Aircraft in Free Circulation for VAT
What does it exactly mean?
I always took it as meaning that import VAT has been paid and that you have evidence of that.
A few years ago I did some notes on it here.
Just having an invoice from the seller is not proof that the VAT has been paid.
I managed to obtain a Certificate of Free Circulation from the UK Customs, very shortly before they stopped issuing them. But many others were less lucky. Now, the only route I am aware of is to declare some semi plausible market value for your plane, and hand over the VAT on that value, and you get the piece of paper. That could of course be very expensive. Another route is via the San Marino registry, but that has been described by a well known VAT consultant as void.
There are some "interesting" gotchas which can be triggered by the aircraft having been sold to a non EU owner, while remaining in the UK. That can count as an export, and you then become liable for import VAT again (even if you have proof it has already been paid) if the aircraft ownership is transferred back into the EU. Obviously one wonders what happens to FAA trusts but I am told by my accountant that HMRC treat trusts as transparent for tax purposes in this case.
I had some dealings with HMRC when we transferred our aeroplane from the G to N reg and this is what applied to us:
In your case the aircraft has been in continual EU ownership for a long period, and as you say qualifies as having VAT paid status by virtue of the E.E.C. Council Directive 92/111, part of the Sixth Directive, Article 28N- Transitional measures, which you have correctly stated the conditions that apply.
They also stated:
HMRC no longer issue Free Circulation Certificates as they had no legal standing within the Community, and it is highly unlikely that they will supply any paperwork to confirm the VAT status, other than probably similar comments to mine above.
Essentially what the EEC directive says is that if you aeroplane was imported into the EU before a certain date (1980 in our case) and remained in the EU for a number of years, then it is considered VAT paid whether you have the original invoice or not.
VAT question on aircraft made in the EU
I have just read somewhere that for aircraft built and bought in the EEA and which have never been outside the EEA, then the VAT invoice issued at the original time of purchase would suffice as proof of VAT paid.
Is that really true?
If so, it's a bombshell because loads of people who have European planes have gone to loads of trouble to get the bit of paper - myself included. And I used the services of an aviation VAT specialist (Clive Chapman) who would surely have known that I was wasting my time and money. I got the CofFC shortly before it became impossible to get from the UK VAT people (2005).
Also, if it's true, somebody ought to tell the French because they have quite happily busted TB owners...
Anyway, if it's true, one then needs to carry proof of continuous EEA location, which is going to be hard. How would you prove that? A journey log perhaps? I can't believe it would be worth anything because you could fake one easily.
I can't see how an EU invoice including VAT addressed to the current owner would not be evidence of EU VAT being paid.
Of course when you start to add in additional factors such as not the original owner, or the owner being a US company with a US postal address, then the cracks start to open and potential for VAT errors start to increase.
I've been digging some more into this...
Firstly my above comment about "carry proof of continuous EEA location" is not right. What would be needed is to have proof the aircraft was never sold out of the EEA.
This is because e.g. you buy a TB20 in France, and you are a VAT registered company (you reclaim the VAT, subject to some constraints but definitely OK if you are a dealer), you sell it to the USA, at which point no VAT is charged because exports outside the EEA don't attract VAT, and then it could be re-imported back into the EEA. This re-import can be done without paying import VAT because planes can and do simply "fly around".
So dublinpilot's above comment about "EU invoice including VAT addressed to the current owner " makes perfect sense.
But even then there is a catch. The invoice would need to be issued by the factory, which it isn't going to be (Socata almost never sold direct; the only people I know of who got planes direct from them were ones who threatened to sue big-time and Socata gave them a new plane to make them go away). Mine is from Air Touring, the Socata dealer - who have conveniently gone bust.
Much has been made of the need to get a C88 for any new plane but I think this is actually impossible for one made in the EEA. The only time you could get a C88 for say a TB20 is if it was exported to say the USA and then re-imported. This is not a common scenario.
I thus suspect that - at least with EEA-made planes which have never been sold outside EEA - this whole business is a huge over-reaction, driven by the incompetence of the French and German VAT police who do not understand the rules and want to see some piece of paper.
VAT and N-reg aircraft
I’m poking at the idea of becoming an owner myself, and am very grateful to Mooney Driver and Peter for helping me along the way. I was considering (for various reasons) to go the N-reg route.
MD now massively scared me :) – apparently there are stories of Swiss-domiciled N-regs that are impounded in the EU for not having paid VAT. I would definitely hope that cannot happen, as, in my opinion, if the plane is properly imported, VATed and domiciled in Switzerland – why would the EU want to extort VAT from me? I very much plan to come back every time… (for the moment :) ).
What are the opinions of the esteemed forumites on that?
I don’t think there is such a thing as a “Swiss domiciled” aircraft – is there?
The first Q I would ask is whether the said aircraft has actually paid the Swiss VAT.
Historically, many planes were imported into Europe from the USA and no import VAT was paid. It was very easy to do.
The UK did an amnesty for these, up to some specific date in the 1980s (I don’t recall the details but could find out) but to use that amnesty you need documentary proof of continuous residence in the UK between two specific dates. But that is good only if you are G-reg.
This VAT business led to the Certificate of Free Circulation saga. Some notes on that are here.
I obtained the Cert of Free Circ in 2005, shortly before the UK Customs shut down that department and stopped issuing them. However I have recently read that I probably wasted my time because the aircraft never left the EU (being French) so no import VAT was ever due, and the fact that VAT was paid on its original purchase makes the issue moot. That’s provided it never left the EU! However if I was to rely on that one, I then need evidence that it never left the EU!
A fairly well substantiated rumour is that a US based TBM700 got impounded at the Socata factory parking at Tarbes and was forced to pay the import VAT, only to get the money back a few days later. Socata appear to know about this but when you ask them they just smile and say nothing… That event would appear to be as expected if the owner had an EU passport and hung around the EU for a bit too long (what is “too long” I don’t know but it is a well known thing) or did not have an EU passport and hung around the EU for a bit longer (from vague memory, 6 months is the longest permitted temporary import but really I have no idea).
The second Q is what deal Switzerland has with the EU on this. I have no idea but clearly there must be something, otherwise every plane which normally hangs around Switzerland and is owned by an EU passport holder but has not paid EU VAT would be vulnerable to impounding if it stayed in the EU for a bit too long, and we would be hearing a lot about this. And the same issue ought to exist with planes registered in the Channel Islands – when they get their register going. It is possible there really is no deal in which case an N-reg from Switzerland is like any other N-reg, regardless of what Swiss VAT claims to have been paid.
This guy makes a living sorting out this kind of stuff. He is ex UK Customs & Excise.
I would try to get the story checked out all the way back to its source. Usually you find stories like this either have some details which shine a completely different light on them, or they don’t check out at all.
‘A fairly well substantiated rumour is that a US based TBM700 got impounded at the Socata factory parking at Tarbes and was forced to pay the import VAT, only to get the money back a few days later.’
Peter, I believe that this aircraft (N reg) was based at EGMC, as the owner related the story to me.
In that case (if he is a simple Brit) he just simply got done for the import VAT, on a plane he imported from the USA (which actually spent a long time in the USA, even though it originated in France).
And he could not have got it refunded.
Nothing new there… (if those are the details). Do you know any more?
I fly religiously with a certified copy of the CofFC in the back of the plane but we don’t hear much about the “legendary” French Customs hits on N-regs anymore. Maybe some political deal was done?
I agree a Swiss N is like any other N. But as long as it doesn’t spend more than 6 months over, I don’t see why it should be liable for EU VAT.