The European Commission on September 29 referred France to the European Court of Justice over the French VAT treatment of commercial vessels operating in territorial waters. (For the referral, see Doc 2011-20676 or 2011 WTD 190-18.)
Article 148 of Council Directive 2006/112/EC of November 28, 2006,1 (the VAT directive), titled "Exemptions related to International Transport," provides that:
Member States shall exempt the following transactions:
(a) the supply of goods for the fueling and provisioning of vessels used for navigation on the high seas and carrying passengers for reward or used for the purpose of commercial, industrial, or fishing activities, or for rescue or assistance at sea, or for inshore fishing, with the exception, in the case of vessels used for inshore fishing, of ships' provisions;
[. . . ]
(c) the supply, modification, repair, maintenance, chartering, and hiring of the vessels referred to in point (a), and the supply, hiring, repair, and maintenance of equipment, including fishing equipment, incorporated or used therein.
(d) the supply of services other than those referred to in point (c), to meet the direct needs of the vessels referred to in point (a) or of their cargoes.
Therefore, in almost all EU jurisdictions, there is no exemption in law for yachts - even those used for commercial charters - because those vessels are not used only for navigation on the high seas (meaning sea areas outside the confines of the states' territorial sea as designated under article 37 of the Montego Bay Convention on the Law of the Sea).
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