Yachting VAT Note, February 2012

A broker’s charter

Cometh the yacht and her broker. Where in other sectors the intermediary is peripheral, in yachting he seems a must. Brokers make deals happen and they move and shake the modern yachting industry. They are rewarded handsomely too – if they get it right. But they lose in equal measure, if not more, when they get things wrong.


That is because brokers carry the greatest risk – in bringing together and then precariously herding along total strangers towards a deal; in handling huge amount of other people’s money; in perpetually reaching across dynamic fiscal borders; in being a mine of client information and sought-after data; and in being a sitting duck for the taxman. This last risk is often the least understood or appreciated, and yet even in more auspicious times there is no more obvious a refuge for the taxman than the address of a middleman.


In 1996 and 1997 Mr D. Lipjes, a Dutch yacht broker, was twice involved in the purchase of yachts located in France. Although well-advised, he had not reckoned with the tenacity of the Dutch tax administration, the Staatssecretris van Financiën. He acted in both cases on behalf of an individual purchaser residing in the Netherlands, whereas the vendor of the yachts was an individual residing in France. Mr Lipjes did not declare the VAT pertaining to his commission fee on those two intermediary operations in either the Netherlands or France.


Following an audit, the Netherlands tax authorities charged VAT retroactively on those supplies of services. The Regional Court of Appeal in The Hague, before which the case was brought, found that, in the light of the place where the yacht s were situated at the time of the sale, the intermediary services had not been supplied in the Netherlands, and that Mr Lipjes was therefore entitled not to declare the VAT there.


The Netherlands tax administration appealed against that judgement to a higher court, the Supreme Court of the Netherlands. It argued that the relevant EU and national law on the place of taxation of services by intermediaries must be interpreted narrowly to the effect that it allows intermediary services to be treated in the way that the Regional Court suggests only when the transaction was concluded by professionals subject to VAT – which was not the case in the transaction in question as it involved individuals.


That argument was not a mere technicality. In those days when the law was as clear as mud, the Dutch authorities where making a logical point. After all, the whole basis of shifting the tax burden in cross-border transactions in the EU was reliant on the parties being ‘taxable persons’ (VAT-registered businesses), not individual consumers. Unsurprisingly, their argument was strong enough to warrant a referral by the Supreme Court of the Netherlands to the European Court of Justice (ECJ) for a ruling.


In that instance in 2004 the ECJ ruled in favour of the interpretation given by the Regional Court of Appeal in The Hague, that there was no discrimination in the law between businesses and individuals in a transaction when it came to the place where the service of the intermediary is taxed. Where an intermediary acts in the purchase and sale of a tangible object between two individuals, for the purposes of determining the place where the intermediary service is taxed reference must be made to the place of taxation of the underlying transaction itself, regardless of whether the recipient of the service was a business or a private individual. So because the yachts concerned were actually situated in France at the time of their sale, where they were taxable in principle, the broker’s services too were provided in France, and Mr Lipjes was therefore entitled not to declare the VAT in the Netherlands. An obviously relieved Mr Lipjes walked scot free – especially as France did not follow up to request the VAT that it was thereby entitled to claw back.


Plus ça change

That same matter tried today would probably have ended differently. The drive to ensure that VAT receipts accrue to the Member State of consumption gives Member States a more direct stake in any tax due on transactions, making it more likely that they would claim. New measures introduced now ensure a more uniform application of VAT rules within the EU. The re-enforced VAT information Exchange System between Member States gives unprecedented visibility to tax administrations across the EU, and transactions are less likely to fall unnoticed between the cracks.


The parameters for determining the place of taxation have also changed. The place of taxation is still determined by where the services are supplied, but the latter place now depends not only on the nature of the service supplied but also on the status of the customer receiving the service. Whether the recipient is a business acting in its business capacity or a private individual who is the final consumer does matter. For the place where the services are taxed to be correctly determined, the exact nature of the service being provided and the status of the customer must be known and evidenced.


And once these are known, the yacht broker, like all other service providers, must now get used to applying appropriate VAT treatment for supply of services between businesses (B2B services), which in principle is taxed at the customer’s place of establishment; in contrast to services supplied to private individuals (B2B services), which may still be taxed at the location where the main transaction, in which the intermediary intervenes, is taxable. And yet because of the seachange in the liability of such main transactions – whether brokerage for sale, charter, leasing or something else – the intricacies of the underpinning rules must be comprehended and applied.


The old saying “two’s company, three’s a crowd” holds true when it comes to VAT on intermediary services. Matters can get complicated with three or more parties involved in a deal or arrangement. And in the familiar splash of agents and sub-agents, a tradition of deal-making for companies established outside the EU but with conspicuous assets in the EU and the diffused logic of those assets themselves claiming tax exemption for whatever reason – that is the world of the yacht broker trying to cope with EU VAT. And because that tax amounts potentially involved are high, the need to get things right could not be more important.


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This bulletin is prepared by Moore Stephens Consulting Limited. Yachting VAT Note is designed to keep readers abreast of current developments and trends. It is a general guide only and is not intended to be comprehensive. No liability is accepted for the options it contains, or for any errors or omissions. In all cases you should seek professional advice specific to your circumstances.

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