Short & Sweet no. 5
What about private use of corporate aircraft?

• Can a corporate aircraft be used for private purposes without VAT consequences?

• What does the term predominately used for business mean?

• What are the definitions of private use and business use?

The case below describes a scenario where the aircraft is imported and admitted by a non-EU corporation that operates and uses the aircraft for its own business. We have often, in a VAT context, seen the use of the term predominately used for businesswhich should somehow indicate that a certain amount of private use of a corporate aircraft is acceptable without any VAT consequences but is this correct? Please, remember that many other scenarios are in play that also influences the situation.

The customs aspect of flying within the EU
Any aircraft flying into the EU will operate under customs control using either the Temporary Admission procedure (TA) or full importation (FI). There are no other options. The TA procedure can only be used by EU outsiders where the aircraft is owned (including any UBOs), operated, registered, and based outside the EU, leaving EU insiders with only one option: full importation. EU outsiders can, of course, choose to use full importation instead of TA if they find it beneficial. However, both options can be used commercially or privately if applied correctly.

It is often tricky for non-experts to see the differences between the two entry options, but the flexibility and long-term consequences are very different, and there are certain conditions that must be taken into consideration when opting for either the TA or FI procedure. Non-compliance with the TA or FI procedure will most likely activate a direct payment of the VAT (ranging 17-27%) and customs duty (2.7-7.7%).

Can a corporate aircraft be predominately used for business without VAT consequences?

FI: No, not unless proper VAT corrections are made.
TA: Yes, this is not a problem. Here, 100% private use is also acceptable.

FI comment: The term predominately used for business has for years been used to sugar-coat a scenario where an imported corporate aircraft has partly been used for private use without any corrections of the import VAT, which has previously been deducted in full. This kind of uncorrected and mixed use is simply not accepted anywhere within the EU. After the Paradise Papers were revealed, the EU Commission promptly stated that such misuse would simply not be accepted. A Dutch judgment has also recently confirmed this position. The judgment will influence other EU member states as the Netherlands has normally been known as an ‘accommodating’ jurisdiction, but with this judgment, they have raised the bar. In 2021, we have not been able to locate one single EU member state where the VAT authorities are willing to rubber-stamp any ‘unpaid’ private use as described under the term predominately used for business. However, this does not mean that the mentioned term is not being promoted, so please be cautious.

Please, have a look at the Short & Sweet mail no. 1 – Flying with the CEO.

What is the general definition of business use?
This is typically activities such as:
– Any business travel in furtherance of the corporation’s affairs
– Flying with the management and staff to support the economic activities of the corporation

What is the general definition of private use?
This is typically activities such as:
– Entertainment of clients
– Staff commuting
– Hobby activities of shareholders, principal, management, etc.
– Any personal, recreational, or amusement travel
– Any travel in furtherance of another business than the importing entity’s affairs

Important things to know about Temporary Admission
Operators should be aware off that different interpretations of the TA procedure exist between member states, thus also why it is important to have a competent customs agency to outline the correct use and understanding based on the specific setup. The problem with local interpretations is often related to flights within France, Spain, Portugal, Italy and Greece, and less often other places. Click here to see a list of the known grey zone areas where different interpretations of the TA procedure exist between member states and the areas where an operator often need guidance to use TA in a safe way. Yet, none of the situations cause problems for using TA if handled and documented correctly.

Important things to know about full importation
Operators should be aware off that full importation includes a potential VAT and tax liability and requires onwards continuous correct worldwide economic activity as well as correct handling of any potential worldwide non-business use and non-commercial use; requirements that the TA procedure does not have. The statute of limitations is five years for full importation, and the use of the aircraft must worldwide stay fully compliant with current EU regulations until the end of this period.

How can we help?
If you have questions about the above, please do not hesitate to contact us.