On 23 December 2015, the “European Court of Justice delivered its Judgment in cases C-250/14 “Air France-KLM” and C-298/14 “Hop!-Brit Air SAS, which concerned whether Article 2(1) and 10(2) of the Sixth Directive and the amended Sixth Directive must be interpreted as meaning that the issue by an
airline company of tickets for domestic flights is subject to VAT where those tickets have not been used by passengers and the latter are unable to receive a refund.
Article in the EU VAT Directive
Articles 2(1), 10(2), 11 of Council Directive 77/388/EEC
The following shall be subject to value added tax:
1. the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such.
1. (a) “Chargeable event” shall mean the occurrence by virtue of which the legal conditions necessary for tax to become chargeable are fulfilled.
(b) The tax becomes “chargeable” when the tax authority becomes entitled under the law at a given moment to claim the tax from the person liable to pay, notwithstanding that the time of payment may be deferred.
2. The chargeable event shall occur and the tax shall become chargeable when the goods are delivered or the services are performed. …
However, where a payment is to be made on account before the goods are delivered or the services are performed, the tax shall become chargeable on receipt of the payment and on the amount received.
By way of derogation from the above provisions, Member States may provide that the tax shall become chargeable, for certain transactions or for certain categories of taxable person, either:
– no later than the issue of the invoice or of the document serving as invoice, or
– no later than receipt of the price, or
– where an invoice or document serving as invoice is not issued, or is issued late, within a specified period from the date of the chargeable event.
In the first and third indents of the third subparagraph of Article 10(2) of the amended Sixth Directive, the reference to the document serving as invoice was removed. Thenceforth, that provision therefore referred only to the issue of the invoice.
Article 11 (taxable amount)
A. Within the territory of the country
1. The taxable amount shall be:
(a) in respect of supplies of goods and services other than those referred to in (b), (c) and (d) below, everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies including subsidies directly linked to the price of such supplies;
- Air France-KLM, which became the legal successor to Air France in 2004, is a company established in France carrying out an air transport business. In the context of that business, Air France-KLM performs air passenger transport services within the French territory. Since those domestic flights are subject to VAT, tickets for those flights are sold at prices including VAT.
- As from 1999, Air France ceased paying to the Treasury VAT on the sale of tickets issued to but not used by passengers of its domestic flights. At issue are, first, non-refundable tickets which are no longer valid as a result of customers being ‘no-shows’ at boarding, and, secondly, invalid exchangeable tickets which were not used during their period of validity.
- Following an examination of accounts, the tax authorities concluded that the amounts relating to those ‘tickets issued and not used’ should have been subject to VAT at the reduced rate of 5.5% applicable to supplies of domestic passenger air transport services. As a result, the authorities notified Air France-KLM of additional assessments to VAT relating to the period from 1 April 2000 until 31 March 2003 amounting to EUR 4 066 607, together with default interest amounting to EUR 1 226 584.
- By judgment of 9 June 2011, the tribunal administratif de Cergy-Pontoise (Administrative Court, Cergy-Pontoise) dismissed the application brought by Air France-KLM for discharge from those additional assessments to VAT. By judgment of 13 November 2012, the cour administrative d’appel de Versailles (Administrative Court of Appeal, Versailles) upheld that judgment and held that, in accordance with Articles 256 and 269 of the CGI, read in conjunction with Article 1234 of the Civil Code, the amounts retained following the definitive non-performance of the transport service must be subject to VAT. Air France-KLM appealed on a point of law against that judgment.
- Brit Air, now Hop!-Brit Air SAS, performed air passenger transport services in the context of a franchise agreement concluded with Air France-KLM. The latter was responsible for marketing and ticket management on the routes operated as a franchise by Brit Air.
- Air France-KLM received the price of the tickets and paid it on to Brit Air with respect to each passenger transported. In respect of tickets sold but not used as a result of passenger ‘no-shows’ at the time of boarding or the expiry of the validity of the ticket, Air France-KLM paid to Brit Air annual flat-rate compensation calculated as a percentage (2%) of the annual turnover (including VAT) received from the routes operated as a franchise. Brit Air did not subject that sum to VAT.
- Following an examination of Brit Air’s accounts, the tax authorities sent it, in respect of the period from 1 April 2001 to 31 August 2005, demands for VAT relating to sums corresponding to unused tickets it had received from Air France.
- By judgment of 24 June 2010, the Tribunal administratif de Montreuil (Administrative Court, Montreuil) dismissed the application brought by Brit Air for discharge from those additional assessments to VAT. Brit Air appealed against that judgment before the cour administrative d’appel de Versailles (Administrative Court of Appeal, Versailles). Since the judgment delivered by the latter court on 13 November 2012 upheld the judgment under appeal, Brit Air brought an appeal on a point of law before the Conseil d’État (Council of State).
- Since it has doubts concerning the liability to VAT of sums paid by an air transport company to an undertaking carrying on the same type of business in consideration for the sale of unused transport tickets, the Conseil d’État (Council of State) decided to stay the proceedings and to refer to the Court the following questions for a preliminary ruling:
Must Articles 2(1) and 10(2) of Council Directive 77/388/EEC of 17 May 1977 1 be interpreted as meaning that the issue of the ticket may be treated as the effective performance of the transport service and that the sums retained by an airline company where the holder of an air ticket has not used his ticket, which is no longer valid, are subject to value added tax?
In that case, must the tax received be paid onwards to the Treasury on receipt of payment of the price, even though the travel may not have taken place as a result of the customer’s acts?
Must Articles 2(1) and 10(2) of Council Directive 77/388/EEC of 17 May 1977 1 be interpreted as meaning that a lump sum calculated as a percentage of the annual turnover received from routes operated as a franchise and paid onwards by an airline company which issued on behalf of another company tickets which are no longer valid constitutes non-taxable compensation paid to the latter, for the harm suffered as a result of the activation in vain by the latter of its means of transport or a sum corresponding to the proceeds from tickets issued and expired?
In the event that that sum is deemed to correspond to the price of tickets issued and expired, must those provisions be interpreted as meaning that the issue of the ticket may be treated as the effective performance of the transport service and that the sums retained by an airline company where the holder of an air ticket has not used his ticket, which is no longer valid, are subject to value added tax?
In that case, must the tax received be paid onwards to the Treasury by Air France or Brit Air on receipt of payment of the price, even though the travel may not have taken place as a result of the customer’s acts?
1. Articles 2(1) and 10(2) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment, as amended by Council Directive 1999/59/EC of 17 June 1999, then by Council Directive 2001/115/EC of 20 December 2001, must be interpreted as meaning that the issue by an airline company of tickets is subject to value added tax where the tickets issued have not been used by passengers and the latter are unable to obtain a refund for those tickets.
2. Article 2(1) and the first and second subparagraphs of Article 10(2) of the Sixth Directive 77/388, as amended by Directive 1999/59, then by Directive 2001/115, must be interpreted as meaning that the value added tax paid when the air ticket was purchased by a passenger who has not used it becomes chargeable on receipt of payment of the ticket price, whether by the airline company itself, by a third party acting in its name and on its behalf, or by a third party acting in its own name but on behalf of the airline company.
3. Articles 2(1) and 10(2) of the Sixth Directive 77/388, as amended by Directive 1999/59, then by Directive 2001/115, must be interpreted as meaning that, in the event that a third party sells an airline company’s tickets on behalf of that company in the context of a franchise agreement and pays that company, in respect of tickets issued and no longer valid, a lump sum calculated as a percentage of the annual turnover from the corresponding flight routes, that sum constitutes a sum that is taxable as consideration for those tickets.
Unused non-refundable air tickets for domestic flights subject to VAT ECJ case Air France – KLM & Hop! – Brit Air, C-250/14 & C-289/14 concerns the VAT treatment of unused non-refundable air tickets for domestic flights, which in France are subject to a reduced VAT rate. The ECJ held that there was nothing to indicate that the amounts retained by the airlines became nontaxable compensation when the passenger failed to show up independent of whether the compensation cover any harm for the airlines for no show up. ECJ concluded that those amounts remained consideration for the supply of a right to future travel, and VAT was due when the tickets were purchased in advance.
Similar ECJ cases
Reference in the EU Member States
- Simmons & Simmons
- KPMG – Indirect tax treatment of cancellations and ‘noshows’: a multijurisdictional analysis
- Francisco Javier Sánchez Gallardo
- Deloitte Belgium