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Custom-made taxation assistance

Ensuring that an airline's taxes are always up to date is a tough task. Mark Byrne, Director of Martyn Fiddler Aviation gives a short tutorial on some key aspects.

Keeping track of all the taxation and regulatory compliance within an airline is complex, particularly when it comes to moving aircraft around, whether by purchase, lease or sale. In-house expertise in this area is not necessarily something every airline has, particularly smaller carriers.

Martyn Fiddler Aviation has built expertise in the aforementioned areas via its work in business aviation. Now, as Mark explains, the company is developing its offering in the regional aviation market.

"We've been in the business aviation market for a very long time and, from time-to-time, an airline would approach us and we would provide similar services to those for our business aviation clients," Mark remarks. "Essentially, the tax considerations, the tax matters that pertain to business aircraft are the same in the commercial aviation world. It's just that generally speaking in the latter, dealing with these matters tends to be easier, but not in every case. Those airlines facing the exceptions are the ones that end up approaching us.

Regional aviation represented an adjacent space to which we might be able to add value. In particular, smaller airlines without the expertise in house with respect to VAT might not appreciate how best to deal with those matters," he adds.

Aircraft are business tools, and as a consequence of that, VAT is generally either zero-rated or operators pay and are entitled to reclaim that money. "In the context of commercial airliners you are able to zero-rate on importation. But there are some aircraft operated by airlines for which zero-rate VAT is not appropriate and where you actually have to pay and then reclaim the VAT," Mark observes.

"That's an expensive thing to do, because you have to finance the payment and then you've got to hang on while the VAT authorities in that jurisdiction get around to sending the money back to you. So, as ever, people would prefer to account for the VAT without having to actually write a cheque for it," he continues.

"What Martyn Fiddler Aviation does for the commercial airlines is that, as every client's circumstances and aircraft are different, we're able to analyse their situation and their aircraft, understand the tax status of the aircraft and from that determine how best to handle it all for the benefit of the client.

At its core, that's our basic service – to provide the in-house expertise that smaller companies are unlikely to have for themselves" , Mark summarises.

"What makes aircraft different to other goods, of course, is that the aircraft values are very large and the consequences of getting things wrong will be financially costly. "We're there basically to hold the client's hand to the extent that they need our help in accounting for the VAT; we have a number of operating companies in various jurisdictions across Europe and we also hold a number of VAT and Customs privileges.

Martyn Fiddler Aviation boasts a tool bag of solutions that we're able to apply to each individual client, because no two clients are the same. That means that we're able to use the right tool for the right job. That protects the clients and give them the peace of mind to know that it's been done right and they'll have the supporting paperwork to prove that on any ramp check, and at the same time, protect their cash flow," he elaborates.

There are other things that Martyn Fiddler Aviation can do within the industry, not for the regional airlines themselves, but for those who support them, including maintenance organisations.

Mark explains: "These companies bringing aircraft into Europe for maintenance and repairs also have duty issues which they need to deal with. Basically it's a suspension of the application of VAT, and we have a number of suspension privileges within the UK and the Isle of Man that allow us to assist maintenance organisations ensure that they are fully compliant with the rules and regulations that pertain to them."

The company's customs warehouses in the UK and the Isle of Man form another tool to offer. "These cover hangars and parking areas that in some cases apply to the entire airport and in other cases to individual facilities within an airports," Mark explains. "What we're allowed to do within the warehouse is to put an aircraft or engine or parts within it, while people work out what to do with the asset.

"We use the warehouses for VAT and, in some cases, duty suspension, in which the aircraft, engines or parts can be safely stored whilst time passes – it may be that somebody's bought something and is then going to sell it to somewhere outside the EU, in which case you don't want to account for taxes if you don't have to."

To add detail on the way these virtual facilities work, Mark highlights two airports where the customs warehouse covers the majority of the facilities on the airfield, namely Farnborough and Biggin Hill. "If you've acquired an aeroplane or an engine and you are importing it from, say, the United States, then you are obligated to account for tax, VAT and duty at the first port of call. So if an aircraft is delivered directly from the US to Farnborough, if it goes into our warehouse and comes under our control from a customs point of view.

The asset will sit in a hangar or store while it's within the customs warehouse and cannot be moved without our permission. Technically speaking, that engine or aeroplane is not being imported into the UK at the time of arrival. There are many occasions when we use this sort of facility and people have all sorts of reasons for needing to use it. Sometimes it's because they simply don't know where the asset is going to end up."

"If the asset is then sold to a European operator, from the warehouse we can do one of several things," he continues. "We can take it outside the EU and bring it back in to a port that is convenient for the client, or we can import it into the UK – in other words, it doesn't move and we just release it and account for the paperwork in the UK – or alternatively it leaves the customs warehouse and goes directly to whichever jurisdiction it needs to go to. The paperwork – VAT, any possible duty and so on – is accounted for at the place where it subsequently arrives."

Mark finishes off by highlighting another Martyn Fiddler Aviation service, this time for lessors. "Many aircraft are leased and leasing companies are very hot on whether their lessee clients are maintaining the aircraft properly and that the records are appropriate – because an aircraft without proper maintenance and records is not worth very much," he states.

"Its similar for tax, it's important that lessors or lessees don't find themselves with a tax obligation that they weren't expecting. Let's say that the lessee has not dealt appropriately with the VAT aspect of their aircraft, and let's say the airline unfortunately goes bust, then the leasing company finds itself taking back the asset. They don't want to find themselves in a situation where they have an unexpected VAT issue that they hadn't accounted for and weren't anticipating," Mark illustrates.

He concludes: "Through speaking to leasing companies, this is perhaps an aspect of their business that isn't uppermost in their minds. Our thinking is that we would therefore be able to do an audit of a leasing company's portfolio of aircraft and identify whether or not matters have been dealt with correctly. If they have, good; that's part of their compliance. But if they haven't, we can identify and fix the problem before it lands back in the lap of the leasing company."

If you have a scenario that our expert team can assist you with, contact Mark Byrne today at mark@martynfiddler.aero

About the author

Heather Gordon is Legal Director at Martyn Fiddler Aviation. Heather joined the team in 2013 having previously practiced within a leading Isle of Man law ...

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