The European Commission decided to send letters of formal notice to Cyprus, Greece and Malta for not levying the correct amount of Value-Added Tax (VAT) on the provision of yachts, as this could generate “major distortions of competition and featured heavily in the coverage of last year’s ‘Paradise Papers’ leaks.”
As informed, the Paradise Papers revealed widespread VAT evasion in the yacht sector, facilitated by national rules which do not comply with EU law. As well as the infringement procedures launched today by the Commission, the European Parliament has recently indicated that its new committee to follow up on the Paradise Papers would also look at this issue.
Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs Union, said:
In order to achieve fair taxation we need to take action wherever necessary to combat VAT evasion. 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 infringement procedures launched today by the Commission specifically concern:
- A 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.
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The 3 Member States have two months to respond to the arguments. If they do not act within those two months, the Commission may send a reasoned opinion to their authorities.
As explained, when it comes to VAT, recent Commission initiatives seek to put in place a single EU VAT area which is less prone to fraud and to enhance cooperation between Member States. The problem of VAT fraud knows no borders and can only be solved effectively by a concerted, joint effort of Member States.
