The relief procedure can save yacht owners and EU Customs plenty of time, hassle, and money. Why have non-EU flagged yachts been denied the treatment for so long? Blame a stubborn misinterpretation.
November 2012. Big Yacht, a newly built commercial yacht by a Northern European shipyard, pulled up for fuelling in Gibraltar. The yacht had been delivered to its EU owner a few months earlier. After a maiden charter in the Mediterranean, Big Yacht returned to the shipyard for warranty works. Sailing back to the Med, and after the fuel stop, she proceeded to the port city of Tarragona in mainland Spain, and then to the Balearic Island of Palma de Mallorca. Customs boarded in Palma and began a process that served her with an import VAT assessment at 21% of her hull value.
The reason for the VAT assessment, according to Customs, was that Big Yacht was registered in a non-EU ship registry. She’d left and re-entered the EU without a standard customs declaration. She’d thereby lost her EU goods status as well as her entitlement to Returned Goods Relief (RGR) due to her non-EU flag.
EU RGR law says that Union goods can move temporarily out of the EU with minimal formality and without loss of their customs status. ‘Union goods’ are goods made in the EU but also imported goods which have been released for free circulation after payment of the import duty to which they are liable. Union goods don’t need to re-import and pay import duty when they return. They may return into any part of the EU – not necessarily from where they left. Specifically, for powered means of transport, Customs would deem them declared by “the sole act of crossing the frontier” of the Union. No explicit application is requested. All which means RGR is a waiver of obligation, an exceptional measure intended to facilitate economic activities and reduce the administration burden for the customs authorities and taxpayers alike.
However, one nicety of RGR legislation mentions means of transport being “registered in the Customs territory of the Community”. Recognised as only referencing motorised road vehicles but once taken as a catch-all, that phrase has bedevilled the RGR regime applying to yachts over the years. In France and Spain, especially, their policy has been angled such that only yachts registered within the EU could have the “sole-act-crossing” treatment. Those registered outside – notwithstanding their Union goods status – would declare exit and entry explicitly using a standard customs declaration.
If this sounds like flag-bias, it is – with big impact. Most large yachts are after all registered in countries outside the EU, thanks to the ‘open registries’ which dominate yachting. Large yachts are highly visible by their flag, and, through their charter activity, they will criss-cross EU waters frequently. Consequently, if flag becomes a discriminator for customs procedures, then non-EU flagged yachts will risk tripping up and becoming easy targets.
So indeed, it proved. Big Yacht’s tax assessment in Palma was one of several at the time. From the same customs authority and for similar non-EU flag reasons. Tens of millions of Euros – although Big Yacht’s number was by far the largest. With a raw sense of injustice, several of these cases burst into the Spanish court system at the time, with patchy success. The authorities maintained the line that their non-EU flag rendered such Union status yachts ineligible for RGR entry unless they had been exported with an export declaration when they left the EU. As legal cover, they cited the “registered in the Customs territory” detail for all it’s worth.
But this was despite the evidence suggesting otherwise. In the case law of the EU courts. In the contrasting policy of other major EU Member States. In European Commission’s guidance. In Minutes of meetings of the Customs Expert Group (CEG), whose mission is to provide expertise to the Commission on customs matters. In the specific answer that the CEG gave France and Spain when they referred that question.
It was being made abundantly clear throughout that the flag of a yacht was irrelevant to determine its customs status, and that EU and non-EU flagged yachts should have equal treatment for RGR purposes. Even when they published a welcome policy alignment in 2018 reflecting CEG advice, Spain continued to posit in the ongoing court cases that disregarding flag could not apply to situations prior to 2016. The Union Customs Code which was supposed to have enabled Spain’s policy change could not apply retrospectively, they claimed.
Over the years, and particularly in France, the stubborn aura surrounding the RGR issue for non-EU flagged yachts has caused some fiscal representatives to de-risk by routinely exporting yachts leaving the EU temporarily for the Caribbean and elsewhere. They call it “dummy” exportation because it is done as a sop to the unknown customs officer rather than a real purpose. The question is how long this costly practice can continue at the yacht owner’s expense.
As to Big Yacht, it has taken the best part of a decade of kicking around in the courts, a very trusting and patient client, our steady professional input, an expert team of lawyers, and some well-sourced documents from the CEG for the Tribunal Supremo to finally hand down a judgment that wholly extinguishes the tax assessment and gives a full costs award to the client.
Information in our blogs is very general in nature and should not be acted upon without first consulting with a tax advisor. Please feel free to contact Y & A Group, LP to schedule a complimentary consultation.
