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Germany and Italy not recognising the Danish zero-VAT import route, or Italy not recognising certificate of EU VAT paid

Silvaire, I'm by no means an expert on this, but I believe that if you import something into a country for at least a given period (6 months comes to mind) then you have to pay import duty which is generally equal to VAT. (But for certain products the import duty may be higher than VAT on locally produced stuff because of trade politics.)

However at the same time you import something into a country, you also export from another, so the VAT you paid on the goods earlier can now be reclaimed from that country.

So I'm hoping I'm understanding this correctly, but if you bought your aircraft in 2002 and paid US VAT, and now bring them over to Europe, you should be able to reclaim the US VAT, while at the same time paying EU VAT (which is the VAT of whatever country you import it into - expect about 20% or so - and then it's in "free circulation" in the EU). When you export the planes again at the end of the two-year period, the reverse would happen.

Having said that, since there's no sale involved in your scenario, I have no idea how the market value at the time of the export/import would be determined.

In your scenario it would well be worth talking to a tax lawyer.

I very vaguely recall that if you have NO connection with the EU (no EU passports etc) then you have 6 months before you have to pay the import VAT.

Possibly, after 6 months, there is a process for reclaiming it upon a subsequent export.

I'd suggest a quick call to that VAT consultant I posted about. He is ex UK Customs, aircraft department.

Administrator
Shoreham EGKA, United Kingdom

The 6 month thing does ring a bell... I know quite a number of people with US registered motorcycles in the EU and they've mentioned that period. After 10 years or so of use they typically part out the bike and bring in a replacement.

It seems to me that the practical issue with aircraft is that (unlike road vehicles) their movements in and out of the EU are recorded. So if you were to explain to the nice tax man that your aircraft spends 9 months of the year in Croatia, he'd ask you to prove it.

There's no reclaiming US state sales tax - it's not a great percentage (less still when both buyer and seller understand the price paid very clearly) but once its gone, its gone. Then when the plane is sold again, the buyer often pays it again on the same used vehicle.

As a general disclaimer, if you want to play aggressively with VAT, make sure you are being advised by someone with professional indemnity insurance who you are paying money to so you can sue them for recovery if it all goes horribly wrong.

With that disclaimer out of the way (and referencing only UK, Danish, and USA rules). If you are a proper short term visitor to the EU there is a VAT deferral process which allows you to enter and leave the EU without paying VAT. This gives rise to the '6 months before you need to pay VAT' comment. This is a relatively restrictive process and not relevant to anyone who is even vaguely established in the UK. You also don't want to be carrying EU nationals if you (the proper foreigner) are not in the plane and able to vouch that they have your personal occasional permission to ride in the plane.

I don't believe VAT can be reclaimed on a VAT paid/free circulation European aircraft when export, otherwise getting stung for a VAT bill would be easy to resolve but just exporting the aircraft and getting your money back.

A couple of other points referencing comments made

  1. There is no process (as far as I am aware) to reclaim US sales tax.

  2. There is a relief for a proper foreign resident person bringing their used aircraft.

  3. There is a minimum ownership time prior to moving to the EU and a roughly 2 year holding period in the EU before you can sell the aircraft as 'VAT Paid' having paid no VAT due to the allowance for moving your personal goods

  4. The import value for VAT into the EU would normally be based on 'market price', which for most people would be established by the transaction in which the asset was purchased. It is only the exceptional cases like an EU resident who has owned an aircraft in the Bahamas for years which he now wishes to import where you would not either be relocating or have recently acquired.

As a US citizen, resident in the EU, with an N-reg (sadly VAT paid UK due to screwing up the Danish import!) I had the opportunity to become much more familiar with UK VAT legislation than I would have preferred.

EGTF

Germany has developed a McCarthy like syndrome in the last few years when it comes to tax evasion. While McCarthy suspected everybody but himself of communism, German tax lords now suspect the entire population of tax fraud, certainly however people who stick out of the Harz 4 crowd and allow themselfs to own obscene things like airplanes. The German state has in the last years not shied away from illegal means to obtain data about people they deem tax evaders, by buying stolen data from foreign banks and by using tactics seen last during WW2 against fellow countries in Europe.

So who really is surprised about these things?

We have seen the Italian Luxury tax mania, we have seen the Austrian passenger tax problem and we shall see more and more of it, until there is nothing left to press out of a population which has to stand for the mistakes and outright criminal behaviour of europe's political classes.

Unfortunately, as GA participants we have next to no lobby.

We shall see how things develop. Italy's tax lord has resigned, the population could not take him anymore. We shall see who will replace him, whether they will descend into chaos once again or start behaving normally and tax responsibly rather than using tactics that country is so well known.

For Germany, I see no real hope in that regard. They now have a centrist government with a socialist gang of bullies waiting for that government to fail and to take it's place. If that should happen, what we see now in German taxation raids is just the very beginning.

Oh yea, and then we have the US falling over the fiscal cliff, so the strongest supporter of GA might end up in a recession which makes the 1920ties pale in comparison.

Not nice outlook for 2013 but that is probably what we shall see.

LSZH(work) LSZF (GA base), Switzerland

Has there been any subsequent development on this pursuing of people who used the Danish route?

There is a principle that any tax avoidance is void if there isn’t a commercial purpose, but that clearly cannot be used in every private context otherwise e.g. you transferring your savings to your (assume: not employed) wife, to get gross interest, would get you into trouble.

The UK HMRC reportedly looked into it and decided against it.

Administrator
Shoreham EGKA, United Kingdom

@Peter I would imagine the “commercial purpose” relates to companies as that is their reason for existence. If you setup a company that doesn’t produce any value, it just reduces your taxes, this could apply.

They might not forbid gifting money, but they sure can tax it. And similar schemes are used for other purposes. Around here, interest on private funds is taxed separately, it’s done for you by the financial institution, it doesn’t come into income tax calculation and it doesn’t matter how much you make.

Last Edited by Martin at 07 Apr 10:26

Yes; it could well be that a non VAT registered company which owned the plane (a pretty common scenario – I reckon 50% of IFR tourers are thus owned) and used the Danish zero VAT route could well be pursued via this method.

Forum posts usually tell only a part of the story and it could well be the German tax inspectors raided only such company owned situations.

The report that Roeder (a proper big company) were done would tend to confirm this, but they obviously are VAT registered, so my guess is that they were trying to set up a scheme whereby private customers would be able to buy cheaper (but “VAT paid”) planes. That would have been a tricky (obviously provocative) structure

Administrator
Shoreham EGKA, United Kingdom

Well, it depends on how exactly is such a provision worded. And it’s one thing what the authorities want, it’s another thing what would the ECJ think about it. As was written, there is not much they can do with people using their brain and freedoms.

This VAT business was a real surprise when I came into aviation. You don’t pay VAT on used cars. And it’s clearly defined when a car is used enough to not be subject to VAT. I still have trouble understanding why should I pay VAT on a 10 year old aeroplane.

Uh-o… Can someone please provide a brief recap of the VAT situation, in one comprehensive post? I’m specifically interested in the used plane situation. Yes, I know this has been debated over and over, but I can’t seem to find a “definitive guide” and just got even further confused (where is the bottom?!). I’m interested in all the possible intra-EU permutations (buyer/seller are either a private person or an EU VAT company); I understand that when importing from outside the EU VAT is by definition due, and a private person just pays and weeps, whereas a EU VAT company “writes off” the VAT (as it would do with any other purchase).

When importing, are there any tariffs, excise taxes, or other surprises that need to be budgeted for? To the best of my knowledge no, just the VAT of the country of entry.

tmo
EPKP - Kraków, Poland
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