You may recall that in the summer of 2006 we reported on the European Court of Justice ruling in the case of Halifax Plc and others; in which it was ruled that VAT avoidance can now be attacked by tax authorities when it offends the underlying purpose of the legislation and where the essential aim is to obtain a tax advantage.

As a result of this ruling cross border leasing schemes and artificial yacht charter, which exploit the differences in VAT rules between EU countries, are likely to encounter increased litigation in the future.

In light of these developments, we would advise against entering into these schemes and recommend taking expert advice when purchasing a vessel that has previously been subject to such a scheme (you may be required by UK Customs to pay the VAT on the vessel). Customs could view the vessel as not being VAT paid, making it potentially difficult to sell. If you have already entered into such a scheme, we recommend that you seek legal advice.

HMRC have published the following statement on such schemes.

We are concerned about the tax loss from VAT schemes used by some yacht purchasers to avoid (or minimize) the VAT which they would incur on the purchase of their chosen yacht.

As HMRC Chairman Paul Gray said, we know most people and businesses want to do what s right to pay what they owe and claim only what they re due. We re committed to making it as easy as possible for taxpayers to get it right but we protect society by dealing firmly with anyone who intentionally avoids their responsibilities.

In HMRC Brief 11/07 we describe VAT schemes which have been used by yacht buyers and announce that we intend to investigate cases with a view to challenging the schemes where they fall within our jurisdiction. A copy of this HMRC Brief can be viewed on HMRC s website http://www.hmrc.gov.uk/briefs/brief1107.aspx . The Commissioners Anti-Avoidance Group has established a project team to lead this work and the project team is working closely with Tax Authorities in other EU Member States.

In the course of our investigations we will seek to determine whether the claimed VAT treatment is correct in law. In addition we will consider whether the arrangements might be viewed as abusive (as defined by the ECJ in the case of Halifax plc and others; C -255/02 ). If that were the case then the transactions would be redefined to restore the correct position.

Scheme users who wish to obtain further information may write to the Project Team at the address below, enclosing full details of the arrangements they are using.

HMRC
Yacht Project Team
2 Rivergate
Temple Quay
Bristol
BS1 6EJ

For further information please contact the Legal Department on 0845 345 0373 or legal@rya.org.uk.