Isle of Man cleared over private jet VAT avoidance

There is no evidence of aircraft VAT avoidance in the Isle of Man but further compliance checks should be implemented, according to a Treasury review investigating allegations made in the Panama Papers

The leaked documents, which were revealed in November 2017, alleged that Isle of Man customs and excise had allowed multimillionaires and big corporations to claim VAT refunds of 20% of the cost of the aircraft on hundreds of luxury jets which were imported into the EU.

In response the Isle of Man Government invited the Treasury to carry out a review of its VAT rules and procedures regarding aircraft and yacht importations.

The Treasury says its report is based on over a year of intensive investigation by VAT administration experts and included close examination of whether the Manx rules and procedures enabled high net worth individuals to import private jets into the EU without paying the correct amount of VAT.

The report found that UK and EU VAT law had been correctly implemented in the Isle of Man and allegations of widespread VAT avoidance on aircraft and yachts were not upheld.

The report found that the Isle of Man government carries out extensive and effective compliance checks during VAT registration, but said it should implement further compliance checks in the years after registration to ensure that the right amount of VAT continues to be collected.

The Isle of Man government has already started to implement improved compliance procedures in light of these recommendations.

The Treasury said the work it carried out 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.

In November 2018, the European Commission published an infringement notice about what it called abusive VAT practices in the Isle of Man, and gave the UK authorities two months in which to respond. This followed news that £790m of VAT had been returned to 231 leasing firms who had imported jets since 2011.

The Commission stated: ‘VAT is only deductible for business use. Supplies of aircraft, including leasing services, meant expressly for private use should not be VAT-exempt. The Commission believes that the UK has not taken sufficient action against abusive VAT practices in the Isle of Man with regard to the supplies and leasing of aircraft.’

The Isle of Man is a UK crown dependency and has sovereignty over its tax system but under the Isle of Man Act 1979, it must apply VAT rules in a very similar way to the UK. It is the responsibility of the Isle of Man to assure those rules.

Jesse Norman, financial secretary to the Treasury, said: ‘This is a matter of considerable public importance, and the Isle of Man government rightly agreed to a full review.

‘I am pleased to confirm that the reviewers have found no evidence of widespread VAT avoidance. However, the Isle of Man government is taking action to improve its post-registration checks as a result of the review. My officials look forward to working closely with them to provide advice and guidance throughout the implementation and in the future.’

In an update on its response to the Paradise Papers, HMRC said detailed work indicated that less than 2% of the data released by the International Consortium of Investigative Journalists relates to UK individuals or entities.

HMRC has reviewed over 300 corporate groups and individuals from its taxpayer population who were identified in the documents. For approximately 80% of these, the structures identified have no UK tax consequences or were already known to HMRC.

For the remaining 20%, where new information is available, these are subject to ongoing examination by HMRC.

By Pat Sweet

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