The topic of VAT (Value Added Tax) is always a difficult one, particularly when an aircraft transaction is occurring between two European parties. Given the enormous financial burden VAT places on all parties, this is one of the single most important parts of any aircraft transaction – often just as important as the aircraft itself. But one of the common difficulties is figuring out who is really responsible for VAT, and therefore, whose problem is it?
The traditional thought is that VAT is always a buyer’s issue. The aircraft purchase is instigated by the buyer and the application of VAT is typically based upon the planned future use and import of the aircraft by the buyer, so the seller will traditionally place all burden of compliance with the buyer. While the buyer rightly should be worried about his use and how it affects VAT, it is not entirely their problem. VAT is a tax that is collected at the point of sale by the seller, and it is the burden of any seller to have to collect VAT from the buyer at the time of sale for collection to the national authorities. If no VAT is charged at the sale, but authorities later decide it should have been, they go to the seller and demand payment of VAT. The seller has as much to be nervous about with regards to VAT as the buyer does.
In an effort to be diplomatic, really it is an equal problem for both the buyer and the seller. No deal will occur if one side thinks they have a VAT liability. As most deals are a willing commercial transaction between two knowledgeable and consenting adults, each side should use all best efforts in order to make sure that the buyer’s planned use and delivery will not create a VAT consequence and that the seller feels comfortable they have no need to collect it. We highly recommend both sides get their own tax advice and have both sides’ tax advisors speak directly to one another to avoid confusion. It does add costs to the transaction, but it is a small price to pay to avoid a massive risk.
Articles are written from real world experience by Colibri Aircraft’s individuals. If you have any questions or comments about the topic of this blog, please feel free to contact us at enquiries@colibriaircraft.com
