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SURVEY RESULTS NO. 2:

Aircraft importation in the EU: what does various EU VAT authorities require to accept an aircraft as VAT exempt?

OCTOBER 2017
We often hear the question: how can an operator (importer) be accepted as an international airline and be VAT-exempt during an aircraft importation and where are the best conditions available?

A European Court of Justice (ECJ) judgement from 2012 often referred to as “the Finnish case” have set the standard in 2012. The judgement said that the aircraft must be used by an accepted international airline – but how has this term “used” been interpreted. We have therefore commissioned a verification survey in various EU member states known for aircraft importation. The survey has been made by an international consulting firm.

The result is muddy
The result is muddy as could be expected. All EU member states basically agree that an AOC is mandatory, and the majority of all traffic must be international. But when it comes to the “usage” requirements for a specific aircraft the result varies. The mentioned judgement did not mention anything about a requirement for commercial usage, but this requirement is specified in a later EU working paper 762 from the European Commission VAT Committee and their published guidelines, so we expect that this usage issue eventually will end up at the ECJ for a new interpretation – as such a huge variation in the preconditions is not acceptable in the long run.

OXFAM tax haven states lead
The two OXFAM tax havens states Ireland and the Netherlands have the lowest thresholds for an aircraft to be accepted as VAT-exempt. The Netherlands also accept aircraft as VAT-exempt for certain company groups even though no AOC/charter certificate has been acquired. The latter do not have any foundation in the mentioned ECJ judgement or EU working paper and is clearly illegal in our opinion. Again, we see these low thresholds as an abnormality that the EU Commission will not accept in the long run. If you opt for procedures offered in these EU tax havens you MUST ask for a written approval available from all authorities in all member states.

Figure: Aircraft used by an exempt international airline imported in various EU-member states
What are the local preconditions for respectively the importer and the specific aircraft?

Many advantages with Temporary Admission
Most non-EU operators already use Temporary Admission. Full importation includes a lot of potential VAT/tax liability which nobody wants, and which typically requires 5 years of correct economic activity and 7 years of recordkeeping. All these factors are eliminated with the use of Temporary Admission and most non-EU operators will in fact have the same flying privileges as under full importation. Temporary Admission will give the declarant more flexibility and extra advantages such as unrestricted personal, family and guest usage also for EU-resident passengers.

What to do for an EU based entity or aircraft registered in the EU customs territory
The Temporary Admission procedure cannot be used by EU based entities or for aircraft registered in the EU customs territory. The only option is to use full importation. It is important to analyze your usage of the aircraft and eventually consult your local VAT adviser for a verification of the exact usage.

Always ask first
Our advice has always been to ask the local tax authorities for a binding advance tax ruling prior to any importation/admission in order to eliminate any doubt about the outcome. All cases have different details and a binding advance tax ruling will also consider all new European Court of Justice (ECJ) judgements. Even if you have a fully working set-up, we believe, an importation/admission without a binding advance tax ruling from the EU member state into which the aircraft is to be imported, is too great a risk to take.

 KNOW MORE: Read the short story about full importation
 KNOW MORE: OPMAS Review: The “airline” VAT exemption in the European Union

This update relates only to a full importation into the EU where the aircraft is exempt as being used for commercial flights with an AOC/Charter certificate. It does not apply to Temporary Admission with total relief from import duties or where full importation is used combined with reclaiming the VAT imposed during the importation

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