Selling any aircraft is a complex transaction! To help provide clarity to anyone involved in this process our Martyn Fiddler tax team have created a short series of articles explaining the VAT and Customs implications. Drawing upon their experiences from many years in practice our team have created a guide to the most common do and don ts for selling an aircraft.
In the final of the series, we discuss the very specific issues which arise when an owner of an aircraft which becomes designated as AOG (this means aircraft on the ground because a maintenance or other technical issue prevents the aircraft from flying) receives an unexpected offer for purchase.
From a tax and customs perspective, the sale of an AOG aircraft may prove problematic if the aircraft became AOG in an unfavourable sales jurisdiction. For example, the aircraft may have arrived in the jurisdiction under Temporary Admission (TA) and experienced technical difficulties subsequently that forced it to be grounded. In this case under Customs regulations the aircraft cannot be sold while it is under TA. Such a transaction may also cause the sale to be liable to VAT and the seller liable to VAT registration. In addition, if the aircraft arrived under TA it may not be able to be transferred into the Customs suspense regime of Inwards Processing (IP), meaning that VAT may be charged on all works and parts used for repairs. Where this involves high value parts such as engines this can of course be extremely expensive!
Martyn Fiddler have seen, on more than one occasion, aircraft which have been grounded in a Customs territory receive unexpected offers to purchase. These scenarios have caused significant complications due to difficulties transferring the aircraft to a different VAT jurisdiction for an optimum VAT free sale.
It’s important to note that in each situation above, the tax and customs difficulties were not as a result of the jurisdiction in which the seller or purchaser were based, or the registration of the aircraft. Just because one or both parties are outside the relevant territory does not matter from a VAT perspective, the only thing that matters is where the aircraft is based at the point of sale.
Another issue that can often be overlooked is the location of the title engines (meaning the engines specified in the transaction documents) at the point of sale. If, due to the AOG status, the title engines have been removed and are located elsewhere for repair, it will be crucial to ensure the sale of the title engines is considered when looking at the VAT treatment of the sale overall. In the same way that the VAT treatment of the sale of the airframe is based on where it is sited at the point of sale, so is the sale of the engines. Unless there are two separate sales, the title engines must be seen as sold at the same time as the airframe. Where the engines are physically sited elsewhere then the VAT implications for this must be taken into account.
Our strong recommendation is to always review the local tax and customs status of the aircraft (and any relevant parts) if there is an AOG event, and to take professional tax advice from someone who specializes in aviation. We would also advise keeping a copy of all territory import and other customs certification filed on board the aircraft in case a temporary AOG issue becomes a long-standing problem in future.
In the final of the series, we discuss the very specific issues which arise when an owner of an aircraft which becomes designated as AOG receives an unexpected offer for purchase.
