Simcocks Advocates has recently successfully acted for Nereo Management Limited, the owner of the superyacht MY Amadea, in its challenge to the VAT charge imposed upon it. Nereo had de-registered for VAT back in 2017 when the use of the yacht was changed from commercial to pleasure.
Nereo imported the yacht into the Isle of Man on 28 March 2017. It accounted for import VAT of some £36.8 million, which it treated as input VAT and reclaimed in its first VAT return. However, it decided to de-register its business because the yacht had a long list of warranty problems. It was accepted that the reasons for de-registration were genuine.
A VAT de-registration normally affects a deemed supply and thus gives rise to a charge to VAT. However, there was dispute as to whether a charge could be imposed in the Isle of Man because the yacht was in Montenegro at the time.
Isle of Man Treasury and Customs and Excise ("IOMTCE") argued that the deemed supply occurred in the Isle of Man because the owners had last carried on business here. On 17 May 2021, the IOMTCE issued an assessment for VAT of £50,605,000 plus interest to Nereo. The amount of VAT assessed was calculated on the basis that the value of the yacht on 24 November 2017 was €290 million. The IOMTCE also assessed Nereo for a penalty of £7,590,750 on 30 June 2021.
On 15 August 2023, the VAT Tribunal upheld the assessment, albeit it reduced the assessment of the value of the yacht at the time of deregistration to €217 million (as reported in the Manx press on 6 September 2023).
Nereo appealed to the Appeal Division of the Isle of Man High Court (Judge of Appeal Cross KC; Acting Deemster Sir Nigel Teare; Acting Deemster Sinfield). Simcocks obtained a Temporary Advocate Licence for specialist counsel, Sam Grodzinski KC, who appeared for Nereo.
Judgment was given on 19 November 2024. The Court found that, as the deemed supply did not involve the dispatch or transport of the yacht, the place of supply is determined by Article 31 of the Principal VAT Directive and that was where the yacht was located at the time, i.e., Montenegro. The Court stated that "We think that the fact that no VAT arises on a deemed supply of goods outside the EU is entirely unsurprising".
As a result of this, the assessment and penalty are overturned and no VAT is payable by Nereo on de-registration.
Applications for costs are yet to be resolved.