The European Commission has opened infringement procedures against Cyprus, Greece and Malta for not levying the correct amount of Value Added Tax (VAT) on the provision of yachts. The Commission got much of its information from the “Paradise Papers’” leaks, which it said showed there is widespread evasion of VAT in the yachting sector, facilitated by national rules that do not comply with EU law.
“We cannot allow this type of favourable tax treatment granted to private boats, which also distorts competition in the maritime sector,” said Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs Union, in a statement. “Such practices violate EU law and must come to an end."
The Commission specified that the infringement procedures focus on a reduced VAT base for yacht charters – 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,” said the statement.
“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 Commission said there is also “incorrect taxation” in Cyprus and Malta that use “lease-purchases” for buying yachts.
“The Cypriot and Maltese laws currently classify the leasing of a yacht as a supply of a service rather than a good,” said the statement. “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 Commission said that its three Member States now have two months to respond to the allegations.