July 2013
TAX – VAT and Customs Duty
Aoife O'Sullivan, Kennedys Aviation LLP
Importation into the EU
Basic Principles
Customs duty is payable on the import of goods by the importer by reference to the
Common Customs Tariff of the EU.
VAT is due on the import of goods into the EU – the VAT is payable by the importer who
is liable to pay the customs debt under the Community Customs Code and at the same
time as the Customs Debt is due.
The declarant is liable, but if the declaration is made on behalf of another person, that
other person is also liable.
Where the introduction into the EU is "unlawful" liability can spread wider to other persons
involved in the unlawful introduction and who acquire an interest in the goods.
Civil aircraft are normally imported with end use relief for free circulation within the EU – an
alternative is temporary admission, to which strict limitations apply.
Declaration required on Single Administrative Document ("SAD") - UK form is the "C88"
July 2013
Customs Duty – End Use Relief
Civil aircraft with a UK, EU or non-EU civil registration – the commodity code in Box 33 of the
C88 will normally be 88 02 30 00 10 (unladen weight exceeding 2,000 Kg, but not more than
15,000 Kg) or 88 02 40 00 10 (unladen weight exceeding 15,000 Kg).
Import is under the end use authorisation of the importer, who must be established in the EU
– simplified procedures (that otherwise apply only to occasional importations of other goods)
apply to registered civil aircraft.
The procedure code is entered in Box 37 of the C88 and the end-use authorisation number
in box 44.
Production of a valid civil registration certificate is required at the time of import – it is the
existence of the registration of the aircraft that "completes" end use relief.
Agents should not identify themselves as consignee on the C88, but clearly indicate the
importer – both agent and importer are liable.
End use relief can also apply to parts, but an alternative certification for parts is import with
an airworthiness certificate.
July 2013
Temporary Admission
Aircraft registered and owned or at least owned outside the EU .
Period of use under TA where it is used by a non-EU person is:
private personal use – six months;
commercial use - time taken to load/unload or pick up/set down for maximum of 24 months.
Period of use under TA where use is by an EU person:
Private transport:
hired outside the EU to return home to EU or to leave the EU – 8 days;
occasional private use permitted by non-EU owner/employer – six months;
preparing to emigrate outside EU – three months.
Commercial – if commercial use arranged by non-EU person and has given written authority
to EU person to use it on their behalf – time taken to transport goods or persons to or from
the EU (also certain other limited categories 5 or 8 days).
July 2013
Importation – General Aviation Report
Prior to arrival in the UK a General Aviation Report ("GAR") must be completed detailing the
intended use of the aircraft.
The GAR must be sent by fax or e-mail to the National Co-Ordination Unit ("NCU") by the
following deadlines prior to arrival:
From elsewhere in the EU – four hours;
From the Channel Islands – twelve hours;
From elsewhere outside the EU – 24 hours.
The airport has to be a designated airport or "certificate of agreement" (COA) airport
approved for import entry.
July 2013
VAT – General
Goods - subject to VAT in the member state of the EU where supplied.
Supply of goods occurs where:
there is a "transfer of the whole property in goods";
possession is transferred under "agreements which expressly contemplate that the
property will also pass at some time in the future" – e.g. hire purchase/conditional sale
No supply for VAT where aircraft sold by a mortgagee after repossession under an aircraft
mortgage where owner is private owner subject to certain conditions.
Goods also treated as supplied in the UK:
When imported into the UK from outside the EU;
On "acquisition" (import) by business in the UK from another EU member state;
aircraft is "new" means of transport (> 1550Kg MTOW and not more than three months
since first entered into service and note more than 40 flying hours).
July 2013
"Qualifying Aircraft" 1
Article 148(e) of Directive 2006/112/EC – "aircraft used by airlines operating for reward
chiefly on international routes".
UK before 1 January 2011: "weight not less than 8,000 Kg" and " neither designed nor
adapted for use for recreation or pleasure".
UK with effect for supplies, acquisitions or importations from 1 January 2011: "used by an
airline operating for reward chiefly on international routes"; an airline "means an undertaking
which provides services for carriage by air of passengers or cargo or both".
Transactions affected:
Supply, import or acquisition of the aircraft itself – whether sale, lease or otherwise
Repair, maintenance, conversion
Supply of "parts and equipment of a kind ordinarily installed or incorporated in, and to be
installed or incorporated in (a) the propulsion, navigation or communication systems or
(b) the general structure" and supply of certain safety equipment.
July 2013
Qualifying Aircraft 2
What is "use by an airline?"
Commercial registration for passenger
charter – aircraft is used by the owner
(normally a non-resident special purpose
vehicle owned by high net worth
individuals), but chartered to third parties
when not so used.
Aircraft Management or Flight Services
Agreement – "Operator" provides the
services – it or a group member is an
AOC holder in possession of an aircraft.
There is an "undertaking", but is it an
airline?
July 2013
Owner
Operator
Services
Charter
Qualifying Aircraft 3 – HMRC views
HMRC Interpretation – revised Notice 744C.
"undertaking" can take any legal form and may include a group of companies in some cases.
absence of an AOC "is an indicator that it is unlikely to allowed to operate as an airline".
supply of aircraft or of transport?
Notice 744C "formal charter/ hire contract…treated as the supply of a means of transport"
Notice 744A "passenger transport services" supplied where an "aircraft is provided
together with a driver or crew"
Aircraft managers may be an "airline" when using private aircraft for transportation services
but " it will not normally allow an aircraft to be 'qualifying'. This is because aircraft that are
used wholly or partly for purposes other than the supply of ..transportation can't be
considered qualifying aircraft" – i.e. use has to be exclusively for transport.
July 2013
Qualifying Aircraft 4
Easier questions!
"operating for reward" – the airline can provide passenger or freight transportation on
scheduled and/or unscheduled flights in return for consideration – there is no need for it
to operate at a profit, but " it must be a business operation in nature.
"international routes" - routes that start or finish outside UK airspace, but not flights that
are domestic flights that merely pass through international airspace.
"chiefly" – "the international route operations of an airline must exceed its UK domestic
route operations" (follows ECJ decision in Cimber Air).
In summary there are two principal outstanding problems with HMRC's position:
insistence on exclusive "use" by the airline as an airline;
view that ZR depends on identity of the recipient of the supply (with only limited "look
through").
July 2013
Qualifying Aircraft 5
The "use" question
No exclusive use implied Brutus v Cozens [1973] AC 854
Volker Oil [1991] STC 640 and Emelka (Cases C-181/04 to c-183/04) – supports HMRC
by analogy with qualifying ship test
contrast Navicon SA (Case C-97/06) – "partial charter" (provision of space on a ship)
exempt
Re A Oy (Case C-33/11) – AG Opinion in favour of qualifying status where partial use for
third party charter
The "direction of supply question"
the EU and UK legislation only requires the aircraft to be qualifying for the supply to
benefit from ZR – Société International de Télécommunications Aéronautiques –v- CCE
[2004] STC 950 – what matters is "the nature of the service rather than its recipient".
July 2013
Qualifying Aircraft 6
Re A Oy:
Company A was owned by an individual, X
A imported two aircraft from France and
leased them to Company B
B charged A for passenger flights for X
A re-charged X for the same flights
AG view:
B was an airline
A was entitled to exemption, even though
B was the airline
Exemption applied, even though ultimate
owner was recipient of the supply
July 2013
X
A
B
C
Import
Lease
100
25
78
Qualifying Aircraft 7 – Case Study
Alternative Structures
Owner leases to Lessorco (IoM)
Lessorco leases to AOC holder ("Op")
AOC holder provides passenger charter
to Owner and to Third Parties
Effect
AOC Holder has formal lease of aircraft
AOC Holder is always acting as an
"airline"
Important that charters to Owner and
Third Parties represent "Carriage by air of
passengers or cargo"
July 2013
Lessorco
Owner
Op
Third
Parties
Charter Lease
Lease
Qualifying Aircraft 8 - Conclusions
How bad for operators and owners is HMRC's interpretation?
Suppliers of parts and maintenance will look for customers to certify that the aircraft is
qualifying – HMRC challenges will take time to work through as control visits tend to occur
every three or four years.
If the aircraft is not "qualifying" then:
services of operator potentially split – "multiple supply" not "composite supply";
fuel for flight whose eventual destination is outside the UK – ZR under s. 30(6)(b) VATA;
supply of pilots and crew – ZR as "handling services" under Item 6 Group 5 Sch 8 VATA
HMRC potential challenges to structures in use!?
THANK YOU!
July 2013