How can the superyacht industry unify to create a more level playing field—and become more competitive? That is the question this paper addresses.
To reach an answer, let’s look beyond all things maritime for the moment, and work instead with a separate business model. How does a more level playing field come about in the retail industry, for example?
Our test case comes from e-commerce; the setting is the United States, California in particular. The comparison involves two companies in a knot of competing players: the online monolith Amazon and retailer Barnes & Noble.
Some background: until last month, exclusively online retailers like Amazon had a huge business advantage over rivals: they were not required to charge California customers sales tax, which is 7.25%.
In contrast, bricks-and-mortar sellers like Barnes & Noble—and WalMart and Target, to name only a few—were obliged to charge the tax.
As a result, customers naturally favoured Amazon over physical retail outlets, and the business landscape became bumpy indeed.
The unevenly applied sales tax caused friction between competing retailers; between competing sales channels (Internet versus bricks-and-mortar), and between competing jurisdictions—California and the other 49 United States.
What caused the inequity? One explanation: the exemption for e-marketers was a hold-over from the early days of e-commerce in the 1990s, when the tax break was intended to boost the then-nascent Internet economy. But with online sales now generating £125 billion, the industry is clearly far from fledgling.
Enter the California legislature with a new law, designed to level the playing field (and, of course, generate revenue for the state). Now, all retailers, including Amazon, must charge California customers the 7.25% sales tax. Predictably, the new law is controversial. The chief challenger? Amazon.
This case exemplifies what we know to be true: that companies are rarely self-correcting when they enjoy an “unfair” business advantage: They have no financial incentive to give up their edge. That means the correction must be imposed externally—by other players in the industry; by trade groups; by regulators; and by citizens. Usually, a full-on fight is required to restore “fairness”—competitiveness in the industry.
Superyacht Industry:
Roiling Waters
A comparable case of inequity was discussed at the Future of Superyachts conference in Mallorca last month. According to United Trust’s Alex McBarnet, who attended the event, there was strife—if not outrage—over the taxes Spain now levies on superyachts: the Value Added Tax of 18 percent and the “special” Matriculation Tax of 12 percent. The result: the Spanish superyacht industry cannot compete viably with that of other countries. The exodus of yacht owners from Spain attests to this.
What’s at Stake:
More than Taxes
How significant is this tax issue? Why were the conference delegates up in arms?
The delegates, like other industry veterans, recognise the Spanish taxes as crippling. They know the importance of maintaining competitiveness between jurisdictions—and how inflated taxes impede that competitiveness.
The financial impact on Spain is serious, because the superyacht sector is an anchor of the country’s maritime economy. A telling comparison, revealed at the Mallorca conference: Research shows that a typical new job created in Spain generates 1.5 indirect jobs. In contrast, preliminary yacht-industry research suggests that every new job created in the Spanish yacht sector leads to between 7.5 and 9 new indirect jobs.
The superyacht industry’s skewed fiscal landscape is just one category of conflict; the conference made plain that there are many. Another example, this one related to labour practices: Seafarers’ rights are safeguarded by international guidelines. But the agency that issues those guidelines had in mind the crews of cargo and cruise ships—rather than yacht crews—when drafting the rules. So, their recommendations on cabin dimensions and conditions for this were based on cargo and cruise ships, which are massive. Superyacht professionals—owners and workers alike—know that their crew accommodations are necessarily smaller because the vessel itself is smaller. It’s a question of scale.
This threatened to create unworkable requirements for yachting crew accommodation. The conflict (now resolved, fortunately) is typical in that it results from the lack of superyacht-specific regulation. What does exist is broader maritime-industry regulation. And therein lies another problem.
Who Regulates Megayachts?
Part 1: The Maritime Rules
One need only scan the Future of Superyachts Conference programme to sample the maritime rules at play. There is the European Directive on Value Added Tax; the Port State Control regulations for merchant shipping vessels; the “green” rules. The U.K.’s far-reaching Bribery Act exists to outlaw corruption; France’s Commercial Exemption rulings are meant to spur commerce…it’s a mix of missions, raisons d’être, and jurisdictions.
The maritime regulations themselves are a densely criss-crossed network of laws, directives, and guidelines, most of which are open to interpretation by national governments—and all of which are continuously subject to change.
Who Regulates Megayachts?
Part 2: Superyacht-specific Rules
As we’ve seen, there is regulation that applies to owning and operating superyachts. But these laws and guidelines are often a by-product of maritime legislation created for the shipping and cruise sectors. As often, the policies that impact superyachts are created with a bias against perceived “fat-cat” owners—and with little understanding of the impact of that bias on the livelihoods of those working in the industry.
There is also scant regulation for many who work in the sector: insurers
and law firms; tax advisors, trust companies, and banks. All are subject to the regulation of their individual industries, but in most cases this is rather light. As Mr. McBarnet has noted, for the sector’s financial professionals, “There are no standards to work to and no benchmarks or standards to compare companies to.”
United Trust’s Position
In the case of Californian e-commerce, we saw how acknowledging seizmic industry changes and updating the law helped smooth the way for fair competition.
Similarly, United Trust’s people believe that greater, more superyacht-sensitive regulation can be a game-changer for the industry. Just as California’s retail sector is aligning the needs of competing companies, marketing channels, and jurisdictions, so can the yachting sector continue to align the goals of companies, sub-sectors, trade organizations, and jurisdictions.
Delegates at the Superyacht Conference suggested two ways of reaching this more level playing field. The first initiative is to conduct deeper economic research into superyachts’ financial impact on people and nations. This can counter the bias and lack of understanding surrounding superyachts with detailed economic information. Happily, this research is already underway.
The second way forward is to secure a stronger, more persuasive voice with governments. And that convincing voice, United Trust believes, can only come from further unification among industry players.
At the conference, there was indeed “a clear call to form a unified, ‘supranational’ superyacht organization.” In fact, there are numerous reasons to transcend national borders and speak as a single superyacht industry. Not only could solidarity help countervail ineffective laws and directives; it could help correct disparities in legal interpretation. A concerted effort could tackle divisive business practices across jurisdictions. And it could protest in a single, more powerful voice, the punitive taxes that are unevenly imposed.
Make no mistake: existing organisations already cooperate for the good of the trade. To wit: the Maritime Labour Convention’s requirement on yacht crews’ cabin size was ultimately sorted by several groups working in concert—the Superyacht Builders Association (SYBAss), International Sea Keepers’ Society and Professional Yachtsman’s Association (PYA), Mediterranean Yacht Brokers Association (MYBA), and International Council of Marine Industry Associations (ICOMIA).
The system is working, so to speak. But United Trust believes more intensive cooperation is required to lobby governments routinely and successfully.
This call for collaboration has, of course, been sounded before, most notably at the Superyacht Fiscal Summit in London last February. In a follow-up editorial to the summit, Yacht Report Group Chairman Martin Redmayne expressed it this way: “The goal and key objective [of this organisation] are to form a lobby to ensure that we are heard in Brussels when it comes to VAT and taxation issues, in order to provide our end users, the owners, with a level playing-field of tax.”
The summit also produced the idea of forming another, more specialised organisation, this one to represent the sector’s corporate service providers and insurance companies; lawyers and accountants; owner advisors, tax advisors and fiduciaries. Mr. Redmayne also ratified this idea, and United agrees. We propose that this group be named the Superyacht Fiscal Association, and that its mission be defined as: “to set quality standards for its members and set clear benchmark expectations for clients.”
One Superyacht Industry:
Getting There
The individuals at United Trust have experience with taking industries forward. For example, United’s Chairman, Gregory Elias, was an early advocate of onshoring. He spearheaded Curacao’s onshore conversion, which took place, at last, in 2001. The onshore campaign lasted roughly a decade.
We hope that the yachting community moves forward more swiftly. If we manage to mobilise, all concerned stand to profit—and we can enhance the superyacht industry’s vitality in the near term.
