The Mechanics of VAT Avoidance

Created by doina. Last modified on 2004-11-08 12:09:06
Contributors:
Topic: VAT

At this time, there are two methods by which non-EU yachts enjoy VAT relief.

Temporary Importation

The EU’s VAT legislation (Article 561 and 562e) provides for Temporary Importation (and thereby, relief from VAT) of non-EU vessels for up to 18 months. The form this takes in some EU countries is as simple as officials looking at your clearance documents to verify that you remain inside the 18-month VAT-free window. (If you’re thinking of “mislaying” your clearance papers into the Azores, which is when most North American sailors’ VAT Clocks begin, remember that your passport indicates your arrival into an EU country, as well).

Other EU countries are more formal and request you complete a Temporary Importation document (in the UK, Temporary Importation is done using a C108), a formalized way of establishing the time window for which VAT relief applies. As you would suspect, when exiting the EU in order to restart your VAT Clock, you’ll want to collect all the documentation possible verifying that the boat has been outside the EU. (Getting your passport stamped won’t mean anything to the Customs official wondering about your vessel’s VAT liability).

Transfer of Residence Relief

The EU has established law related to Transfer of Residence relief (TOR) so that people moving to the EU can arrive without suffering a huge tax assessment on their personal effects and vehicles (and boats) as, otherwise, they would be placing a financial hurdle in front of potentially new EU citizens. TOR is enshrined in EU law in Articles 2-10 of Council Regulation 918/83 (for customs duty), and Articles 2-10 of Council Directive 83/181 (for import VAT). This means that the EU has provided legal guidance on how member countries can institute TOR relief IF they choose to do so; it does not mean that member countries are mandated to provide such relief. Moreover, it does not assure that TOR relief granted in one member country will be honored in another member country, even though there is overarching EU law which provides for it. I sought an explanation of what TOR was and how it worked within the EU from HM Customs while we wintered in London, and here is the main portion of their written reply:

“There are likely to be some variations in the way other EU Member States implement the TOR legal provisions, because some of the law is "permissive" i.e. it says "Member States may.......", thus leaving it to individual EU Member States to choose whether or not to implement the particular provisions concerned….

“The position regarding people first obtaining TOR in the UK on their vessel and then moving on to another EC country is that there are still no formally agreed control procedures adopted by the EC Commission and the Member States for such movements. HM Customs staff can provide people with a copy of the officially completed C104A (Vessels) if it will help establish that TOR has been claimed and granted in the UK. There is no guarantee however that other Member States will accept the UK's C104A as sufficient in itself.

If there are great problems in relation to UK TOR beneficiaries moving on to other Member States with their vessels, it is suggested one may wish to take up the matter direct with either the Member States concerned or the EC Commission itself.”

We were introduced to the option of requesting a C104A TOR from HM Customs by Joe & Lee Minick aboard SOUTHERN CROSS, made the same application and were granted TOR approval while wintering in London. (To download this application, visit www.hmce.gov.uk and select Other Forms). Despite some of us now carrying TOR approvals, there are two open questions regarding our TOR relief. First, would our status remain in effect if, for some reason, HM Customs (or any other tax authority) wished to challenge it? In my experience, when any government begins to look closely at one’s perceived tax liability, things move quickly from the conceptual to the nitty-gritty. If in probing my "permanent residence" status while in the EU, I was asked questions such as "Do I own residential property?" or "Am I registered to vote outside the EU?" or "Do I have a legal residence somewhere else?" – to which I would answer "Yes" in each case –how does my "permanent change of residence" status as acknowledged by my C104A remain valid?

The second open question relates to what validity UK-granted TOR relief has when visiting the next EU country, should our VAT Clock’s have expired in the interim. We have heard reports from some boats leaving the UK and, e.g. arriving in France, that their C104A was recognized and accepted...however we do not know how common this would be throughout all of the EU.

Jack Tyler

WHOOSH, lying St. Katharine's Haven, London