A VAT VOYAGE AROUND THE MEDITERRANEAN

A few years ago I managed the sale of a 25m motor yacht lying in
Greece for Syrian gent normally resident in Cairo but then living in
Athens. The yacht was registered in London, owned by a company
incorporated in Jersey but managed in the Isle of Man. The buyer
was a Cayman Island registered company managed in the Channel
Island of Sark but owned by a gentleman from Scotland.
Complicated? In fact it was one of the simpler transactions I have
managed in recent years because, you see, there was no VAT
involved.

Before we cast off on our voyage, please bear with me while I very
briefly explain.

Since 1973, our Euromasters in Brussels have endeavoured to

harmonise the laws of member states by encouraging them to align
their laws with other member states. However, most individual
European Union members apply Brussels directives in a manner
favourable to the interests of their own citizens, UK excepted!
Before 1993, yacht owners discharged their value added tax liability
in the country of origin or were granted temporary import status as a
visitor to other member states. Thus yacht movements around
Europe were unimpeded, influenced mainly by the warmth of
welcome the individual countries’ marine industry offered. Hostile
receptions, a result of over eager application of Brussels directives by
the ‘jobsworth’, resulted in empty marinas, failing yards and
unemployment of a skilled work force.

Frustrated by the shortage of ‘communitaire’, the Eurocrats installed

in January 1993, the Single Market Directive. The objective was to
‘standardise’ the way in which member states carried out Brussels
directives. It also required Value Added Tax to be paid in the country
of destination rather than the country of origin. Perhaps you will see
through the Eurocrat sophistry and for ‘standardise’ read control,
regulate, command or even govern!
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That’s the background, so now let us start the voyage with full
bunkers and cast off from VAT free Gibraltar and travel around the
Mediterranean to see how successful the Eurocrat Directive has been
in achieving its objective.

Sailing East and North along the Spanish coast, a potential VAT
payer has a variety of opportunities to pay his tax which at 16% is the
lowest of all the European Union states with a Mediterranean
coastline. From Malaga to Barcelona, the local officials offer a
welcome and, because of the relative autonomy of the administrative
regions, negotiate happily on valuations. Beware however! Bandits
are alive and ready to strike when they spot an opportunity; I know,
I’ve met them and been a victim! There are highly experienced
practitioners in chicanery pretending to be authorised ‘customs
agents’, with official letter headings, impressive seals and even Bank
receipt stamps. Their only real skill is forgery!

Talking of the ‘relative autonomy of the administrative regions’,

Majorca has a reputation for dogged inflexibility, macho officials and
indifferent administration and should therefore be avoided by the VAT
payer.

So wave goodbye to Spain. Anyway, it’s a national fiesta and

because the Gardia Fiscal are all at the bullfight, there’s nobody to
take your money in exchange for a VAT paid certificate.

Set an east and north course across the hazardous Golfe du Lyon
and take a bearing on the citadel at the entrance to Antibes in
France. French officialdom recognised, very shortly after the
publication of the Single Market Directive, that its rigid application
was not going to work to the advantage of the French yachting
industry.
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No doubt they remembered the flight of yachts to Italy and Spain in

1980 when the late Mitterand, while building himself a private golf
course near Biarritz, decided that yachts were incompatible with his
socialist ambitions and activated the French flag and tonnage laws.
The result was empty marinas, bankrupt yards, unemployment and a
golden opportunity for the French workforce to do what they do best,
riot! For a period of more than a year government officials in the Var
and Cote d’Azur went into hiding, flying pickets flew, marchers
controlled the streets and the yachting industry converted to cash
only economics.

Eventually, Mitterand withdrew and the yachting industry returned to

normal trading, but not before a deep political wound had been
inflicted and hypocrisy given another definition.

No doubt with this experience still in mind, the French declared a

moratorium six months into 1993 and made no attempt to collect the
then 20.6%, now 19.6% value added tax on visiting foreign yachts.

Have they learnt, well some. Their aggressive bureaucracy, high tax
rate and sometimes hostile view of our industry, doesn’t make France
the first stop on the VAT/TVA payment tour. Remember, it was to
appease the French self regarding bureaucrats that the otherwise
valueless SSR or ‘Part Three’ was established.

Adieu to Antibes and sail East and a bit south to San Remo just over
the Italian border. In Italy, the national government issues laws and
edicts which, if they don’t suit local interests are either ignored or
subjected to local negotiation. There are concentrations of yacht
industry skills in Italy which have grown up around local families over
many generations. San Remo, Genoa, Viarreggio, Saboudia and
Naples to name but a few. The local government officials in these
areas have a close relationship via their families to the managers of
the local yards, port agents and marina bosses and this loyalty is
reciprocated.
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The national government publicly supports Brussels edicts but when

they issue an unwelcome pronouncement, the local interests respond
with a two fingered salute. Thus things proceed but not quite as they
ever did. Duty free or almost duty free fuel is no longer available but
port agents will embark charter parties on non Italian flag yachts;
custom officials are persuaded not to be a nuisance and the local
yachting industries manages to prosper, notwithstanding recent
economic hiccups. As I say, lateral thinking and an underlying disdain
for big government in general and Brussels edicts in particular still
exists and God bless them.

Cast off, say ciao and sail out of Porto Sole and head south, avoiding
northern Corsica. Rumour has it that Douaniers who cross their
seniors in Paris are given a choice; either join the French Foreign
Legion or get posted as Douaniers in Cap Florent!
Leave Sardinia and Sicily to port and sail to Malta. Till 1992, duty free
fuel and negotiating freedom was the norm in this historically yacht
friendly Island. Then, the presiding Socialist administration threw their
lot in with Brussels. If you were one of the unfortunates whose yacht
was in Malta at midnight on the 31st of December 1992, you were
treated as an enemy alien. No matter how long you had had your
yacht in Europe, no matter how old it was, no matter where you were
resident and no matter whether you had already paid VAT/TVA/IVA,
the moment you departed Malta for any other member state of the
European Union, a new tax liability arose. Anyway, re-fuelled, bid
farewell to Malta and head for Greece or more precisely, Rhodes.
Anecdotal evidence suggests that Pireaus and the Islands are not
good locations for negotiating tax payments. There remains a streak
of national introversion first experienced by the yachting industry in
1973 when the Colonels took over. Previously mentioned flag and
tonnage laws were activated and a flourishing yachting industry,
which at the time was attracting billions of dollars of investment in
new marinas and yard facilities, was decimated with the fleets
disappearing overnight.
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Rhodes on the other hand is geographically and socially closer to

Turkey and trades in a friendly and accommodating way with it and
extends a welcome to all visiting yachts.
But supposing it’s August and too hot for you or the local officials to
be bothered. So here you are, moored in the picturesque harbour of
Rhodes overlooked by the tall walls of the medieval old town and still
you haven’t acquired the VAT paid certificate. Despair not;
triangulation may be the answer for you!

As mentioned, The Single Market Directive changed the responsibility

for the collection of Value Added Tax from the ‘country of origin’ to
the ‘country of destination’. This means the yacht must be physically
in the country where it pays Value Added Tax. However, Luxembourg
and the Isle of Man thought this pretty unfair.

Literally in the heart of Europe, Luxembourg doesn’t have a coastline

never mind a yacht industry and would therefore be excluded from
access to tax revenue due as a ‘country of destination’. Having gone
to the trouble of fabricating itself a Maritime Authority in 1990 with all
the legislative and bureaucratic paraphernalia in support, they were
pretty miffed at being denied the potential tax revenue as a result of
this legislative quirk from Brussels

The Isle of Man, although not a member of the European Union, is

inside the European tax zone and thus able to collect VAT. They
could not see why they should be denied all this lovely lolly just
because an accident of nature had plonked them in the middle of the
Irish sea, an environment too hostile for most Mediterranean yacht
skippers and too far to sail for the privilege of handing over VAT at
17.5%.
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So, both Luxembourg and the Isle of Man employ ‘triangulation’ to

overcome the impediment of the ‘country of destination’ problem.
Triangulation means that a supplier in EU country A raises his tax
invoice to his customer in country B (Luxembourg or Isle of Man), but
sends the goods to country C (anywhere warm) and the customer in
country B pays the tax. Sounds simple but you might find
implementation less than straight forward. Remember that
Luxembourg, perhaps because it doesn’t have to maintain miles of
difficult coastline, gets by on a mere 15% VAT but remember it is an
administrative extension of Brussels and its life force is its mind
numbing, inbred bureaucracy.

The end of the voyage then and by now you will have a view as to
whether Brussels is succeeding in its drive for standardisation.
Whether you do or you don’t, you can be sure that our Euro-
nincompoop bureaucrats will continue to issue edicts with scant
regard for their impact on you and me. By the way, thanks Ted!

Arem Tee