FRENCH YACHT TAX
French Commercial Exemption under scrutiny again
By William Mathieson, www.superyachtnews.com
The EU Commission has challenged the French tax authority over its continued application of the French Commercial Exemption (FCE) in spite of a contrary EU ruling, by bringing the case before the EU Court of Justice.
EU legislation dictates that vessels do qualify for VAT exemption, under certain conditions. These include the supply of goods for fuelling and provisioning, and the supply, modification, repair, maintenance, chartering and hiring of such vessels, assuming that said vessels “navigate on the high seas”.
The FCE extends this ruling however, to include vessels “carrying passengers for reward” or that are “used for the purpose of commercial activities”, without the need for them to navigate on the high seas.
In March 2010 The Commission demanded that the French authority addressed the situation within two months of receiving the notification. On 1 January 2011 the French General Tax Code was amended to include ‘navigation on the high seas’ but a further interpretation, issued on 22 February 2011, reverted back to the original arrangement, a move that has prompted the Commission to take this course of action.
From an objective point of view, and based on what has happened thus far, the impact of the Commission’s latest move will be minimal. The French tax executive has dismissed previous calls to fall in line with EU legislation, opting for autonomous fiscal governance instead. However, a similar development in Spain, whereby the Court ruled the Spanish Matriculation Tax unlawful, has prompted a major reassessment of how the tax is applied.
Will the French case trigger a similar outcome? Very possibly, with a Court Ruling against France, narrowing the parameters within which its tax executive is able to operate, as Adrian Jones Director of VAT at Blackstar VAT Management explained:
“This referral to the Court of Justice will oblige France to define more narrowly what ‘navigation on the high seas’ actually means for commercial yachts cruising French waters. It is difficult to predict what their policy change might be, but it will almost certainly mean a narrower application of the exemption, perhaps restricting it to larger yachts or yachts that genuinely operate both outside as well as inside French waters, or as a worst case scenario remove the exemption entirely.”
This view is echoed by Ayuk Ntuiabane, director of Moore Stephens, who believes that, barring a shock ruling, the interpretation and administration of VAT in France will be significantly redefined.
As this debate has ebbed and flowed for some time now, one would be naïve to expect an imminent conclusion. However, an unfavourable Court’s decision will make the French Commercial Exemption in its current format irreconcilable with federal law, as Ntuiabane stated: “In the hierarchy of EU law enforcement the ECJ is the final arbiter, and its judgment is not ignored. That’s why this dispute has entered the final round.”