Where charter vessels encounter problems from fiscal and customs authorities we see that these problems have inevitably arisen as a result of reasons, which can be easily avoided.
Whilst part of the problem is the varying rules and interpretations between member states, the other problem lies where the most favourable are adopted and considered the norm.
Clearly we are looking at the French Commercial Exemption rules, which were introduced in 2004 in an effort to simplify what was a confused industry. The FCE worked very well and France benefited greatly from the charter activity. Italy largely followed the same rules up until around 2008 when question marks began to be raised on the application of the rules and partly arising from abuse of the rules.
Taking Spain out of the equation for chartering as their rules are quite specific and well known, the fundamental problem is that the FCE was considered the benchmark rules for chartering as opposed to exception, which is exactly what they are, exceptions. This left some vessels moving to charter in other jurisdictions deficient from a structure perspective.
Ignoring the ongoing debate following the EU review of the FCE and discussions on what constitutes high seas, the fact of the matter is that if a vessel is to charter wider afield and not be constrained to the idiosyncrasies of one member state, then some general common sense rules should be followed, the effect of which is compliance to a universal standard (excepting Spain) as opposed to the lowest common denominator. Even recent debate over what constitutes ‘high seas’ is an irrelevant argument if the universal standards are followed.
By making the effort to follow the basic rules greater freedom to charter is obtained and without the need for separate contingency plans if a charter party requests a variation in cruising. Spain being the exception, which is a subject for separate discussion.
So what does a charter vessel/owner need to do? Quite simply three criteria should be met;
- The owning company should have a place of business in the EU and this is achieved with a VAT registration in the EU – an EU company is not necessary, many non EU companies can register for VAT in the EU.
- The vessel should be formally imported in to the EU and VAT accounted for on the vessel.
- This criterion is open for debate as a well publicised case in Italy in 2009 should set a precedent, but nonetheless the risk of challenge is reduced by flying an EU flag. Many vessels do not fly an EU flag and do not encounter problems, but our view is that it is preferred where possible, acknowledging that in most cases coding issues play a greater part in choice of flag state.
Where charter vessels have encountered problems it is invariably due to one of more of the above items not having been met.