Steering across VAT provisions can feel like sailing through a storm, especially when it comes to maritime activities. The complexity and ambiguity of the wording can leave businesses feeling adrift. Let’s explore together a specific VAT provision from Maltese law, transposed from the EU VAT Directive, that exemplifies this confusion.

Understanding the provision
Let's dive into an example: “the supply of vessels used for navigation on the high seas and carrying passengers for reward, or used for commercial, industrial, or fishing activities.” This provision, found in item 6, Part One of the Fifth Schedule of Maltese law, and transposed from Article 148(a) of the EU VAT Directive, is a classic case of VAT terminology causing confusion.

Where does the confusion stem from?
The confusion primarily arises from the phrase "navigation on the high seas" combined with the types of activities (commercial, industrial, fishing) these vessels engage in. According to the VAT Committee's Working Paper 840, to benefit from the exemptions provided for in Article 148(a), (c), and (d) of the VAT Directive, the condition of being "used for navigation on the high seas" applies to both vessels carrying passengers for reward and those used for commercial, industrial, and fishing activities.

Defining "High Seas"
The term "high seas" is defined as any part of the sea outside the territorial waters of any country, beyond a limit not exceeding 12 nautical miles, measured from baselines determined in accordance with the International Law of the Sea. This definition adds another layer of complexity, as businesses must precisely determine whether their activities fall within this boundary to apply the VAT exemption correctly.

My take: Let's be clear
As someone who delves into the intricacies of VAT law, I find these maritime VAT provisions particularly fascinating, yet frustrating! The intention behind the provision is clear: to exempt vessels used for significant commercial activities on the high seas from VAT. However, the wording creates a labyrinth of conditions that businesses must navigate carefully.

Moving forward
As we ponder these complexities, consider the following:
1.    Clear Drafting of VAT Provisions: How can VAT provisions be drafted more clearly to avoid such confusion?
2.    Flexible Definitions: Should there be a more flexible approach to defining terms like "high seas" to account for the realities of maritime operations?
3.    Navigating Legal Waters: How can businesses better navigate these legal waters to ensure compliance and avoid costly disputes?

Conclusion
Understanding and applying VAT provisions for maritime activities can be daunting. Clearer drafting and flexible definitions can help businesses navigate these complex waters more effectively. By addressing these challenges, more precise compliance and minimisation of disputes would be the logical expectation, making the seas a bit calmer for all involved!

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 Written by Kenneth Cremona, Senior Manager - Indirect Tax Advisory and Compliance