The European Commission has told the UK and Malta to change their value-added tax VAT rules on yachts. The two countries could face possible financial sanctions, according to Reuters.

Pierre Moscovici, EU Commissioner for Taxation, told the news agency that he had written the British finance minister about the Isle of Man’s tax-exempt practices and to the Maltese minister about VAT on yachts and private jets. “There are practices that we have reasons to think are suspect,” Moscovici told French television BFM TV. “I asked that the rules be changed and if they aren‘t, the European Commission will launch an infringement procedure that can bear extremely heavy financial sanctions.”

EU officials said the Isle of Man, which is under UK sovereignty but self-governing, has issued VAT exemptions for private jets and yachts when there is no grounds for granting the waiver. The UK’s finance ministry said tax administration on the Isle of Man was the responsibility of the authorities there. “We are working closely with them to look into how VAT is paid on aircrafts and yachts, and we intend to reply to the EU Commission by the end of the year,” a finance ministry spokesperson said in a statement.

Malta’s decision to cut the VAT rate on superyachts was taken because they are mostly used in international waters, according to an EU official.

The “Paradise Papers” have given EU ministers new impetus to approve a blacklist of tax havens next month, although they are divided over how to impose sanctions. Under EU rules, it could take years for sanctions to be imposed. It would take two EU court rulings against specific countries for penalties to be passed.

Maltese Prime Minister Joseph Muscat told parliament that the VAT rules were approved years ago by the European Union. “Malta is not a tax haven and vigorously rejects the label of tax haven,” Muscat said last week.