VAT and Shipping

 The consideration of VAT related aspects in the shipping world are becoming more frequent and complex. The reasons for this are the following:  - changes in legislation;  - judicial interpretation;  - different types of structures involved in a shipping (including a yachting) operation;  - multi jurisdictional element of trading with ships and/or yachts;  - stronger enforcement throughout Europe (not just in the yachting world). 2

Why are these two spheres treated differently? Shipping vs Yachting

- The Bacino Charter Case - État du Grand-Duché de Luxembourg and Administration de l’enregistrement et des domaines v Pierre Feltgen and Bacino Charter Company SA – 22/12/2010; - Prior to this ECJ preliminary ruling, VAT rules relating to shipping and yachting applied in a uniform manner accross both spheres (i.e. exempt with credit supply treatment); 4

Shipping vs Yachting  Quoting from the Bacino Charter case:  Para 13. It must be pointed out, in this regard, that the actual wording of Article 15(5) of the Sixth Directive, which contains a reference to Article 15(4)(a), covers the hiring of vessels used for navigation on the high seas and carrying passengers for reward or used for the purpose of commercial, industrial or fishing activities. In order for such a hiring service to be capable of exemption under that provision, the lessee of the vessel concerned must use it for an economic activity.  Para 14. It follows that if, as in the main proceedings, the vessel is leased to persons who use it exclusively for leisure purposes and not for financial gain, outside the sphere of any economic activity, the hire service does not meet the explicit conditions for VAT exemption set out in Article 15(5) of the Sixth Directive. (vide 03/05/2013 S&D Yachts vs M/Y Nautonnier per F. Depasquale. The terms of Bacino are applicable in Malta.) 5

Exempt with Credit Supply Fifth Schedule, Part One, Item 6 of the VAT Act: 6. (1) The supply of vessels: (a) used for navigation on the high seas and carrying passengers for reward or used for the purpose of commercial, industrial or fishing activities; (b) used for rescue or assistance at sea or for coastal fishing; (c) of war. (2) The supply to constructors, owners or operators of the vessels referred to in (1) of equipment incorporated or used therein. (3) The supply of services consisting of the modification, maintenance, chartering and hiring of the vessels referred to (1) or equipment referred to in (2). Shipping 6

 Complexities and Difficulties  The interpretation of the relevant provisions of the Sixth VAT Directive (previous slide reflects the Maltese law transposition) can differ depending on operators in different member states e.g. constructors of engine/generators regard any orders placed with them as being exempt with credit supplies whilst a chandler deals with the matter in a different matter altogether;  Operators / Owners increasingly apply for a VAT number in a particular jurisdiction (typically that of where the owner/operator is incorporated) in order to be able to use a VAT number for intra-community acquisition purposes. Is this practice correct? Are the operators compliant with the regulations relating to this type of acquisition? 7

Main Aspects: - Chartering – A Taxable Supply - Consideration of Place of Supply Rules; - Malta – Importation Jurisdiction Yachting 8

 Chartering  Post - Bacino Charter Case: chartering is generally considered to be a supply which is subject to VAT;  Jurisdictions such as France and Italy have specific guidelines relating to the short-term chartering i.e. less than 90 days). 9

Yachting  Place of Supply Rules  VAT Act Malta – Third Schedule – Part 2, Item 8: 8. (1) The place of short-term hiring of a means of transport shall be the place where the means of transport is actually put at the disposal of the customer. (2) The place of hiring, other than short-term hiring, of a means of transport to a non-taxable person shall be the place where the customer is established, has his permanent address or usually resides. However, the place of hiring a pleasure boat to a non-taxable person, other than short-term hiring, shall be the place where the pleasure boat is actually put at the disposal of the customer, where this service is actually provided by the supplier from his place of business or a fixed establishment situated in that place. (3) For the purposes of paragraphs (1) and (2), "short-term" shall mean the continuous possession or use of the means of transport throughout a period of not more than thirty days, and, in the case of vessels, not more than ninety days. Issues Arising: Multi jurisdictional elements and responsibilities arise as locally incorporated entities would need to register for VAT purposes in jurisdictions where certain charter activity is carried out. Now that the Bacino case is applied uniformly in Europe (France did not apply the case and retained an exemption in previous years), the interpretation of how charters should be treated has ‘stabilised’ and the whole chartering market has a clear view of what is expected in a given chartering scenario. 10

Yachting  Importation Malta is becoming one of the jurisdictions of choice for the importation of yachts into the European Union. Provided that the yacht would be exploited commercially, upon presentation of a bank guarantee covering 3.6% of the vessel’s market value by owners, the VAT Department will consider allowing the importation of a vessel in Malta without having to pay VAT on the vessel’s value (which would typically be subject to refund at a later stage). This bank guarantee is typically issued for a period of not less than four months. It can be drawn upon by the VAT Department if proof of economic activity (chartering) is not tendered during the effective period of the guarantee. 11