginning of the charter, are relevant for VAT purposes as ancillary expenses to the charter. The most classic example are the costs for refuelling or for the galley, which is usually charged back to the customer with a small surcharge for the purchase and preparation service. What these purchases have in common is that they are invoiced by the seller to the charter company and not to the client. These costs are then re-invoiced to the client with VAT applied, in accordance with the chartering regime. On the financial level, on the other hand, no payment from the client to the charter company occurs as the relevant funds are acquired by the APA.

Then there may be the hypothesis of the purchase of goods at the request of the customer which takes on an extraordinary nature and which is invoiced by the seller directly to the customer and not to the rental company. These hypotheses are very residual and in any case concern all cases in which the purchased good is not ancillary to the charter and the charter company does not charge the customer for the purchase service. The chargeback is not relevant for VAT purposes and no movement of a financial nature occurs with respect thereto since the relevant funds are acquired by the APA.

Finally, there is the final stage of settlement in which it is determined whether, with reference to the APA and in consideration of the expenses incurred, a credit or debit balance is determined with respect to the customer. In the first case, the customer will be entitled to reimbursement of its credit, in the second case it will have to pay the balance. In both cases the payments from one party to the other are not relevant for VAT purposes, for which the purchases of goods and any invoicing of the same by the charter company to the customer are relevant, in the different ways set out above.