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Denmark 0% VAT route may be back

Noe wrote:

I think they meant it is an advantage if you didn’t pay VAT but achieve the VAT paid status. Then you pretty much win the VAT.

Yes, that’s what I meant. The same way than if you have paid the Luxembourg VAT in 2000 (when it was 15%), but sell to a non-VAT-taxable person in another country, you can pocket the approx 5% difference, because “the market” takes into account about 20% VAT.

Sebastian_G wrote:

But is that really true?

OK, I’ll bite. I’m not a tax lawyer, even less your tax lawyer, but let’s see my reading.

Sebastian_G wrote:

I can only speak for Germany (…). Here an AOC company can buy things VAT free (…)

Only if that AOC holder operates chiefly on international routes. That’s what the link you gave says.

Sebastian_G wrote:

My understanding is that really buys VAT free instead of first paying and than claiming back (which would amount to the same thing for national companies).

Yes, that is also what the EU VAT rules say. My understanding is that is so that airlines operating chiefly on international routes have a double exemption: not only they don’t pay VAT on their turnover (on their sales) but they don’t suffer VAT on their expenses either. The decision to do that is a political one (and/or “influenced” by the Chicago Convention, maybe), and does not follow the basic logic and principles of VAT law. Usually, the tradeoff is that either the turnover of people (be it natural persons or companies) is subject to VAT (or would be subject to VAT if it were an activity within the country) and they deduct input VAT (VAT on their expenses) or their economic activity is such that it is not subject to VAT and no deduction of input VAT.

In the European VAT directive, this is article 148.(f).

Sebastian_G wrote:

But this does not mean that when this AOC company sells on the aircraft to a private person this sale is VAT free.

It would be economically fair for the sale to not be exempted of VAT.

Application of the margin scheme (in Germany, that is the § 25a that you linked to) seems dubious indeed, and seems reserved for “resellers”, that is people that did not use the goods that they sell for their own purposes (or bought them primarily for reselling, even if they did use them incidentally for their own purposes).

In France, in general, when a taxable person sells goods that they used for their own activity, but they didn’t deduct input VAT on it, that sale is exempted of VAT. Article 261.3.1° of CGI":

Sont exonérés de la taxe sur la valeur ajoutée :
(…)
1° a. Sous réserve, le cas échéant, des dispositions des 1° et 2° du III de l’article 257, les ventes de biens usagés faites par les personnes qui les ont utilisés pour les besoins de leurs exploitations.

Toutefois, l’exonération ne s’applique pas aux biens qui ont ouvert droit à déduction complète ou partielle de la taxe sur la valeur ajoutée lors de leur achat, acquisition intracommunautaire, importation ou livraison à soi-même.

But there is a special exception to that exemption for airplanes resold by airlines operating chiefly on international routes. Article 257.III.1° of CGI":

III. – Sont également soumis à la taxe sur la valeur ajoutée :

1° La cession d’aéronefs ou d’éléments d’aéronefs par les compagnies de navigation aérienne mentionnées au 4° du II de l’article 262 à d’autres compagnies ne remplissant pas les conditions fixées à cet article. Les modalités d’application de cette disposition sont fixées, en tant que de besoin, par des arrêtés du ministre chargé de l’économie et des finances ;

But there seems to be a loophole there. That exception to the exemption applies only to resale to “another company”. Not to resale to a private person, possibly not even to resale to a non-airline company (in context, “compagnie” seems to refer to airlines, not “any legal person”)!

Does the German VAT tax code have similar provisions?

Anyway, for me the discussion was of another case altogether. A company buys a plane to make a commercial use of it, subject to VAT. Maybe it does national transport (subject to VAT in France), maybe it rents it out to pilots. If it buys it with deductible VAT and later resells it to a non-taxable person, it has to collect VAT on the sales price. However, if it has bought the plane and didn’t deduct any VAT (e.g. because, by the magic of the Danish route, the rate is 0% and they “paid” that 0%, no deduction), then they can resell that plane without that the sale incurs VAT.

ELLX

Sebastian_G wrote:

But the crucial point was not that the Danish company could buy the plane VAT free but that it could sell it on VAT free to a private person.

If I recall it wasnt VAT free …. the VAT rate in Denmark at that time on aircraft was 0% and this was reflected in the paperwork.

lionel wrote:

However, if it has bought the plane and didn’t deduct any VAT (e.g. because, by the magic of the Danish route, the rate is 0% and they “paid” that 0%, no deduction), then they can resell that plane without that the sale incurs VAT.

Those details are much appreciated and one keeps learning. As far as I can tell this would not work in Germany. You would end up paying the whole VAT on this sale even though the company selling itself never paid any to get the plane. So it comes down to this detail in Denmark. But even if it works it means that simply reselling the plane would not work to avoid VAT. There must be some company seriously operating the plane and then deciding a few months later that it wants to resell it etc.

quatrelle wrote:

If I recall it wasnt VAT free …. the VAT rate in Denmark at that time on aircraft was 0% and this was reflected in the paperwork.

That is true. I got to see such a document once and it was the normal form simply filled with 0%.

www.ing-golze.de
EDAZ

As far as I can tell this would not work in Germany. You would end up paying the whole VAT on this sale even though the company selling itself never paid any to get the plane.

Why is that? Is it because the German tax authority has been doing this attack? The same attack was considered by the UK HMRC but they decided it would not stand up.

Administrator
Shoreham EGKA, United Kingdom

Sebastian_G wrote:

So it comes down to this detail in Denmark. But even if it works it means that simply reselling the plane would not work to avoid VAT. There must be some company seriously operating the plane and then deciding a few months later that it wants to resell it etc.

IMO, the reselling case is even simpler. There, the margin scheme would typically apply. If a French/German/… whatever company buys a second-hand (NOT NEW) plane solely to resell it, then it is a reseller, by definition. So if the plane it buys is VAT-paid (the person it buys it from is not a VAT-taxable person, or that person has not deducted input VAT on that plane), then the resell sales price is subject to French/German/… VAT only on the portion of the sales price that exceeds the acquisition price.

Now, if the plane transits through Denmark solely to get that VAT advantage, this might be quashed under anti-abuse rules. If the transaction is genuine, I don’t see any trouble with it.

Last Edited by lionel at 23 Oct 14:12
ELLX

Presumably the way aircraft traders get around the fact that they need to charge [some] VAT on everything they sell, even if “VAT paid”, is by acting as an agent for the seller. They don’t buy the plane from him. They could buy it if it is not VAT paid. So traders who buy the plane need to be careful with planes which have been through the Danish route.

The issue I see here is that the “anti abuse” rules are highly country dependent (ref the German case linked above), highly “climate” dependent, etc etc.

Administrator
Shoreham EGKA, United Kingdom

Peter wrote:

Presumably the way aircraft traders get around the fact that they need to charge [some] VAT on everything they sell, even if “VAT paid”, is by acting as an agent for the seller. They don’t buy the plane from him.

Well, they invoice their brokerage service to the seller, and these fees are subject to VAT. So they don’t escape VAT by being an agent instead of a reseller. Whatever money is for their pocket, either as brokerage fees or as resale profit, is subject to VAT.

ELLX

lionel wrote:

So if the plane it buys is VAT-paid (the person it buys it from is not a VAT-taxable person, or that person has not deducted input VAT on that plane), then the resell sales price is subject to French/German/… VAT only on the portion of the sales price that exceeds the acquisition price.

There must be a reason why German government makes so much tax income ;-) Over here they are greedy, as far as I can tell unless you are a dealer such sale would simply trigger the full VAT again. Not much on planes but more reading on cars and I assume it is the same. It seems therefore a very bad idea to buy a VAT paid plane from a private person as a German company.

Peter wrote:

is by acting as an agent for the seller.

I think the main reason for that is warranty. As a dealer you have to give a private customer a major warranty by law. Regarding what might go wrong financially on an aircraft such warranty would be suicide. In fact the same on high value cars. Try selling such a car and all dealers will try to act as agents only.

www.ing-golze.de
EDAZ

Kind of funny:
In this thread we discuss that there might by an opportunity by taking the law very literally to avoid import VAT in cases where EU regulators definitely intended to collect such import VAT (because it is a true import) while…
… in the neigbour thread we complain that the tax authority takes the law literally and not as intended to collect VAT from an unfortunate Swiss pilot who failed to properly report a temporary import to the union.

Germany

It may appear somewhat ironic indeed

However, it is 100% legal to organise one’s affairs so as to minimise the amount of tax one pays. It is formally a duty a company has to its shareholders. An individual is required to comply with the tax law, not a penny more.

The German pilot got busted using what many would regard as an exploitative move, bordering on entrapment (not only because there is no practical appeal route, etc).

The Danish 0% VAT route is legitimate, if it is legal

Any tax avoidance measure may come under attack under the general anti avoidance provisions, as in this German case but this can never be fully exploited because that would contravene the 2nd paragraph above.

Administrator
Shoreham EGKA, United Kingdom
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