fiscale handleiding voor commercial cruising...

1 Fiscal handbook for Commercial Cruising Vessels | HISWA Association | 2016

Fiscal handbook for Commercial Cruising Vessels Version: November 2016 HISWA Association

Compiled by: K. Dijkstra DHK Tax & Legal P.O. Box 30011 3001 DA ROTTERDAM www.dhk-taxandlegal.nl

http://www.dhk-taxandlegal.nl/


1. Background of tax arrangement

1.1. Introduction Commercially operated (sport and) recreational craft have a special place in Dutch tax and legal regulations. In view of the special character of this type of commercial vessels, it can be difficult to apply one-to-one the various rules tailored specifically to commercial vessels. On the other hand, the rules for recreational craft also fail to provide an appropriate framework. Against this background, rules have been developed specifically for ‘commercial cruising vessels’ (hereafter: CCV vessels), which mainly impose safety standards and pollution-prevention standards, on the basis of the dimensions applicable for CCV vessels: the ‘Large Commercial Yacht Code’ (hereafter: LY31). Also from the tax point of view, there is a specific arrangement for CCV vessels. This arrangement relates to the operation, purchase and sale of these ‘small cruising vessels’ under the Dutch flag. The purpose of this fiscal handbook is to provide insight into the tax rules and tax facilities that apply for CCV vessels. In this context, discussion again took place with the Dutch Tax & Customs Administration (Belastingdienst) in 2016 regarding the use of the tax arrangement for CCV vessels (hereafter: CCV arrangement). The purpose of this discussion was to further examine the CCV arrangement, and to clarify it where necessary, with the ultimate aim of encouraging the use of the CCV arrangement, as one of the opportunities associated with flying the Dutch flag. In other words:

► more commercially operated recreational craft under the Dutch flag!

1.2. Use of this handbook Neither the HISWA Association nor any other party involved in the production of this publication, including the author of this document, accept any liability for the tax position of CCV vessels that are placed under the Dutch flag on the basis of this publication. The basic principle for the use of this publication is to offer a framework for using the CCV arrangement and the tax rules and facilities applicable on the basis of this. For the specific use of the CCV arrangement, a specific ruling can then be obtained -by any chartering company / owner / operator- on the basis of the framework given by this handbook, from the tax inspector authorised for this subject. In other words: this handbook describes in a general sense how the European tax legislation, as set down in the Union Customs Code (Regulation No. 952/2013/EU) and for example with regard to provisioning of vessels in Article 148 of the VAT Directive (No. 2006/112/EC), is translated into practice in the Netherlands. Agreement on the individual tax position will have to be reached with the authorised tax inspector. The unit that serves as the contact point for this is:

► Tax & Customs Administration Rijnmond, Rotterdam office, Transport unit 1 The number ‘3’ indicates that it is the third revised version of this Code.


This tax unit will establish a national register of CCV vessels and co-ordinate the national policy.

2. Content of the tax arrangement The Dutch tax arrangement can in principle only be used for vessels that are comparable in terms of equipment and appearance to luxury yachts, but are operated on a fully commercial basis as a ‘small cruising vessel’. From the tax point of view (and in any case for VAT) a distinction is made between ‘seagoing vessels for passenger transport’ and ‘recreational craft’. For instance, zero-rate VAT applies for:

► The supply and import of ‘seagoing vessels, with the exception of recreational craft’ (Table II, item a.3, Dutch Turnover Tax Act 1968);

► Goods intended for the provisioning of outbound seagoing vessels used for any form of economic activity (Table II, item a.4, Dutch Turnover Tax Act 1968);

► Services relating to the above-mentioned goods (Table II, item b.1, Dutch Turnover Tax Act 1968);

► The transport of persons by means of seagoing vessels, if the place of destination or the place of departure is located outside the Netherlands (Table II, item b.3, Dutch Turnover Tax Act 1968). This does not alter the fact, however, that when a short-term charter contract is concluded in a specific EU country, VAT will have to be paid in that country on the charter payment.

The tax authorities have adopted a standpoint for this fiscally important distinction between ‘seagoing vessels for passenger transport’ and ‘recreational craft’, which is that the use (operation) of the CCV vessel is decisive, and not the appearance or fit-out. In the generally applicable rulings agreed with the tax authorities, the following criteria are used to delineate the category ‘CCV vessel’, which is permitted to use the tax arrangement:

1. The vessel satisfies the technical conditions as stipulated in the Large Commercial Yacht Code;

2. The vessel has an unrestricted sailing area; 3. The vessel has an ‘overall’ length of more than 24 metres; 4. The vessel is commercially operated, i.e. at usual market prices, and serves for the

transport of persons; 5. The operation of the vessel is in the hands of an independent chartering company

registered in the Netherlands, which employs at least two personnel as sailing crew for the vessel, one of which is the captain of the vessel;

6. The vessel is registered under the Dutch flag (see also 3.2 below); 7. Exemption has been obtained for the vessel, as referred to in the ‘Policy Rule’ on

exemption regulations for a CCV vessel, 31 March 2004, no. DS-2016443/03 of the Netherlands Shipping Inspectorate (IVW-DS).


The vessels that satisfy the above criteria will be able to make use of the envisaged tax regime. The tax authorities will be critical towards vessels that do not satisfy all the conditions when deciding about granting the tax facilities, and will perhaps impose alternative or additional conditions.

3. Use of the tax arrangement

3.1. Ownership and registration These vessels are usually placed under the ownership of a legal person, partly for reasons of possible liability. In order to be registered under the Dutch flag, it will be necessary to demonstrate that there is a sufficient connection with the Netherlands. In this context, the chartering company that operates the vessel will in any case have to be registered in the Netherlands.

3.2. Requirements relating to the form of operation of a CCV vessel In general, the following requirements apply for the form of operation of a CCV vessel.

- The chartering company registered in the Netherlands must organise the operation of the CCV vessel, independently of the owner of the vessel;

- The contracts with the users of the CCV vessel must be concluded by the chartering company on a commercial basis (for a commercial price / ‘at arms length’).

- Under these conditions, the Ultimate Beneficial Owner (hereafter: UBO) can also make use of the CCV vessel, provided that this use each year remains below the ‘50% requirement’ (see section 3.4 of this fiscal handbook). However, the owner is not permitted to sail the vessel him/herself. The professional crew are designated to do this, and the vessel is operated by the chartering company.

3.2.1. Operation via an independent chartering company As can be seen from the above, one of the conditions for using the tax arrangement is that the operation is organised by a chartering company that is registered in the Netherlands and is independent of the vessel’s owner. For the purpose of operating the CCV vessel, a contract is concluded between the owner and the chartering company with the characteristics of a ‘bare boat charter’. This ‘bare boat charter’ by the owner to the chartering company must be for a continuous period. During this continuous period, the tax status of the CCV vessel is assured by the Dutch tax authorities. Private use by the owner is excluded: after all, the vessel is entirely at the disposal of the chartering company. If the owner wishes to make use of the CCV vessel, this will have to take place for a commercial price and under commercial conditions.

► The payment charged for the ‘bare boat charter’ can be zero-rated for VAT, provided that the vessel is exclusively operated as a CCV vessel.

3.3. Charter contracts concluded by chartering company with users The chartering company registered in the Netherlands makes the CCV vessel available to the users on the basis of charter contracts. These charter contracts can have various forms. The


most convenient form of contract is a ‘time charter contract’ (e.g. MYBA contracts). Another possibility is concluding a contract on the basis of a payment per passenger. For the VAT relating to these short-term charter contracts with clients, this service is subject to VAT ‘in the country where the charter begins’. In certain cases, however, this EU country makes provision for a reduction in the taxable amount (for instance, a flat-rate reduction for presumed use outside the EU), so that VAT does not need to be paid on the full charter payment. It is advisable to find out in advance whether -and under what conditions- the EU country concerned makes provision for such an arrangement. It is also advisable to find out in advance which EU countries these charters (will) take place in, because in these situations the chartering company must apply for VAT registration in the EU country concerned (and must also fulfil its VAT obligations in those countries). For short-term chartering to clients, it is possible to choose to recruit clients oneself, or to outsource this client recruitment, for example via a ‘yacht broker’. This has no effect on whether the CCV arrangement can be used. However, the service provided by the yacht broker to the chartering company is usually subject to VAT.

3.4. The Ultimate Beneficial Owner as user As mentioned above, use of the vessel by the UBO must be organised by the chartering company under commercial conditions. In this context, it makes no difference in principle, for the application of the CCV rules, whether the owner has ‘the place where he usually resides’ (domicile for tax purposes) within or outside the EU. A further additional condition applies for the required use under commercial conditions (the so-called ‘50% requirement’): on the basis of the ‘50% requirement’, the UBO’s use of the CCV vessel must be less than 50%. This criterion is usually assessed in terms of time duration.

3.5. Proof of tax status ‘CCV vessel’ by means of a customs declaration It is important for the tax treatment of the CCV vessel, both within and outside the Netherlands, that the tax status of the CCV vessel can be proved by the captain on behalf of the chartering company. This purpose is served by a ‘Customs Declaration for a Commercial Cruising Vessel’ (hereafter: CCV declaration). This declaration is valid for two years. In the fourth quarter of the second year after the CCV declaration was issued, the chartering company must send information about the operation of the CCV vessel over the first three quarters of that year to the authorised tax inspector, and a declaration concerning the intended operation in the forthcoming period. The inspector can check this information, and will issue a new CCV declaration before the start of the new year, if the criteria applicable for use of the tax facilities by the CCV vessel have been satisfied, and the information indicates no expectation that the criteria will not be satisfied in the forthcoming period. In this context, the Tax & Customs Administration focuses especially on checking the 50% requirement. The CCV declaration is based on the Dutch interpretation of the European legislation, but it is not a document that is actually part of the generally applicable European legislation. The tax


authorities in other European countries therefore have no obligation to comply with the Dutch interpretation. They can test the tax situation against European law according to their own interpretation of it.

3.6. Register of CCV vessels The Rotterdam office of the Tax & Customs Administration maintains a register of CCV vessels that have been issued with a CCV declaration, and assigns a unique tax registration number to every CCV vessel.

3.7. Tax status while a CCV is being built If a vessel is built as a CCV vessel (and on this basis invokes the classification as a ‘seagoing vessel’), a tax arrangement can be agreed with the Tax & Customs Administration. On the basis of this arrangement, zero-rate VAT for seagoing vessels can be applied for the building of the vessel in the Netherlands, under certain conditions. The advantage of this is that finance is not required for VAT. If this vessel, which is intended for commercial purposes, is built elsewhere in the EU, a zero-rate can also be applied, provided that an intra-Community supply to the Netherlands is agreed. In this situation, the owner declares an intra-Community acquisition on his Dutch VAT return. Because he is permitted to deduct this VAT as input tax, the owner also does not require finance for VAT in this situation. If a CCV vessel is built outside the EU, then EU VAT is not applicable. In that case, the VAT position of the vessel is determined at the time when the CCV vessel enters the EU. In this situation too, any potentially payable VAT will be deductible, because the CCV vessel is intended for commercial use. In the case of an intra-Community supply to the Netherlands or a CCV vessel built outside the EU that is imported into the EU, it is advisable to give (or request) attention in advance to the precise specification of this situation.

3.8. Changes if CCV vessel is going to be used as a private craft If a CCV vessel is no longer used for commercial operation (as described above) and the conditions applicable for the CCV arrangement are no longer satisfied, the tax status changes dramatically at that moment. The vessel is immediately given the tax status of ‘recreational craft’. On the basis of this, the basic principle becomes that VAT will have to be paid for this recreational craft (on the value of the vessel) at the moment that it can no longer be classified as a CCV vessel. Moreover, in this situation it is no longer possible to make use of tax facilities that apply for CCV vessels by reason of their capacity as a ‘seagoing vessel’. If the operation of the CCV vessel is going to be changed, it is advisable to make clear agreements with the authorised tax inspector in advance about the tax consequences of this change.


3.9. (Changes in the event of) sale of a CCV vessel The CCV vessel is operated commercially, which means that VAT on the purchase or import is deductible. As soon as the operation as a CCV vessel ends, it ceases to be a ‘seagoing vessel’ for VAT purposes, and in principle VAT is payable on the supply. If the sale takes place at market prices, the VAT position has been determined: the vessel is given the status of ‘private craft’ for which EU VAT has been paid (‘VAT paid’). In the case of export out of the European Union or sale of the vessel at a time when it is located outside the European Union, European VAT is not applicable. However, if it enters the European Union, import VAT is payable in principle (unless an exemption is applicable). If the CCV vessel is being sold, four options can be distinguished:

1. In the case of sale within an EU country, the VAT of the country where the vessel is located at the time of supply is applicable.

2. If the vessel is exported to a destination outside the EU in the context of the supply, under certain conditions zero-rate VAT can be applied.

3. If the vessel is transported from one EU country to another EU country in the context of the supply, this is classed as an intra-Community supply if the buyer is a business registered for VAT. The country of destination may have a reverse-charge procedure for VAT. It is advisable to obtain written rulings about this from the competent tax authorities, in advance of the supply.

4. If the vessel is located outside the European Union at the time of supply, European VAT is not payable. However, if it enters the European Union, import VAT will then be payable on the vessel (unless an exemption is applicable).

4. Customs regulations The CCV declaration that confirms the capacity as a ‘CCV vessel’ is important for its status as a ‘seagoing vessel’. When the vessel enters a harbour, the customs formalities applicable for seagoing vessels must be fulfilled, in particular the submission of the IMO FAL declaration. Under certain conditions, it is possible for tax-free bunkering and provisioning to take place.

5. Bunkering permit The chartering company can apply to its authorised customs office for a bunkering permit for the CCV vessel. If the CCV conditions are satisfied, this permit can be obtained. A condition for issuing this permit is that only the designated and authorised professional crew are permitted to sail the vessel.

6. Tax-free provisioning Tax-free provisioning is only possible if the destination of the CCV vessel is outside the European Union. In this case, the normal conditions for seagoing vessels are applicable.


7. Facilities for wage tax and national insurance contributions of sailing crew

The basic principle is that the facilities applicable for seagoing vessels can be applied to the wage tax and national insurance contributions of crew members. These tax aspects must be further specified on an individual basis.

8. Facilities for corporate income tax of chartering company and owner of CCV vessel

In principle, the chartering company has the possibility of applying the ‘tonnage tax regime’ or depreciation regimes specifically created for sea shipping. The tax position in relation to corporate income tax will have to be specified on an individual basis. In this context, the regime that applies for seagoing vessels can serve as a guideline.

9. Conclusion The foregoing has stated concisely, and as practically as possible, the conditions under which the operation of a CCV vessel can be covered by the tax regime for seagoing vessels that sail under the Dutch flag. This tax arrangement has been tested by the Dutch Tax & Customs Administration, and is intended to create a clear and certain tax framework for the category of CCV vessels, operated by a professional chartering company. It is clear that conditions are attached to the arrangement. The reason for this is to avoid undesirable practices, and thus to safeguard the sustainability of this arrangement. The contracts with the users must also be concluded on a commercial basis (for a commercial price / ‘at arms length’). Under these conditions, the UBO of the CCV vessel can also make use of the vessel (up to a maximum of 50% of the total use). However, the owner is not permitted to sail the vessel him/herself. The professional crew are designated to do this, and the vessel is operated by the chartering company.


Annex 1: Explanation of the ‘Customs Declaration for a Commercial Cruising Vessel’ General explanation This explanation has been compiled with the greatest care. However, no rights may as such be derived from this explanation. The underlying legal conditions and provisions form the guiding principle. Conditions and provisions To comply with the customs provisions, the following conditions are applicable:

- The vessel must have separate compartments for the crew and the passengers; - The customs exemption is linked to the Rules for Commercial Cruising Vessels

formulated by the Netherlands Shipping Inspectorate (IVW-DS), hereafter referred to as ‘CCV conditions and provisions’;

- The chartering company must have full control over the operation for a period of two years on the basis of the operating contract;

- The vessel is included in the ‘stock in trade’ of the chartering company, after which the vessel is registered under the Dutch flag;

- The chartering company operates the vessel commercially (chartering) at usual market prices. If the vessel is used by the original owner, the vessel must be chartered for these market prices;

- The use by the UBO must be less than 50% of the use of the CCV vessel; - When the vessel is chartered, it may only be sailed by the captain / 1st mate. Other

people (owner/ charterers) are not permitted to sail the vessel. The vessels for which the CCV arrangement is applied, and which for this purpose satisfy the above conditions, are classified by the Netherlands, pursuant to Article 148, point a of the VAT Directive, for the customs provisions as a seagoing vessel for commercial navigation, and not as a recreational craft. These CCV vessels are used solely for cruises, and are therefore classified under CN code 8901 1010. A consequence of this for CCV vessels in the Netherlands is that all the customs formalities applicable for this category of vessels must be fulfilled. Customs declaration For CCV vessels that satisfy the ‘CCV conditions and provisions’ (as referred to above), and for which a ‘Certificate of Seaworthiness’ has been issued, it is possible to apply for a ‘Customs Declaration for a Commercial Cruising Vessel’ (hereafter: CCV declaration). This CCV declaration is valid for two years. The CCV declaration is authenticated by the customs authorities. The CCV declaration must be kept on board the vessel at all times, and must be shown at the request of an authorised official.


Customs regime for bunkering duty-free fuel Vessels for which the Tax & Customs Administration/ Rotterdam Customs has issued a CCV declaration can apply to the Tax & Customs Administration/ Customs in the region where the chartering company is registered for a permit to sail with low-tax oil. This means that the fuel used for sailing by commercial vessels will generally be duty-free. An additional condition for obtaining this permit is that the vessel may only be sailed by the captain / 1st mate. Other people (owner/ charterer) are not permitted to sail the vessel. Customs regime for tax-free provisioning Tax-free provisioning is not possible when the CCV vessel is operated within the European Union borders. However, if the immediate destination is a ‘third country’ (outside the EU) or a non-EU territory in terms of taxation, then tax-free provisioning is permitted. The vessel / captain must ensure that the goods taken on as provisions are stored in a closed space, to be sealed by the customs authorities, which may only be opened after leaving European Union territorial waters (12-mile zone). If the vessel then enters a European harbour, and tax-free goods are on board, they must be declared to the relevant customs authorities. Inward and outward clearance A vessel that satisfies the above conditions and provisions is regarded in the Netherlands as a seagoing vessel for commercial navigation, and not as a recreational craft. A consequence of this provision is that all the customs formalities applicable for this category of vessels must be fulfilled by the vessel. In this context, the customs formalities that apply at both the office of departure and the office of arrival must be taken into account. Prohibitory provisions It is prohibited:

- To supply incorrect or incomplete information, such that the consequence is or could be that this arrangement is used without entitlement;

- To fail to comply with conditions and provisions that are imposed by or pursuant to this arrangement.

The consequence of violation of a prohibitory provision is as follows. The vessel will be covered by the customs provisions for recreational craft, which can entail that the craft must be declared for import (this applies for non-EU goods) and the payable import VAT must be declared.


Cancellation of arrangement If it is found that the customs provisions are not –or not completely- satisfied, this can result in cancellation of the arrangement. Consequence: If the vessel does not –or no longer- satisfies the above conditions and provisions, then it is again covered by the customs provisions applicable for recreational craft. Reporting of changes Any changes in the circumstances for which the CCV arrangement has been granted, and any changes that are partly applicable, must immediately be reported in writing to the Tax & Customs Administration Rijnmond/ Rotterdam office and the Tax & Customs Administration/ Rotterdam Customs, Laan op Zuid office. You must always inform the Tax & Customs Administration Rijnmond and the Tax & Customs Administration/ Customs/ Rotterdam in the following cases:

- If the conditions imposed for an exemption are no longer satisfied; - If there is a change in the information relating to the vessel for which the arrangement

has been granted.


Annex 2: CCV Declaration


Annex 3: Flow chart for determining the situations where the CCV arrangement can be used

EU UBOor

non-EU UBO

EU UBO

Non-EU UBO

Private yacht (use & registration)

1.

Commercial yacht (use & registration)

2.

Private yacht (use & registration)

3.

Commercial yacht (use & registration)

4.

+ VAT

+ CCV

Different

+ CCV

1. EU ultimate beneficial owner with private yacht

An EU UBO who uses his yacht for private purposes in the EU will at some time have had to pay VAT. This is either at the time when the yacht was supplied, or at the time when the yacht was imported into the EU. In this context, the Netherlands offers the option of applying for a so-called ‘VAT declaration’, which is a simple way to demonstrate in other EU countries that the VAT has been paid on the yacht.

2. EU ultimate beneficial owner with commercial yacht + CCV

If the yacht is operated commercially, then the advantages offered by the Dutch arrangement for ‘Commercial Cruising Vessels’ / ‘CCV arrangement’ can be used for this yacht. In short, this means that no VAT will be payable for the supply and import of the yacht, or that any potentially payable import VAT is deductible. In addition, there are other advantages, such as tax-free bunkering. An important condition for use of the ‘CCV arrangement’ is that the UBO’s use of the vessel for private purposes must be less than 50%, and this use must be organised under commercial conditions. For a precise presentation of the conditions applicable for the CCV arrangement, please see the contents of this handbook.


3. Non-EU UBO with private yacht different Registration under the Dutch flag requires the demonstration of sufficient connections with the Netherlands, for example because the vessel is placed under the ownership of a Dutch private limited company (BV). With these demonstrable connections with the Netherlands, there will relatively soon be a situation in which EU VAT is payable. In this context, the Dutch arrangement for ‘Commercial Cruising Vessels’ / ‘CCV arrangement’ does not offer a solution for this situation, because use of this arrangement requires that the UBO’s use of the yacht for private purposes is less than 50% (see situation 4). In addition, there are specific rules within the EU on the basis of which a non-EU UBO may only use a non-EU yacht in the EU temporarily (maximum 18 months) under certain conditions, without (import) VAT becoming payable on it.

4. Non-EU UBO with commercial yacht + CCV

If the yacht is operated commercially, then the advantages offered by the Dutch arrangement for ‘Commercial Cruising Vessels’ / ‘CCV arrangement’ can be used for this yacht. . In short, this means that no VAT will be payable for the supply and import of the yacht, or that any potentially payable import VAT is deductible. In addition, there are other advantages, such as tax-free bunkering. An important condition for use of the ‘CCV arrangement’ is that the UBO’s use of the vessel for private purposes must be less than 50%, and this use must be organised under commercial conditions. For a precise presentation of the conditions applicable for the CCV arrangement, please see the contents of this handbook.

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