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Aviation Note: Temporary Admission, revisited

31 August 2017

As a broad premise non-EU owned aircraft, which operate privately into and within the European Union, have always benefitted from the ability to apply a special customs relief. This allows them to avoid the crystallisation of Customs duties and Value Added Tax (VAT) due on the value of the aircraft.

Despite the rules applying to this relief regime being relatively simple, there has been much confusion as to their operation, requiring clarification from time to time.

On 13 November 2014, the European Customs Code Committee for Special Procedures published an interim guidance notice in response to a request from the International Business Aircraft Council (IBAC), who had raised questions relating to the rules of Temporary Admission, with particular focus on the commercial and private use of a means of transport.

It would be fair to assume, you would think, that it would be relatively easy for non-EU aircraft owners or operators to determine whether they can avail themselves of the Temporary Admission regime by reading the published guidance. Unfortunately, it isn’t that simple.

In a case (C-80/15 Robert Fuchs Ag v Hauptzollamt Lörrach) where the original ruling was made in 2009, German Customs argued that a Swiss situs operator had breached Temporary Admission rules by providing flying lessons in his helicopters within Germany, thereby operating them commercially. An appeal was filed by Fuchs in April 2015 and the original unfavourable decision was overturned by the European Court of Justice (ECJ) in July 2016. The ECJ stated that the means of transport, in this case helicopters, had to be concerned with the transportation of passengers for remuneration to be considered to be acting commercially, within the meaning of the Customs Code. This seemingly obvious conclusion took seven years to reach!

Commercial, or economic?

The relevance of commerciality within the Fuchs ruling is interesting, and highlights a discrepancy between the term “commerciality” for Customs purposes, but “economic activity” for VAT purposes. For VAT purposes, a taxable person is anyone undertaking any economic activity in any place. So Fuchs would have been determined to be conducting an economic activity for VAT purposes and, as a non-EU established entity, would have had to appoint a local fiscal tax representative to provide a place of contact and establishment in Germany. The question is whether Fuchs would then have failed to meet the Temporary Admission requirement of being non-EU established for Customs purposes by reason of having a fiscal representative for VAT purposes. Logic suggests that the fact that a fiscal agent was required in the first place is evidence that the operator is non-EU based, but as this fact wasn’t considered by the ECJ it leaves a further degree of uncertainty for operators.

No tickets?  You’re not commercial!

Back in 2014, the Customs Code Committee for Special Procedures commented that the issuing of a ‘ticket’ was a determining factor when considering whether a means of transport had been used for the transport of passengers. The chartering of an aircraft without being issued a ‘ticket’ is therefore considered to be the lease of an aircraft rather than transportation of passengers. Therefore, as far as the Customs Committee is concerned,  that activity is not considered commercial; for VAT purposes, however, the activity of leasing an aircraft, also referred to in VAT terms as the Hiring of a Means of Transport, is considered to be conducting an economic activity, thus highlighting an apparent inconsistency between VAT and Customs definitions.

Contrast this with the position of commercially registered yachts being chartered into and within the EU on a similar basis. A charterer pays for the whole of the yacht and the moving of it between multiple locations. The charterer is not issued a ‘ticket’, but a formal charter contract. Yet a commercial yacht that conducts chartering activity within the EU is required to be permanently imported; moreover, the owner or operator must be registered for VAT purposes prior to the commencement of the yachts charter activity.

Reliance on guidance notes

Reliance on guidance notes is a dangerous strategy, not least because guidance notes do precisely what they say on the tin – they provide guidance, not legally binding precedents.  This briefing note illustrates a further danger, namely that the guidance notes are typically issued by committees with a very narrow purview. Whilst it might be reasonable to assume that the Customs and VAT Committees would consider their counterpart’s position, they don’t, a fact which is evidenced by the contrasting definitions highlighted above. One should consider every scenario on a case by case basis, having particular regard for the separate Customs and VAT consequences, and avoiding the assumption that an operation qualifying under Temporary Admission is not operating an economic activity for VAT purposes.

Speak to First Names Group

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Grant Atchison, Associate Director

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Chris Nicholls, Manager

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