The Yachting Industry: Essential for the Islands

1. THE YACHTING INDUSTRY: ESSENTIAL FOR THE ISLANDS Miguel Ángel Serra Guasch Legal&tax advisor of the Spanish Yachting Association (ANEN) Partner at Albors Galiano Portales Brussels, Abril 5, 2019

2. Some basics • Yachting is an Industry • Yachting is Tourism • High purchasing power • High average stay in destinations • Diversification and deseasonalization of traditional tourism • Low consumption of territory • Huge growth potential • Spain (direct, indirect and induced impact, 2016) • GDP: 11,900 M€ (multiplying effect: 3,25) • GVA: 4,800 M€ (multiplying effect: 4,97) • Employment: 82,500 (multiplying effect: 4,20) • Approximately 40% in the Balearic Islands

3. Some basics • Spain compared to Italy, England and France (2009)

4. Spanish Matriculation tax (I) • Origin • European Single Market launched on January 1, 1993: elimination of increased VAT rate (28%) on luxury assets (e.g. means of transport) • Creation of a 12% mat tax on top of VAT general rate (16%) to make 28% • To date this is anachronistic and do not collect any money (16 M€ in Spain) • To date is just a political issue (accused of removing taxes to wealthiest) • Non-harmonized tax • Taxable event • Registration in Spain of boats longer than 8 metres (new or used) • Use of yacht in Spain by Spanish residents or non-residents with ‘establishment’ in Spain (only since January 1, 2011) • Rate: 12% on the purchase price (market value when used)

5. Spanish Matriculation tax (II) • Consequences • Spain is the only EU country where exists such a matriculation tax • Hinders the development of a strong and powerful nautical industry • Causes both real and opportunity economic costs • Legal uncertainty (undefined legal concepts) • Dislocation of investments • Parliamentary question by ALDE Group on December 14, 2010 • Is it against principle of movement of persons and capitals and freedom of establishment? • Answer of the EC on February 8, 2011: not an harmonized tax, no need to take actions Commission (there was only 1st taxable event):

6. Spanish Matriculation tax (III) • Currently matriculation tax is contrary to EU principles • Principle of free circulation of persons and capitals • Principle of freedom of establishment • Complaint to be filed soon to the European Commission • Announced by ANEN (Spanish Nautical Association) and AEGY (Spanish Large Yachts Association) on March 14, 2019. • EC and TAXUD should have opened infringement procedure against Spain • The industry has realised that needs a strong presence in Brussels

7. UCC: Union Customs Code (I) • Regulation (in force since May 1, 2016) • Regulation (EU) No 952/2013 of the Parliament and Council of 9 October 2013 • Commission Delegated Regulation (EU) 2015/2446 of 28 July 2015 • Commission Delegated Regulation (EU) 2015/2447 of 24 November 2015 • Commission Delegated Regulation (EU) 2018/1063 of May 16 2018 • The UCC is an EU Regulation • Primary EU Law (vs Directives) • Direct application (no need to transpose to internal law) • Addressed to EU citizens (not to countries) • Should be efficient to create ‘Unified EU Law’

8. UCC: Union Customs Code (II) • Different criteria and formalities in the EU countries • Legal uncertainty • Negative International image • Consequences if failing to comply: VAT on the hull !!! • Importation of commercial yachts (148 VAT Directive) • France (FCE, 2004, ECJ March 21, 2013) • Italy (ICE, 2018) • Spain: not possible • EC should be aware of discriminatory criteria in the application of EU legislation

9. UCC: Union Customs Code (III) • Customs regimes (yachts) • Temporary Admission (TA) • Non-EU yachts may be used in the UCT without payment of customs duties or import VAT under certain conditions and re-exported afterwards (18 months) • Returned Goods Relief (RGR) • Eu yachts in free circulation within the EU at the time of export may be re-imported within 36 months into the EU without payment of customs duties or import VAT • Inward Process Relief (IPR) • Enables to get relief in customs duties, import VAT and excise duties n yachts imported from outside the EU to be processed and then reexported outside the EU

10. Tax on Fuel • Regulation • Council Directive 2003/96/EC, of 27 October 2003, on energy products • Article 14.1 (c): not applicable to energy products supplied for use as fuel for ‘private pleasure crafts’ • Applicability to yachts commercially operated (charter) in the EU: • France: exemption was applicable until September 20, 2015 • Italy: exemption still applicable as of today • Spain: Never admitted

11. Non-Resident Income Tax • Taxation of non-residents activities operating without PE • Double Taxation Treaty (DTT) in place • Business profits (article 7 OECD Model Convention) • Taxed only where the Company is resident (not source of income) • No Double Taxation Treaty in place • Business profits taxed at source • Rate: 24% on taxable income (income less some expenses). • France or Italy • Double Taxation Treaty (DTT) in place: same treatment • No Double taxation Treaty in place: NO taxation (only if operating with PE)

12. Thank you very much and… happy sailing!