Watch out for fake news about boat tax in the Balearic Islands

News has been circulating for a few weeks about the Balearic Islands government’s desire to introduce a new boat tax, along the lines of what happened years ago in Italy, and the possible exodus of shipowners from the Spanish archipelago, but will this really be the case?

We went to look into the matter and discovered that, in fact, the local government is promoting a new tax on non-productive luxury goods, including boats, in the hands of legal entities (companies). The effects for boating in the Balearic Islands, business associations warn, could be severe, with the possibility of boats and luxury yachts making their way to other ports in Spain and the Mediterranean.

But it is good to make it clear from the start: you will not pay “parking fees” if you decide to go with your boat to the Balearics.

Boat tax, what’s going on?

Last February 7, the Finance Committee of the Balearic Islands Parliament approved a non-legislative proposal calling on the government to study the implementation of a new tax for legal entities (companies) on non-productive luxury goods, such as commercial and noncommercial real estate (not necessary for the company’s economic activity), vehicles with more than 200 horsepower, yachts, airplanes or works of art and jewelry. The proposal, put forward by Més per Mallorca, a leftist party in government, is viewed favorably by various social and environmental movements but, in turn, finds rejection from employer associations such as the Confederation of Business Associations of the Balearic Islands (CAEB) and the Association of Nautical Sports Facilities of the Balearic Islands (ANADE).

The motives of those who proposed the new boat tax

To justify this measure, Més per Mallorca argues, citing data from Oxfam Intermón (an NGO part of the Oxafam International confederation), that “the latest economic crises have shown an increase in inequality,” while taxes are “an essential tool for sustaining public services and redistributing wealth. “ Més representative for Mallorca, Joana Aina Campomar, pointed out that commodity inflation“is rising like never before,” while the wealth of millionaires in the food and energy sectors“increases by a billion every two days.”

This would mean that they accumulate, according to Campomar citing Oxfam data, 13.9 percent of the world’s GDP, three times as much as in 2000. “This high inequality in wealth justifies the use of tax instruments to reduce it, while avoiding penalizing economic growth” says Campomar, pointing out that this would allow for a combination of two fiscal objectives: redistribution and economic growth. “Such a tax is cost-effective because it can encourage more productive use of assets” he states. Similarly, the goal would also be to “address the tax evasion and fraud of some holders who, in some cases, do not put it (the asset) in their own name but that of their companies, in order not to pay the inheritance tax,” he argues.

Boat tax. Employer associations are against

On March 9, the CAEB warned that the implementation of this taxwould“cause yachts to flee to other destinations. “ In a statement, the employers’ association expressed its“total opposition” to the possibility of such a tax being approved in the Balearic archipelago, as it would “clearly harmnot only the ports” that welcome yachts, “but also the commercial and industrial fabric of the Balearic Islands.”

“This tax was applied in Catalonia and the boats, especially in the low season, left,” explains Andy Halcón, vice president of ANADE. “
This tax would not be effective because, unlike other luxury goods, boats can be moved to other destinations
“. The risk is to cause an exodus of boats to other locations, even in Spain itself, a few miles away, because it would be a local, not a national tax.

Although it is possible that the tax will also have an impact on the boating industry in the tourist season, it is for the off-season that entrepreneurs are most concerned. Today there are almost 700 companies working in yacht maintenance in the Balearic Islands, while in 2008 there were no more than 200. “The work that is done in winter is an important factor in the economy of the Balearic Islands. It represents a direct turnover of about 300 million euros of GDP” says Halcón. “Our biggest concern is that luxury boats and yachts during the off-season veer to other destinations, which would hurt us not only because they leave, but also because We would lose an important seasonal adjustment factor that our area so badly needs“.

Avoiding tax evasion

“We must have a tax system that is not only progressive but also fair. Therefore, what is being pursued with this tax is to prevent some companies from incorporating non-productive assets (which have nothing to do with the company’s economic activity) for the sole purpose of paying less tax “, explains to Maria Antònia Truyols, economist, former director of the Balearic Islands Revenue Agency (2009-2011) and PSIB (Socialist Party of the Balearic Islands) deputy in Parliament.

Because inheritance tax is paid only by individuals, Truyols argues, there are companies that incorporate these assets that are used for personal purposes“when they should, of course, be taxed under the inheritance tax as an individual. It is not a tax that seeks more revenue because it is proven, as in the case of Catalonia, to be a tax that generates little revenue. What is being pursued are tax evasion practices and achieving greater tax justice“.

The Italian experience

Impossible not to think of theItalian experience of the parking tax, which turned out to be a real flop. The one introduced in 2006 by Sardinia’s former governor Renato Soru, then moreover rejected in 2008 by a ruling of the European Court of Justice, caused an immediate 35 percent drop in the turnover of companies related to nautical services and tourism.

The one sought by the Monti government in 2011, which in theory was supposed to guarantee a revenue of more than 280 million euros, secured takings of just 24 million, prompting many shipowners to move their vessels to French and Croatian waters.

An opportunity for Italian boating?

The tax on boat ownership in Italy, which to be fair affected everyone, both legal and natural persons, was abolished in the 2016 stability law. Should the government of the Balearic Islands approve this new tax on non-productive luxury goods, even though it applies only to legal entities, perhaps Spanish shipowners could set a course right for Italy and Sardinia to find refuge. Will this be an opportunity for Italian boating or a stimulus for a European-wide fight against tax evasion?

What do you guys think? Let us know with a comment.

James Barbaro