VAT schemes for luxury yachts

We are aware that various advisors are promoting VAT schemes through which private individuals incur little or no VAT on the purchase of pleasure craft (both sailing and motor vessels), particularly at the top end of the market.

The purpose of this Brief is to describe the key features of the schemes and to announce that we have serious concerns about the validity of the VAT treatment which is claimed for the schemes.

Under the schemes, the user acquires a new vessel which purportedly has ‘VAT paid’ status while, in reality, paying no VAT (or a minimal amount of VAT).

The schemes fall broadly into two categories – cross-border leasing and artificial chartering to the private funder. Both categories share the following common features:

• They involve a contrived leasing or chartering arrangement of a vessel which is predominantly for the recreational use of an individual.
• The individual provides the funds that are used to pay for the vessel either directly or indirectly (maybe by lending money to an intermediary).
• Registered title to the vessel is held by a special purpose entity (otherwise known as a special purpose vehicle or ‘SPV) which is controlled (directly or indirectly) either by the individual or by the scheme provider. This SPV may be simply a shell company-also known as a “brass plate” company, bought off the shelf and with nominee directors standing in front of whoever really benefits.
• The SPV purports to use the vessel in a chartering or leasing business. It does not incur VAT (either through a zero-rated export if the SPV is outside the EU, or otherwise by recovering as input tax any VAT charged on the supply).
• The vessel is chartered or leased to the individual. No VAT (or only a minimal amount of VAT) is charged on the lease or charter payments.

Where there is evidence to suggest that a vessel has been supplied through one of these schemes we shall carry out a full investigation of the facts surrounding the supply and take any necessary action.

Issued 7 February 2007.