A company that was ordered by a tribunal to pay £36.8m of tax on a superyacht has had that ruling overturned on appeal.

Nereo Management took its case against the Treasury’s Customs and Excise division to the appeal court which has now ruled in its favour.

Motor yacht MY Amadea was bought from a firm of German shipbuilders in March 2017 at a price of €217m (£184m).

It was seized in Fiji in May last year at the request of US authorities investigating its alleged links to a sanctioned Russian oligarch.

Nereo Management Limited was incorporated in the Cayman Islands specifically to acquire the 106m-long yacht. The company became registered for VAT in the Isle of Man with effect from March 2017, describing itself as a worldwide yacht charter business.

MY Amadea was imported by Nereo into the Isle of Man on March 28 and Nereo accounted for import VAT of some £36.8m. It reclaimed input VAT in the same amount on its first VAT return.

On November 24 that year, while the yacht was outside the EU in Montenegro, Nereo ceased to be registered for VAT on the basis that it had ceased to trade.

By that time the vessel had only been chartered three times for a total of 17 days. It had encountered extensive engine and warranty problems.

Isle of Manx Customs and Excise raised an assessment in May 2021, seeking payment of output VAT to the tune of £50.6m plus an penalty of just under £7.6m, the £50.6m figure based on the price of €290m at which the MY Amadea had been advertised for sale at the Monaco Yacht Show in 2019. But Nereo argued no VAT was owed as the yacht had been outside the Isle of Man at the time of deregistration.

It took its case to the VAT and duties tribunal which ruled that Nereo was required to account for the output tax of £36.8m, based on the 2017 purchase price of €217m.

Nereo then applied to the appeal court, arguing the tribunal had erred in law and there had been procedural unfairness.

And the court has now allowed the appeal, ruling that the place of the deemed supply at the time of Nereo’s deregistration for VAT was Montenegro - and not the Isle of Man.

It concluded that the place of a deemed supply on deregistration should be treated in the same way as a sale of the same asset.

It also pointed out, if Nereo had remained registered for VAT and had sold the yacht while it was in Montenegro, that would have been a zero-rated export or a supply outside the scope of Manx VAT.