France Instructed To Tax Luxury Yacht Hire

by Ulrika Lomas, Tax-News.com, Brussels

30 November 2012

The European Commission has sent a formal request to French authorities warning that they must revoke a value-added tax (VAT) exemption offered on the charter of yachts used for pleasure boating purposes or have the case referred to the European Court of Justice.

The Commission explained that Article 148 of the VAT Directive allows member states to offer a VAT exemption for certain transactions concerning vessels. However, this exemption does not apply to luxury boats used by individuals for recreational purposes.

This was confirmed by the European Court of Justice in a case in December 2010, involving Bacino Charter Company SA. The court determined that a VAT exemption may only be granted in circumstances where a vessel is chartered for use on the high seas, for the purposes of commercial, industrial or fishing activities, but not recreational purposes.

France was first notified by the Commission that its regime contravened EU law at the end of September 2011. In an effort to retain the concession for some charter companies however, French authorities clarified the circumstances in which the charter of a yacht for pleasure purposes would continue to be eligible for a VAT exemption, namely if the yacht undertook a voyage on the high seas.

The Commission request takes the form of a reasoned opinion. In the absence of a satisfactory response from France within two months, the Commission may refer the case to the European Court of Justice.

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