France To Apply VAT To Yacht Charter Services

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The European Committee for Professional Yachting has announced that it has received notice from the French tax authority that pleasure yachting charter arrangements will be newly subject to value-added tax from July 15, 2013.

The announcement follows the European Commission's decision to send a formal request to French authorities in November 2012 requiring that the nation revoke a value-added tax exemption offered on the charter of yachts used for pleasure boating purposes.

In its reasoned opinion, the Commission explained that Article 148 of the VAT Directive allows member states to offer a VAT exemption for certain transactions concerning vessels. However, this exemption does not apply to luxury boats used by individuals for recreational purposes.

This was confirmed by the European Court of Justice in a case in December 2010, involving Bacino Charter Company SA. The court determined that a VAT exemption may only be granted in circumstances where a vessel is chartered for use on the high seas, for the purposes of commercial, industrial or fishing activities, but not recreational purposes.

France intends to offer a 50 percent VAT reduction to chartering arrangements impacted by the ruling, bringing them within the French VAT net but subjecting them to VAT at a rate of 9.8 percent, rather than the headline rate of 19.6 percent. Further guidance on this matter is expected from French tax authorities in due course.

In the interim, the French tax authority has released "BOI-VAT-FIELD-30-30-30-10-20130625," providing preliminary guidance on the intended changes.