COMMERCIAL AND CORPORATE FLYING WITHIN THE EUROPEAN UNION

Short & sweet no. 22
What does it take to be compliant?

Added June 2024

Five typical situations that can create compliance problems
Is there an answer book for compliance?
Learn how to secure all positions

Everyone agrees that compliance means everything, thus it is important to know which factors will jeopardize a case if handled and implemented wrongly, as non-compliance will most likely activate a direct payment of the VAT (ranging from 17-27%) and customs duty (2.7%) for the owner or operator.

Our clients often ask what it takes to be considered compliant when using one of the two importation methods. However, it is difficult to be specific in such a matter and stipulate how much or little documentation is enough or adequate. There is no exact answer book, and these matters are often further complicated by the fact that many EU member states are known to have different understandings and practices on the matter. Let’s dig deeper into the topic and explain some of the most common situations that typically create compliance problems.

The customs aspect of flying within the EU
Any aircraft flying into the EU will fly under customs control using either Temporary Admission (TA) or full importation. There are no other options. If the aircraft is not already fully imported, the aircraft will automatically be considered as flying under TA even though the owner or operator has not themselves taken any action to activate this procedure or realized that their aircraft is flying under TA. The TA procedure is thus always required for non-EU imported aircraft, even for flights with only one stop within the EU. The TA procedure can only be used by EU outsiders where the aircraft is owned (including any UBOs), operated, registered, and based outside the EU, leaving EU insiders only one option: full importation. EU outsiders can, of course, choose to use full importation instead of TA if they find it beneficial.

Below is a list of five typical situations that can create compliance problems when using TA or a full importation. Situation no. 5 is, in both areas, the most common issue.

Temporary Admission

Owner and operator structure includes involvement of some EU elements
Wrong understanding and use of the term physical operator *)
Wrong understanding and use of the restrictions related to EU residents onboard **)
An aircraft used in a way and for purposes which are found to be grey zone areas, yet non-acceptable by some EU member states ***)

5. Operator might be compliant but is not able to prove it
Unfortunately, the paperless entry and exit procedure has created a common misunderstanding that an operator is not required to present relevant documentation to prove TA compliance upon request from customs. Only the entry and exit are supposed to be paperless, but the operator must continuously live up to the preconditions of TA, handle the limitations correctly, and be able to document these at any time, even if flights are just in and out of the EU with only one visited destination. Correct documentation proving TA compliance is a make-or-break issue during customs ramp checks, and the so-called Supporting Document (if used upon entry) does not prove TA compliance alone.

Full importation

A corporate aircraft not used solely for business activities
Wrong compensation method used to handle any potential non-business use
The aircraft is used for business activities by other users, but these activities are not related to the importing entity
A corporate aircraft used to support business activities that are not accepted as deductible in a VAT context

5. The risk when flying outside the EU
In a customs and VAT context, a full importation will entail that all worldwide trips must be conducted continuously according to EU regulations. This means that a non-business or corporate leg flown, e.g., in the US/Asia, where the compensation for private usage of an aircraft is often handled differently compared to the EU standards, and therefore not necessarily handled correctly according to EU rules, might have a negative impact on an EU VAT assessment during an eventual audit by the EU VAT authorities. Such a situation will, in many cases, trigger a payment to the authorities, as the import VAT will be seen as declared incorrect as business or corporate use. It is notoriously difficult to stay fully compliant in multiple jurisdictions, as the preconditions and methods are simply different.

How to secure all positions
Our procedure has always been to approve all case details in advance by a competent customs authority. We have never accepted to process a case unless we have been able to get a binding assessment ruling from the Danish Customs and Tax Administration approving the specific aircraft case and the related VAT handling and importation or admission. This approval process is essential to protect our clients from any unpleasant surprises.

Other OPMAS articles about the topic

Short & Sweet mail no. 13	Importation impacts when traveling the world in corporate aircraft
Short & Sweet mail no. 15	Liability and risk elements associated with EU importation and admission
The 10 typical errors when using TA	Compilation of the most typical errors and misunderstandings when using TA
The 10 typical errors when using full importation	Compilation of the most typical errors and misunderstandings when using full importation

Important things to know about full importation
Operators should be aware that full importation includes a potential VAT and tax liability, requires continuous correct worldwide economic activity, and correct handling of any potential worldwide non-business use and/or non-commercial use, which are requirements that the TA procedure does not have. The statute of limitations is five years for full importation, and the use of the aircraft must remain fully compliant with current EU regulations worldwide until the end of this period.

Legal background for Temporary Admission
The Istanbul convention from 1990, regulating the worldwide usage of TA, is not very precise, and the EU Commission has historically been and is continuously publishing various working papers and guidelines to clarify the correct understanding of TA and its usage in the EU. The 2014 working paper from the Union Customs Code Committee (available in English, French, and German) is especially important. Operators should always be aware that these documents are not binding for EU member states, which is why different interpretations exist between member states, thus also why it is important to have a competent customs agency outlining the correct use and understanding based on the specific setup.

How can we help?
If you have questions about the above, please do not hesitate to contact us.

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*) Nominating the correct physical operator is essential, as many privileges and limitations will otherwise be handled wrongly.

**) The physical operator is, in customs terms, seen as the real user of the aircraft, and the restrictions must be seen in this context.

***) Click here to see a list of the known grey zone areas where different interpretations of the TA procedure exist and where operators often need guidance to use TA safely. None of the grey zone areas create problems for using TA if correctly handled and documented.