European Commission announces action on VAT evasion in the yachting sector

The European Commission has announced it is acting to end what it regards as VAT evasion in the maritime sector.

The action follows revelations contained in the Paradise Papers of widespread VAT evasion in the purchase of ‘private boats’. The EU believes this evasion is facilitated by national rules which do not comply with EU VAT law.

The Commission has commenced formal action against Cyprus, Greece and Malta for not levying the correct amount of VAT on the provision of yachts.

The infringement procedures announced relate specifically to:

  • The reduced VAT base for the lease of yachts – a general VAT scheme provided by Cyprus, Greece and Malta. While current EU VAT rules allow Member States not to tax the supply of a service where the effective use and enjoyment of the product is outside the EU, they 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 which greatly reduces the applicable VAT rate.
  • The incorrect taxation in Cyprus and Malta of purchases of yachts by means of what is known as 'lease-purchase'. 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 minor amount of the real cost price of the craft once the yacht has finally been bought, the rest being taxed as the supply of a service and at a greatly reduced rate.

The three Member States now have two months to respond to the arguments put forward by the Commission. 

Philip Munn, VAT partner at audit, tax and consulting firm RSM said: ‘Clearly, many European tax authorities are under significant pressure to address the revelations contained in the Paradise Papers. 

‘The language being used by EU commissioner Pierre Moscovici leaves no room for doubt. The European Commission believes that Cyprus, Greece and Malta have facilitated VAT evasion by endorsing these arrangements. Brexit has already cast doubt on the EU VAT paid status of yachts in the UK, for some buyers these changes are likely to create more uncertainty.’