EC takes Britain to task on aircraft tax exemption

 - July 28, 2009, 11:42 AM

The UK government is considering a demand from the European Commission (EC) that it change its tax legislation to remove an exemption from value-added tax (VAT) for privately operated aircraft weighing more than 8,000 kilograms (17,636 pounds). On June 25, the EC “formally re-quested” through a so-called “reasoned opinion” that Britain bring its VAT rules in line with those of the 27-state European Union. If the country fails to make the change within two months, meaning by August 25, the EC can take legal action through the European Court of Justice.

A spokeswoman for the UK government’s Revenue and Customs department told AIN that it is “considering the position.” She acknowledged that current British VAT rules allow an exemption based entirely on aircraft weight, rather than specifying that the aircraft has to be operated commercially, as is the case with almost all of the other EU states. Revenue and Customs argues that the difference between the UK and EU positions is marginal in practice because “the majority of aircraft operators are VAT registered [and so] any VAT charged can normally be reclaimed.”

The EC has been waging a similar campaign to get Denmark to scrap its zero-rating for VAT on aircraft imports. New Danish legislation eliminating the exemption is supposed to take effect on Jan. 1, 2010, but that might be delayed as a result of lobbying efforts by the GA community.

The EC doesn’t want aircraft importers to be able to exploit tax loopholes that could give the two countries a competitive advantage over other EU member states. The concern is that having imported an aircraft into either the UK or Denmark for zero VAT (where it is ordinarily charged at rates of 17.5 and 25 percent, respectively), an aircraft owner would then be able re-export the aircraft at zero VAT to another EU state.

Article 148 of the EU Tax Directive allows VAT exemption for aircraft weighing more than 8,000 kilograms that are operated commercially on international routes. However, a recent European Court of Justice ruling effectively extended this to aircraft operated commercially on domestic routes. The 8,000-kilogram benchmark leaves a Cessna Citation Encore (mtow 16,630 pounds) exempt from VAT, while a Bombardier Learjet 35A (mtow 18,300 pounds) would be subject to the tax.