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Sardinian Tax On Tourist Stopovers Infringes EU Law

by Ulrika Lomas, Tax-News.com, Brussels

18 November 2009


The European Court of Justice (ECJ) has issued a preliminary ruling that the Sardinian regional tax on tourist stopovers by aircraft and boats, levied on those domiciled for tax purposes outside Sardinia, infringes European Community (EC) law.

Legislation adopted by the Region of Sardinia introduced, as from mid-2006, a tax on stopovers for tourist purposes by aircraft used for the private transport of persons or by pleasure boats over 14 meters in length. Subsequently, the Italian Constitutional Court, suspecting an infringement of EC rules on the freedom to provide services and free competition, made a reference to the ECJ for a preliminary ruling.

In its ruling, the ECJ considered that the application of the tax makes the services concerned more costly for the persons liable for that tax who have their tax domicile outside the region, and who are established in other EU member states, than they are for operators established in Sardinia. The additional costs relating to stopover operations, it said, creates an advantage for undertakings established in the region.

The ECJ therefore decided that the difference between residents and non-residents constitutes a restriction on the free movement of persons, since there is no objective difference in their situations which could justify the difference in treatment as between the various categories of taxpayer.

It also judged that protection of the environment could not be relied upon as justification for the fact that operators whose tax domicile is outside the territory of the region – who are the only persons liable to the tax – are treated differently. Pollution is caused regardless of the place of origin or tax domicile of their operators. The aircraft and boats of residents and non-residents alike contribute to environmental damage.

In addition, the ECJ stated that, while the tax may distort competition (since it grants an economic advantage to operators established in Sardinia), it is also in contravention of EC state aid rules in that it confers a selective fiscal advantage only on Sardinian enterprises, as compared with undertakings which do not have their tax domicile there.

It was explained that a preliminary ruling does not mean that the ECJ has ruled against Sardinia, but the Italian Constitutional Court is now bound to make its judgment in line with the ECJ’s findings.

TAGS: Italy

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