Sardinia Yacht Tax Takes Aim at Rich and Famous

New Italian port luxury tax pinches pocketbooks of world's richest people.

ByAMMU KANNAMPILLY

July 13, 2007 — -- As yachting season kicks off across the Mediterranean, there are a few yachts that will probably not moor on the famous Costa Smeralda, also known as the Emerald Coast, of Sardinia, Italy.

They include yachts belonging to such American billionaires as Paul Allen, co-founder of Microsoft, and Larry Ellison, the CEO of Oracle Corporation.

Last summer, both Ellison and Allen refused to berth their megayachts, Rising Son and Tatoosh, in Sardinia's Cala di Volpe bay. (Although some Russian billionaires, including oil magnate Roman Abramovich, had no such reservations.)

Neither man commented on their reasons for doing so, but it's widely believed that their decision may have something to do with the introduction of a new "luxury tax" by the regional government of Sardinia.

The Sardinian government last year slapped a tax on all yachts longer than 46 feet. This means an annual fee of $1,377 for yachts up to 52.5 feet to a hefty $20,656 for those measuring over 197 feet. And the tax is non-negotiable, with the government insisting that even yachts mooring for less than 24 hours must pay the full amount.

Megayachts like those belonging to Allen would require the owners to pay even higher sums of money. Had Allen chosen to berth the 300-foot Tatoosh in the Cala di Volpe bay or nearby Porto Cervo harbor last summer, his tax bill would have been at least $21,000.

Even Microsoft Chairman Bill Gates, who was holidaying aboard Allen's other megayacht, the 414-foot Octopus, decided to skip his trip to Sardinia last summer, according to Italy's Corriere della Sera newspaper. Presumably, Gates thought there were better ways to spend his money than to pay the Sardinian government a whopping $30,000 in taxes.

The drop in wealthy celebrity visitors hasn't gone unnoticed by local hotels, restaurants, and yacht support companies.

In an interview with ABC News, Martin Freilinger, manager of Sardinia Yacht Services, criticized the tax, calling it "illegal."

"The European Union courts will hopefully decide that this tax is wrong," he said, adding that his company is "lobbying against it."

Renato Soru, the president of the region of Sardinia , said that such claims against the tax are wrong. Soru told ABC News that "the tax is not a 'tax on luxury' as someone has called it, but a tax to protect the environment."

Sardinia has been "seriously menaced by an indiscriminate touristic [sic] development," Soru said. The government wanted to pursue a tourism policy "that does not exploit the environment."

Scoffing at such talk, Freilinger said he didn't believe such reasoning: "They say that rich people come here, they don't leave any money, they dirty the water -- it's just a way for the government to make easy money."

As for the government's conservation plans, Freilinger said that "they may claim they are investing the money from this tax, but they have earned only $2 million. It's small change -- you can't do anything with it!"

"Besides," he added, "it's costing them three times as much to organize this taxation scheme."

Soru was unable to provide "the exact cost of carrying out the scheme" or confirm the amount raised by the tax last year.

There is some confusion about collecting of the tax. Giovanni Passaghe, concierge at the five-star Cala di Volpe hotel in Sardinia, said that a number of the hotel's clients "didn't pay anything last year. The scheme just wasn't very clear."

As for this year, he said, "we still don't know what we will be charged."

Neither does the Sardinian government, according to Freilinger, who called the tax plan "very disorganized."

"Last year," he said, "no one knew where to pay this tax. The government said, 'Go to the post office.' Eighty percent of what the government earned was paid by us -- our clients paid us because we were obliged to collect the tax from them. The rest went to the post office, I suppose!"

In the midst of all this, reports in the Italian and British media suggest a drop in the number of visitors docking along the Emerald Coast.

However, Passaghe said he has not noticed any difference in the number of visitors to the hotel. "People are still coming here," he said.

Freilinger disputed that, saying, "In smaller ports, there has been a noticeable drop in clients -- a drop of 30 percent approximately. Clients don't dock anymore, especially those with bigger yachts."

Among those who won't make a port call are "American and Arab billionaires," according to him.

But the government denies such claims. Said Oppo: "The latest numbers are that in June 2007 the arrivals from the sea are increased if compared to June 2006."

To Freilinger though, the situation is obvious. "The government doesn't understand the market. People who sail around here -- they choose to go to places like Corsica, Capri, and when they see a sign saying that you have to pay a luxury tax to dock in Sardinia, they simply don't come here! I would do the same thing."

Sardinia's Emerald Coast has been a popular destination for many A-list stars like Mick Jagger and Naomi Campbell since it was developed with the financial backing of the Aga Khan in the 1960s.

One of its most familiar visitors, Italian entrepreneur Flavio Briatore, even set up a nightclub named -- what else -- Billionaire there. According to Forbes magazine, he reportedly said that he wanted "a place where, even if people weren't billionaires, they could spend like billionaires."

Now, with the new tax, it seems as if the very people responsible for keeping Sardinia in business as a tourist destination may be staying away.

"The tax has affected all the people who do business with boats -- suppliers, restaurateurs, shopkeepers," said Freilinger. "Sardinia lives on tourist dollars." His own company, he said, lost 70 clients last year.

But this doesn't matter to the government. Soru said, "It is of little importance that a certain number of people go and eat in a restaurant for a small period in a year."

"This is a private thing that advantages the proprietors of these restaurants, who often are not Sardinians and neither have their residence in Sardinia," allowing them to evade taxation, according to Soru.

To Freilinger though, "none of this makes any sense."

Asked about this summer's yachting prospects, he gloomily mused, "I just hope that this tax will be overturned… I think it will. But it will take time though."

Christine Brouwer contributed to the reporting of this story.

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