The Story So Far ...
Following the ECJ cases Helmoltz and Haltergemeinschaft (1 December and 21 December 2011), France was invited by the EU Commission to modify its excise legislation on the exemption of excise duties on supply of fuel for commercial vessels.
As a consequence, Article 265 bis of the French Tax Code was modified on 1 January 2014 to read that only vessels used commercially by their end-users can benefit from the duty exemption (TICPE - Taxe Intérieure de Consommation pour les Produits Energétiques, the internal tax on the consumption of energy products).
Hence, yachts chartered for recreational purposes should have been excluded since then from the excise exemption on fuel supplies, as their end users do not use them for commercial purposes.
However, the French Customs Authorities effectively agreed to postpone the entry into force of the measure, as the excise legislation of the EU member states had not yet been harmonised.
We expected the change to be announced in January 2015. Thanks to a heavy lobby pressure this was delayed until October 2016.
After 1.10.2016 ...
A new ‘Arrêté” (Order) dated 17 December 2015 was enacted, followed by a Circular which amended the “Bulletin Officiel des Douanes” (Customs Circular) N° 6638 dated 12 July 2005 and which details the new requirements to be able to benefit from the duty exemption.
What must commercial yachts do to comply with the new “Arrêté “dated 17 December 2015 in order to be able to continue to take on duty-free fuel?
Fuel in France is subject to two taxes, TICPE and VAT.
Commercial yachts which comply with the below 6 cumulative conditions will continue to benefit from the VAT exemption on fuel (based on the French Commercial Exemption requirements as outlined in BOFIP dated 12 December 2015 and French Commercial self-attestation:
Commercial registration; Commercial operation at all times; Permanent crew; Yacht over 15m in length; Yacht needs to exit French Territorial waters at least for 70% of the trips carried out over a calendar year period; Yacht needs to make more dynamic than static charters.
To continue to benefit from the duty exemption as well, commercial yachts will also need to be used exclusively for commercial purposes by their end user.
If the above conditions are fulfilled and supporting documentation can be provided, commercial yachts may refuel duty-free up to 72 hours before a charter starts and up to 96 hours after it is terminated.
The problem though is that the way commercial yachts are generally operated nowadays under a MYBA contract cannot be considered as “yachts used exclusively for commercial purposes by their end users”. Such charter contracts identify the charterers as being the end-users of the service and, in 95% of the charters, the charterers use the yacht for pleasure and not for commercial purposes.
As the end of duty free fuel could have a destroying impact for the French Yachting Industry, French Customs and Fiscal Authorities, which despite what some people think, are still supportive of the Yachting Industry, have discussed with French professionals the possibility to develop a new type of contract so that the duty exemption still be applicable.
... Unless the charters are operated through a new Service/Transport Contract...
Under a Service or Transport Contract, whereby the owner is not putting a yacht at the disposal of a charterer for recreational purposes but under which the owner offers a service to passengers, the final use of the yacht could be considered as a commercial activity in accordance with the ECJ rulings.
Therefore and to be able to continue to benefit from the duty exemption, a new way of operating commercial yachts and new type of contract had to be studied.
ECPY, the European Committee for Professional Yachting, along with other local associations have been working on such new contract with the input of Customs and Fiscal Authorities so that commercially registered and operated yachts could still benefit from the duty exemption after October 2016.
Very briefly, the contract should be considered as an all-inclusive Transport or Service Contract which shall include; transport with predetermined route, food, fuel, service, etc… and the yacht should not be controlled by the charterer at the end but by the Captain or the owner.
This way of operating yachts will also have a positive impact on the VAT applicable on the contracts which will tend to follow the rules applicable to cruise vessels.
Will this new way of operating yachts be successful in the future? For the time being one thing is sure, Charter Brokers are reluctant to become travel agents and do not see with a benevolent eye the fact that travel agents could start becoming Charter Brokers. Not to mention the extra insurance they should take to cover their new liabilities.
Such new type of contract could be interesting though for big units having a real and intensive international third party activity.
At the end of the day, if one studies well what these changes imply and how these could be implemented in practice, the changes needed are not huge. But it is in the human nature to be afraid of the unknown.
We at Rosemont Yacht Services would wager a small bet that Charter Brokers will convince their clients initially to bunker in Italy as long as duty free fuel is still available there. This, by the way, is seen as a total discrimination by the French Yachting Industry.
Only the future will tell…
For more information or advice on yacht legal and fiscal matters please contact Janet Xanthopoulos
Rosemont Yacht Services
Tel. +377 97 97 21 41