EU Commission investigates private jet VAT on Isle of Man

The Isle of Man has been drawn into further issues surrounding taxation loopholes as the EU Commission is investing the island over tax breaks for individuals purchasing private jets.

A letter of formal notice was sent to the UK government concerning the Isle of Man’s “abusive” VAT practices with regard to supplies and leasing of aircraft.

The action by the Commission follows the disclosure of the ‘Panama Papers’ in 2015, which revealed financial information from thousands of offshore entities.

Last November the Guardian and BBC reported how the Isle of Man had allowed “billionaires and multinational companies to avoid VAT amounting to £790 million on more than 200 aircraft imported to Europe since 2011.”

The Formula-One (F1) world champion Lewis Hamilton was among those who allegedly avoided paying tax when he purchased a £16.5 million Bombardier jet through financial schemes facilitated by the Isle of Man.

The issue centres around jets purchased for private use but processed as if they were part of a leasing business and therefore not subject to VAT. The jets are then in effect leased back to the individual.

With VAT taken at 20% on purchases in the UK, the scheme potentially cost the Government millions of pounds in uncollected revenues.

Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs Union, said: “It’s simply not fair that some individuals and companies can get away with not paying the correct amount of VAT on products like aircrafts. Favourable tax treatment for private aircraft is clearly at odds with our commonly agreed tax rules and heavily distorts competition in the aviation sectors. With this in mind, the Commission is taking action to clamp down on rules that try to circumvent EU law in these areas.”

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 UK government has two months to respond to the arguments put forward by the Commission.

An EU committee is due to visit the Isle of Man this month.