The infringement procedures concerned:
- A reduced VAT base for the lease of yachts in Cyprus, Greece, and Malta. Current EU VAT rules allow EU Member States not to tax the supply of a service when the effective use and enjoyment of the product is outside the EU, the EU VAT rules do not allow for a general flat-rate reduction without proof of the place of actual use. Malta, Cyprus, and Greece have established guidelines according to which the larger the boat is, the less the lease is estimated to take place in EU waters; a rule that greatly reduces the applicable VAT rate.
- The incorrect taxation in Cyprus and Malta of purchases of yachts through leasing schemes. The Cypriot and Maltese laws currently classify the leasing of a yacht as a supply of a service rather than a good. This results in VAT only being levied at the standard rate on a partial amount of the real cost price of the hull once the yacht has finally been bought, with the rest being taxed as the supply of a service and at a greatly reduced rate.
“In order to achieve fair taxation we need to take action wherever necessary to combat VAT evasion. We cannot allow this type of favorable tax treatment granted to private boats, which also distorts competition in the maritime sector. Such practices violate EU law and must come to an end” said Pierre Moscovici. The goal is to put in place in the near future a single EU VAT area which is less prone to fraud and to enhance cooperation between Member States.
After the first infringement package, the EU Commission decided also to start infringement procedures against Italy and the UK on tax breaks for yachts and aircrafts.
The Commission has sent a letter of formal notice to Italy for not levying the correct amount of VAT on the leasing of yachts. The Commission has found that the Italian VAT guidelines, according to which the larger the yacht is, the less the lease is estimated to take place in EU waters, greatly reduces the applicable VAT rate, as it had previously considered for Malta and Cyprus schemes.
The Commission has also sent a reasoned opinion to Italy relating to the exemptions for fuel used to power charted yachts in EU waters. The Commission has noted that Italy allows chartered pleasure yachts such as yachts to qualify as ‘commercial’ even when being enjoyed for personal use, which may allow them to benefit from excise duty exemption on fuel used to power its engines, resulting in a breach of applicable EU law. Under EU excise duty rules, Member States may decide not to tax fuel used by a navigation company for commercial purposes, i.e. the sale of sea navigation services. However, an exemption should only apply if the person leasing the boat sells such services to others.
The infringement procedure opened against the United Kingdom concerns the Isle of Man’s abusive VAT practices with regards to the supplies and leasing of aircrafts. According to the Commission, the United Kingdom has not taken sufficient action against abusive VAT practices that allowed a VAT deduction for the supplies and leasing of aircrafts for private use. VAT is only deductible for business use, whereas supplies of aircrafts, including leasing services, meant expressly for private use should not be VAT-exempt.
Cyprus and Malta are currently working on amending their guidelines to able to continue to provide leasing schemes in the future in line with the Commission requirements. Italy and the Isle of Man have two months to reply to the arguments put forward by the Commission.
2019 promises to be a year full of tax news and possibly revolution in the way yacht and aircraft are acquired and operated!
For more information, please contact Janet Xanthopoulos, Legal Adviser / Head of Yacht & Jet Ownership & Administration Dpt at j.xanthopoulos@rosemont-yacht.com
19/12/2018