The Isle of Man and Italy have reportedly given illegal tax breaks to some of the world’s wealthiest people over their purchases of private jets and yachts. And now the European Commission has launched infringement proceedings.
The Guardian and the BBC revealed last November how the Isle of Man, a crown dependency that officially belongs to the Queen and is answerable to the British government, had allowed billionaires and multinational companies to avoid £790m of VAT on more than 200 aircraft imported to Europe since 2011.
According to the Guardian, the avoidance came to light through the Paradise Papers, a leak of data from the offshore law firm Appleby, which was obtained by the German newspaper Süddeutsche Zeitung and shared by the Washington-based International Consortium of Investigative Journalists with media around the world, including the Guardian.
The commission has written to the UK government highlighting what it described as “abusive VAT practices” in the crown dependency. It announced the decision to shut down the tax loophole in a press release last week that cited the Guardian’s reporting.
“The Paradise papers revealed widespread VAT evasion in the yacht and aviation sectors, facilitated by national rules which do not comply with EU law,” the commission stated.
“It’s simply not fair that some individuals and companies can get away with not paying the correct amount of VAT on products like yachts and aircraft,” said Pierre Moscovici, the commissioner for economic and financial affairs. “Favourable tax treatment for private boats and aircraft is clearly at odds with our commonly agreed tax rules and heavily distorts competition in the maritime and aviation sectors. With this in mind, the commission is taking action to clamp down on rules that try to circumvent EU law in these areas.”
In its press release, the Commission said: “VAT is only deductible for business use. Supplies of aircraft, including leasing services, meant expressly for private use should not be VAT-exempt. The commission believes that the UK has not taken sufficient action against abusive VAT practices in the Isle of Man with regard to the supplies and leasing of aircraft.”
Members of the European parliament’s Tax3 committee are also investigating jet imports and plan to visit the Isle of Man this month.
A UK Treasury spokesperson confirmed receipt of a letter of formal notice from the commission and promised a response in due course. The Isle of Man is self-governing and makes its own decisions about how to follow VAT rules, but the Treasury has been invited to review its procedures. “This is a complex area of VAT law and it is important that we take our time to get this right,” the spokesperson said.
In a statement, the Isle of Man said it applied the same policies and procedures as the UK on the importation and leasing of aircraft. On the Treasury inspection, it said: “We understand that this review is now nearing completion and will enable HM Treasury to fully respond to the EU commission’s request.”
Meanwhile, Italy also faces infringement proceedings over a number of issues, such as allowing yacht owners to reduce the VAT paid on bigger boats.