Isle of Man’s tax loophole on private jets under scrutiny

The European Commission is clamping down on an Isle of Man tax break that allows people to avoid paying VAT on private jets.

The island, which officially belongs to the British monarch, allows rich individuals and companies to avoid paying the sales tax on aircraft imported into the EU through there.

However, the European Commission has begun infringement proceedings against the Isle of Man that could result in the loophole being closed.

Businessman Denis O’Brien has imported private aircraft through the Isle of Man. While the island is not part of the EU, it is viewed as such for VAT purposes, so craft imported through there are deemed to be VAT-cleared for the bloc’s member states.

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Mr O’Brien uses Gulfstream jets, which he changes every so often. Most recently he bought a craft for €60 million after selling an older model. The plane is registered in the Isle of Man. A spokesman did not comment on the EU move on Monday.

Business use

Ray Nolan, one of the founders of Hostelworld and now chief executive of Xsellco, and Jerry Kennelly of design business Tweak.com jointly purchased a Pilatus PC-12 more than two years ago which was bought using an Isle of Man-based company, Wingmen Ltd.

When last year’s Paradise Papers leaked details of the transaction, a spokesman for Wingmen pointed out that the structure used was fully tax-compliant in Ireland and the Isle of Man, and created no tax benefit for the company or its shareholders.

Under Irish tax law, the Revenue can refund the VAT paid on a private jet once the owners use it exclusively for business rather than for personal use. They must produce documents to satisfy the tax authorities that this is the case.

A European Parliament tax committee will this month visit the Isle of Man where it will questions lawyers, accountants and members of the island’s parliament.

The commission is also scrutinising tax breaks offered by Italy to owners of private yachts.