MIM Yacht & Super Yacht Symposium 2015 A French Fiscal Perspective June 11, Confidential Romain Dayan Lawyer, VAT Manager

 Context  French VAT exemption on operations related to yachts  Practical application of the VAT exemption  Examples of past VAT reassessments made by the French tax authorities  Conclusion 2 Agenda

 Some French key figures:  France is the 2 nd leisure boats manufacturer and the 1 st in the EU  4,900 companies evolving in this area  More than 60% of yachts built in France are delivered outside France  Recreational boating in France represents a fleet of approximately 980,000 boats  Around 15,000 new leisure boats are registered in France every year  France offers around 470 yachting harbors and approx. 165,000 harbor places. 3 Context

 Before the ECJ’s judgment :  The VAT exemption applied to operations of delivery, repair, transformation, maintenance, chartering and leasing related to: –every commercial vessels registered as such in the French or foreign official registers –with a permanent crew –assigned to the needs of a business activity  The ECJ’s judgment C-197/12 (March 21, 2013): The ECJ condemned France because the VAT exemption was not effectively subject to a requirement of high sea sailing for boats carrying passengers for reward and those used for business activity. 4 French VAT exemption on yachts

 Since the ECJ’s judgment: The VAT exemption would now apply to operations on boats exceeding 15 meters in length provided that:  The vessel is registered as a commercial vessel  It has a permanent crew  it is assigned to the needs of a business activity  The vessel should make at least 70% of its sailing outside French territorial waters In fact, only the fourth condition is new (French tax guideline of May 2015). Operations related to yachts which do not fulfil all of these conditions are subject to the normal French VAT rate of 20%. 5 French VAT exemption on yachts

 The 70% ratio should be justified by any mean such as:  Logbook  GPS position  …  Particular computation of the ratio applies to some specific boat  In practice, it is not yet known how the FTA will apply the new conditions and whether their interpretation could differ from the customs authorities’ interpretation 6 Practical application of the VAT exemption

7 Example of tax reassessment (1) French BankCompany A Company B Third party Owners of company A Capital link (~99%) Financial leasing Renting ■ French VAT exemption applied by the Bank on the financial leasing is challenged ■ FTA consider that the yacht is not used for a commercial activity by Company B because the rental payments are too low ■ Application by the FTA of a non legal condition of rental payment normality

8 Example of tax reassessment (2) Yacht Manufacturer IOM Company Individual Leasing Yacht sale agreement ■ French VAT reassessment imposed to the individual for the acquisition of the yacht ■ FTA consider that the acquisition through the IOM company is fictitious i.e. even if the IOM company has assets, employees, legal existence, it is considered as fictitious ■ Application of very significant penalties (80%) ■ During the tax audit, FTA requested information from several tax authorities in other EU member states ■ Physical seal has been installed by the customs authorities on the boat to guarantee the payment of the French VAT. Agent Payments Proxy Novation of the sale Appointed to find new lessees

 French Customs administration and French tax authorities have both jurisdiction to treat questions in relation to VAT on yachts  Recent tax audits and caselaw show that this is a very sensitive tax issue leading to major reassessments (where significant penalties apply)  Tax audits encouraged by connected legal requirements:  Legal registration of the boats;  Social law / Social security law (concerning the crew members).  Particular focus on the following points:  Acquisition structuring  Drafting of the different agreement  Validation of the “business” purposes  Invoicing flows and invoices content 9 Conclusion

 Thank you ! Romain Dayan Attorney at Law – Manager VAT / Customs Tel (direct): + 33 (0)