EU Update: Clarification Issued on Temporary Importation of Aircraft — Originally published in BusinessAir Magazine, December 2014, Volume 24, No. 12.
In most European Union (“EU”) countries, foreign-registered aircraft are subject to Value-Added Tax (“VAT”) and other duties when imported into the EU. The VAT on foreign-registered aircraft is a percentage of the purchase price for the aircraft. The percentage of VAT that is levied varies from country to country and ranges from 15%-27%. By way of example, if a new foreign-registered Gulfstream 650, purchased for $70,000,000, is imported into a country with a 20% VAT, then the amount of VAT due would be $14,000,000! Notwithstanding the foregoing, when a foreign-registered aircraft flies from a non-EU country and then flies within the EU, that activity can be eligible for temporary importation which allows relief from paying VAT. In order to be eligible for temporary importation the flight must be flown for “private use” and not “commercial use”.
Over the past several years, there has been a growing concern from private foreign-registered aircraft operators who fly within the EU over whether a particular flight will be considered (i) “private use” and thus allow for temporary importation, which does not require payment of VAT or (ii) “commercial use”, subjecting the operator to the Value-Added Tax on the entire purchase price of the aircraft. Operators have been confused by differences in the meanings of the terms “private use” and “commercial use” as utilized by the international aviation community and as applied by customs authorities in the EU. Making the situation even more troublesome, not all customs authorities in the EU apply the same meaning to these terms. In certain instances, there have been noted examples of differences from one customs agent to another, even within the same country.
Out of an abundance of caution, some foreign-registered aircraft operators have gone through the process of permanently importing their aircraft through one of the EU member states with more favorable VAT provisions. The operator then carries the importation certificate onboard the aircraft in case another member state questions its importation status.
Because of the uncertainty surrounding temporary importation and the different interpretations regarding “private use” and “commercial use” by certain member state countries, the International Business Aviation Council (“IBAC”) requested clarification from the European Commission on this issue.
The European Commission published a working paper on November 23, 2014 regarding temporary importation. The working paper attempts to clarify and standardize terms such as “private use” and “commercial use”. It is believed that this working paper will now be used to aid the 28 member states of the EU in their individual interpretations of what constitutes “private use” and “commercial use”. The publication makes it clear that many typical business aviation flights are eligible for temporary importation when flying within the EU. The nine page working paper has eight very specific examples which address some of the most controversial flight types.
In one of the examples provided in the working paper, a Canada-based corporation flies its Canadian-registered aircraft from Montreal to Paris and Nice for business meetings with local offices, customers and supplies. Each passenger is a Canadian citizen. Then a Paris-based employee boards the aircraft in Paris and flies to Nice for the meeting in Nice. The aircraft finally departs from Nice back to Montreal. The EU Customs Code Committee opines that this flight would be “private use” and meets the conditions for temporary import. The example goes on to state that even if there are materials and brochures for promotion onboard the aircraft, such activity would not be the main purpose for the usage and is not direct commercial activity. Prior to the issuance of this working paper, various EU member states interpreted this type of flight, involving the picking up of a local employee or the carriage of literature onboard, as “commercial use” which could have potentially subjected the foreign-registered aircraft to VAT.
In additional examples, the working paper confirms that a chartered flight is also “private use” for the purposes of temporary importation, if the aircraft is being leased and the fees paid are for the lease of the aircraft and not for passenger tickets. In this example, it is noted that the operator obtained the appropriate traffic right permissions from the individual member states.
It would be impossible for the working paper to contain all of the possible fact patterns which could occur with regard to the use of foreign-registered aircraft within the EU. However, the working paper provides very clear guidance in a number of instances which, it is hoped, can be applied to other situations as they arise. The need for consistent definitions of “private use” and “commercial use” among the EU member states is vital to the international aviation community.
Please contact Amanda Applegate at 877-237-5398 or firstname.lastname@example.org.