Following media allegations made in late 2017, a recent report from HM Treasury has found that there was ‘no evidence’ of VAT avoidance on aircraft registered on the Isle of Man.
As a self-governing British Crown Dependency that is outside both the UK and European Union, but part of the UK for VAT purposes, the Isle of Man Government invited HM Treasury to carry out a review of its VAT rules and procedures regarding aircraft and yacht importations, after a series of allegations about VAT avoidance were made following the publication of the 2017 ‘Paradise Papers’.
The review’s findings were published last week (16 October 2019) after an in-depth investigation into the application of aircraft and yacht VAT rules in the Isle of Man, and whether its rules and procedures enabled importation of private jets into the EU without paying the correct amount of VAT.
The central finding of the report is that the allegations of widespread VAT avoidance on aircraft and yachts were not upheld and instead it recognised that the Isle of Man Government carried out extensive and effective compliance checks during VAT registration.
Although it recommended that additional compliance checks could have been done in the years after registration to ensure that the right amounts of VAT continue to be collected, the law had been in fact correctly implemented by the Island and subsequently it has been cleared of any wrong-doing concerning its VAT treatment on imported jets.
HM Treasury reported: “The Isle of Man Government has already started to implement improved compliance procedures in light of the recommendations. The work carried out by HM Treasury has also highlighted the complexity in international VAT rules and the report notes that there may be merit in a wider review of these rules if EU member states and other jurisdictions deem that more tax should be collected on these activities.”
Isle of Man Chief Minister, Howard Quayle, said that as the government had “always maintained” the island had followed the rules, he was “pleased that the review has provided confirmation of this”.