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EU gives Greece, Cyprus and Malta two months to review VAT on superyacht purchases

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The European Commission has issued a formal warning to the governments of Greece, Cyprus and Malta over these countries' non-compliance with EU tax legislation regarding VAT on the purchase of superyachts.

«In order to achieve fair taxation we need to take action against tax evasion," commented Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs Regulation. - 'We cannot allow this type of preferential tax treatment to be granted to private boats, it disrupts healthy competition in the maritime industry. This practice violates EU law and must be stopped».

An official letter from the European Commission to the governments of Greece, Cyprus and Malta highlights: as a result of the leakage of the so-called «Paradise papers» it has become clear that tax avoidance practices are widespread in the superyacht sector and are facilitated by national taxation practices that contravene EU laws.

«This warning means Greece, Malta and Cyprus have just two months to explain themselves to EU leaders, says Jean-Philippe Maslin of Ince & Co France. - Greece is not implicated in the rental schemes, it is on this list for its loose interpretation of the "use and disposal" rule under the VAT Directive. It is this rule that allows EU member states to reduce the tax base (and hence VAT) if part of the business activity takes place outside the EU».

The Maltese and Cypriot lease schemes are very simple: the lessor provides the yacht to the lessee for a period of 1-3 years with an option to buy the yacht at the end of the lease. This purchase is treated as a service and subject to lower taxation, as the right to use and dispose of this service is for the most part outside the European Union. At the end of the lease the lessee exercises a purchase option and becomes the new owner of the yacht. This is treated as a delivery of goods. However, the full rate of VAT only applies to 1% of the value of the yacht.

As a result, the transfer of ownership of the yacht takes place at a very low rate of VAT - up to 5.4% in Malta and 3.8% in Cyprus, compared to the normal rate of 18% and 19% respectively.
«It is likely that Malta and Cyprus will try to adapt their leasing arrangements to EU requirements," Maslin continues. - This will not affect deals that have already been carried out under such schemes, but future lease terms and purchases may no longer be as favourable. This suggests that leasing still has a future in the superyacht market, provided it is more in line with real economic activity».

The European Commission has previously called on the government of Malta and another well-known offshore, the Isle of Man, to reconsider how VAT is levied on the purchase of yachts and aircraft. The impetuous activity aimed at unification of the tax base of the European Union was preceded by publication of the documents in the network that reveal schemes of tax evasion in offshore zones. «These documents, in which» almost the entire top of Russian Forbes was exposed, were called «Paradise papers».

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