EC Opens Infringement Procedures

Posted On: 09 Apr 2018

The European Commission (EC) recently announced that it has opened infringement procedures against Cyprus, Greece and Malta in relation to the VAT treatment of yacht leasing operations. This latest news forms part of the general drive by the Juncker Commission, led by Pierre Moscovici, to investigate tax disparities within the European Union and the mechanism for levying VAT on yachts in these jurisdictions.

So what are the key facts?

The infringement procedure sent out on the 8th March concerns several areas where the EC believes that Malta, Cyprus and Greece currently fail to meet European Union directives.

The first issue relates to the ‘use and enjoyment’ rule where a reduced VAT base for the lease of yachts can be applied. Current EU VAT rules allow EU Member States not to tax the supply of a service where 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 location of actual use.

Secondly they are concerned with ‘lease-purchase’ agreements in Cyprus and Malta. Current Cypriot and Maltese laws classify the leasing of a yacht as a supply of a service rather than a good. The impact of which means that VAT is only being applied at the standard rate on a partial amount of the real cost price of the superyacht once the yacht has finally been bought, whilst the rest is then being taxed as the supply of a service at a greatly reduced rate.

All three Member states now have two months to respond and provide explanations to the EC. Failure to do so could result in the Commission sending a ‘reasoned opinion’ to their authorities.

So is the end for yacht leasing schemes?

Depending upon where and how a vessel is owned and operated has, and will always, determine the most appropriate type of structuring. Leasing schemes are viewed by many within the industry as a good option, particularly in a marketplace where new entrants can be slow to commit. Industry insights seem to indicate that leasing solutions, however they develop and take shape, will continue to offer appeal to certain owners in relevant circumstances.

We understand that any existing leases remain valid and within the parameters of current legislation. Any leases which are due to commence may still do so, until such time as there are any legislative amendments.

As always, we will continue to monitor the situation closely and expect that the Maltese Authorities along with the other Member states will issue a robust defence of their stance in due course.