A decision of the European Court of Justice (ECJ) on 21 March 2013 found that French legislation did not comply with Article 148 a), c) and d) of the VAT directive 2006/112/EC. The French tax authorities have now addressed the consequences of this decision.
In an update of the French administrative guidelines (BOI-VAT-CHAMP-30-30-30-10) dated 12 May 2015, the French tax authorities state that only commercial vessels with an overall length of at least 15 meters and which meet four criteria can be regarded as commercial vessels used for navigation on the high seas.
These four criteria are:
- Be registered as a commercial vessel on a commercial register. For foreign-flagged vessels, registration means the recognition by a foreign authority of the posting of commercial activities
- Be equipped with a permanent crew
- Be used for a commercial activity
- Make at least 70 percent of all their navigation outside national territorial waters (new criteria)
Commercial vessels that do not meet these conditions are thus excluded from the VAT exemptions provided for in Article 262 II-2°, 3°, 6° and 7° of the French Tax Code.
Where these criteria are met, vessels can benefit from VAT exemption for the supply of goods for the fuelling and provisioning of vessels used for navigation on the high seas, as well as the supply, modification, repairs and locations of these vessels.
The percentage of navigation outside national territorial waters is derived from the ratio between the number of trips during which the vessel leaves French territorial waters during the calendar year preceding the year of application for VAT exemption, and all trips made during the same period. The percentage is determined each year.
The term ‘trip’ means any commercial navigation performed between two ports in national territorial, EU or international waters, which involve the loading or unloading of cargo or the embarking or disembarking of passengers. It does not include any trips made for non-commercial reasons, such as sea trials, navigation to the shipyard, etc.
VAT exemption does not apply to services (rental operations and chartering) consisting of making a vessel available, for reward, with a crew, to natural persons for the purposes of leisure travel on the high seas (CJUE 116/10; 22 December 2010).
Furthermore, VAT exemption can only be applied if the sea trips are the main business of the vessel compare to its dock activity.
The new provisions for calculating the percentage of navigation outside territorial waters come into effect in 2015. The consequences of this calculation on VAT will therefore apply from 2016.
Client Alert 2015-145