EC’s Moscovici suddenly decides he does not like yacht leases in some EU countries
The Mossack Fonseca Panama Paper leaks led to the resignations of two prime ministers, marches in cities around the world, spawned hundreds of investigations and led to thousands of articles.
When it was first revealed that Appleby – a much larger (and much more blue-chip) off-shore law firm – had been hacked, many investigative journalists probably thought there would be even more significant stories. They were disappointed. In fact, the most significant change to emerge so far is an investigation into yacht leasing systems within the EU. Even less exciting for some than the resignation of the leader of Iceland.
The European Commission has started formal proceedings against Cyprus, Greece and Malta. It says that they have not complied with EU VAT law.
“In order to achieve fair taxation, we need to take action wherever necessary to combat VAT evasion,” said Pierre Moscovici, Commissioner for economic and financial affairs, taxation and customs union. “We cannot allow this type of favourable 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.”
The Commission says that it does not agree with estimates made to calculate VAT on larger yachts. These assume that larger yachts spend more time outside EU waters. It also does not agree with the leasing of a yacht being classified as a service rather than a good.
Malta, in particular, has argued with the interpretation.
“The Malta Government remains committed to defending Malta’s rules on the basis of existing EU legislation, and the yachting industry is liaising with the Malta Government and providing its full support so that the appropriate technical submissions can be made to rebut the EU Commission’s claims,” says Stephen Attard, partner and Head of Tax at Ganado Advocates, the largest law-firm in Malta with a long-standing maritime law practice. Mr Attard added: “Whilst I have no difficulty with the French and Italian systems, I am of the view that it is not correct that the French and Italian systems are being treated by the EU Commissioner as compliant with EU Law whereas the system being adopted by Malta is not.”
The general view in the Maltese yachting industry is that Commissioner Moscovici is discriminating against smaller EU countries.
“The first ground is that Malta is not measuring the actual use of yachts outside the EU,” says Anthony Galea, managing director at Vistra Marine & Aviation another leading advisory, “Possibly the EU Commission was not aware of the new practices introduced last year. The second ground questions the interpretation that Malta uses, that the lease structure involves a lease and purchase, and this should be considered as a supply of a good. Malta has always maintained that the leases administered in Malta are operational leases and constitute a supply of a service. Malta had adopted the practice following practices introduced earlier by France and later by Italy, which practices continue today, and are an important option for potential yacht owners.”
Mr Attard agrees. He argues that Malta uses the same interpretations as other countries that have not been singled-out. “For example, Malta adopted the Over-ride Rule in the EU VAT Directive in the same manner as Italy, and Malta’s rules on effective use and enjoyment of pleasure yachts within and outside EU territorial waters mirror those adopted by Italy in 2002 and 2010,” says Attard. “The actual percentages of deemed use of yachts within EU territorial waters in the Malta Guidelines are exactly the same as those which Italy currently has in place. This begs the question as to why a discriminatory approach is being adopted by the EU Commissioner towards Malta.”
“In the case of France, it too has been recognising since 2005 that it is difficult for yacht lessors to establish the percentage use of a leased yacht within EU waters,” says Attard. “The French rules adopted in 2005 correctly recognise such a difficulty, and therefore allow yacht lessors to apply a 50% reduction on the total lease amount, irrespective of the category of the yacht. In practice, this means that only 50% of French VAT would be payable as a result of this French rule.”
It is perhaps surprising that Commissioner Moscovici has forgotten this.
After all, when he was French minister for finance and economy (between 2012 and 2014) he never felt the need to stop French yacht leases. Or perhaps he really feels strongly about yacht leases now and his letters to Italy and France are in the post.