The European Commission on March 8 decided to initiate an infringement procedure against Cyprus, Greece, and Malta for not levying the correct amount of Value-Added Tax on the provision of yachts, as part of the March infringement package.
European Commissioner for Economic and Financial Affairs, Taxation and Customs Union, Pierre Moscovici, said that in order to achieve fair taxation, the Commission needs to act whenever necessary to combat VAT evasion.
“We cannot allow this type of favourable tax treatment granted to private boats, which also distorts competition in the maritime sector as the practices violate EU law and must come to an end,” said Moscovici.
According to the European Commission, the tactics of the three Member States generate major distortions of competition.
The Paradise Papers revealed widespread VAT evasion in the yacht sector, facilitated by national rules which do not comply with EU law. Current EU VAT rules allow the Member States not to tax the supplier of a service where the effective use of the product is outside the EU. No flat-rate reduction is allowed 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 which greatly reduces the applicable VAT rate.
The Commission said Cyprus and Malta list themselves as “lease-purchases”, which classifies the two countries as “service suppliers”. This results in VAT only being levied at the standard rate on a minor amount of the real cost price once the yacht has finally been bought, with the remainder taxed as the supply of a service at a greatly reduced rate.
The governments of the three countries have two months to respond to the arguments put forward by the European Commission.