1 Aug 2013
Complex VAT structures threaten client confidence in charter market
Discounted charter tax structures in key Mediterranean yachting destinations, recently introduced in Malta and in France, are causing more confusion than encouragement, report some in the industry. Others say the French situation in particular, has damaged consumer confidence and is shifting business considerably to the eastern Mediterranean, the last bastion for stress- and VAT-free charters.
“[This summer] you are getting a different VAT rate offered on the same charter, which is really confusing for the client," explained Toby Maclaurin, commercial manager at Ocean Independence.
"We have a fantastic sales force in this industry but they are having to sit in front of clients and say, ‘I’m not entirely sure how much your charter is going to cost and I’m struggling to explain the pricing structure to you.’”
He said fiscal departments are not being given clear guidelines and local tax offices and fiscal representatives are interpreting laws differently, which is has potentially disastrous consequences.
“The worry is that our clients will say 'no one can really tell me what the tax liabilities are on my holiday this year so I’ll book a villa because it’s fine. There are other ways I can enjoy myself apart from yacht charter.'"
Enforcing Maclaurin’s point, Moore Stephens notes in its France VAT report this month that the 50 per cent discount on the national VAT rate, flagged up for possible use in circumstances where the yacht is evidently part-used outside EU waters, is taken at some “risk” to the service provider:
“It is worth remembering that this reduced-base option is only a method of calculation which the French authorities have explicitly stated can be used solely at the service provider’s responsibility and risk and subject to verification by the authorities. It would therefore be ill-advised to assume its application in advance of charters without determining the real facts – which could well be evident only after the event,” it says.
The note explains why some owner representative offices are pushing for the most stringent application of French VAT whilst others want to secure lower rates if they can. No one feels comfortable entirely with the new framework.
Revisions to the application of VAT on French charters was expected to trigger a spate of early bookings in French waters. But brokers are reporting this has not been the case.
“We tried to use it as a stick to beat our clients with but it doesn’t really work. It didn’t make that much of a difference knowing the tax would become active as of the 15 July,” said Fiona Maureso, charter director, South of France at Northrop & Johnson.
Maureso said the impact was felt, instead, with clients opting for VAT-free Eastern Mediterranean destinations, which are already growing in popularity:
“It consolidated their position [in particular] on Croatia – as we’re all aware it joined the EU this summer and we don’t know what’s going to happen next year – they are certainly going to have to apply a tax to align themselves to the EU, so there’s a kind of sense this is the last summer we’ll get away with it.”
The reactions from brokers show the realities of fluctuations in the fiscal situation as seen from the end user. Whilst experts in the industry will know the loopholes and have their own stance on the matter, with no clear set of rules for all to follow, clients just see a confusing price structure with possible risks attached. More positively, the market is adapting by going to new destinations such as the eastern med where no such issues exist, yet.
The fiscal plight of France, Italy and Spain was discussed in detail by domestic experts and industry professionals at the Superyacht Fiscal Managment Meeting in March 2013. To download the transcripts from the event, click here.
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