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European Court of Justice and the Bacino Charter Company

European Court rules: VAT due on chartering of pleasure yachts even with crew.

On December 22, 2010 the European Court (Third Chamber), ruled in the case of whether a VAT exemption applies to chartered pleasure yachts with crew. The ruling followed a court case in which Bacino Charter Company SA and the Administration de l’enregistrement et des domaines (tax authorities) of Luxembourg were disputing VAT regulations applicable to charter activities in 1998 and 1999.

Bacino assumed the charter activities were exempt from VAT because of international passenger transport (yacht with crew), whereas the Luxembourgish tax authorities claimed VAT was due as the vessel was a yacht and not a commercial vessel.

The court considered the articles in European Law concerning VAT exemption for vessels used for paid passenger transportation and for industrial, trading or fishing activities. The court found that, when a vessel is used to practice such an economic activity, the VAT exemption applies. However, when the vessel is used by private persons for leisure purposes, VAT is due on the charter fee.

In short: together with the new VAT rules for international services, one can conclude that VAT is due in the Member State of departure of the charter (< 90 days) even if crew is included.

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