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EU: Infringement procedures against Cyprus, Greece, Malta; VAT on yachts

EU: Infringement procedures; VAT on yachts

The European Commission today announced that it will 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.

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As noted in today’s EC release, the “Paradise Papers” revealed widespread VAT evasion in the yacht sector, facilitated by national rules that do not comply with EU law. In addition to the launch of today’s infringement procedures, the European Parliament indicated that a new committee will also look at this issue.

The infringement procedures concern:

  • A reduced VAT base for the lease of yachts—a general VAT regime in Cyprus, Greece, and Malta. Current EU VAT rules allow EU Member States not to tax the supply of a service when 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 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 that greatly reduces the applicable VAT rate.
  • The incorrect taxation in Cyprus and Malta of purchases of yachts by what is known as '”ease-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 partial amount of the real cost price of the craft once the yacht has finally been bought, with the rest being taxed as the supply of a service and at a greatly reduced rate.

These three EU Member States now have two months to respond, and if they do not, the EC may send a “reasoned opinion” to their authorities.

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