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ECJ VAT C-615/23 (Dyrektor Krajowej Informacji Skarbowej) – Questions – Compensation for Public Transport Services

5 months ago
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Context: An advance tax ruling that includes in the VAT taxable amount the compensation paid to the operator of public transport services by a local authority for the provision of those services

Summary

  • The applicant is seeking clarification on whether compensation received from a local authority for providing public transport services should be included in the taxable amount for VAT purposes.
  • The applicant is an undertaking engaged in economic activity and is considering entering into contracts for the provision of public road transport services.
  • The applicant generates revenue from ticket sales, compensation for lost revenue, and other sources such as advertising.
  • The compensation received from the local authority is meant to cover the losses incurred while providing the services and is based on the net financial effect of service provision.
  • The tax authority initially ruled that the compensation constitutes a subsidy that directly affects the price of the services, but the court of first instance disagreed, citing previous case law.

Article in the VAT Directive

Article 73 of the EU VAT Directive 2006/112/EC

Article 73 (Taxable amount)
In respect of the supply of goods or services, other than as referred to in Articles 74 to 77, the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply.

Background

Must Article 73 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1, as amended) be
interpreted as meaning that compensation, such as that described in the application for an advance tax ruling, paid to a separate entity (operator) by a local authority for the provision of public transport services, is included in the taxable amount referred to in that provision?

Questions

  • P. S.A. (‘the applicant’ or ‘the company’) applied to the tax authority for an advance tax ruling in regard to tax on goods and services (VAT).
  • The applicant is an undertaking engaged in economic activity. It is not an entity with capital or personal ties to any local authorities, that is to say, it is not an internal operator within the meaning of Regulation (EC) No 1370/2007 of the European Parliament and of the Council of 23 October 2007 on public passenger
    transport services by rail and by road and repealing Council Regulations (EEC) No 1191/69 and No 1107/70. The company has a full accounting system, is subject to corporate income tax, and is an active VAT taxable person. Its core business is passenger transport. In connection with the entry into force of Regulation No 1370/2007 and the LPT, the applicant is considering the possibility of entering into contracts for the provision of public road transport services, which contracts would allow the applicant to be compensated under Article 50(1)(2)(c) of the LPT. The applicant would act as the operator, while the other  party to the contract would be the organiser of public transport, that is to say, the local authority (‘the LA’).
  • As part of its public transport activities, the applicant would generate revenue from ticket sales, which revenue would cover the costs of transport operations. Ticket prices would be set either by: (1) the organiser of the public transport by way of resolutions adopted by the competent authorities; or (2) the organiser in the form of a model contract for the provision of public road transport services.
  • The applicant would generate revenue from the following sources: (1) revenue from ticket sales and other fares, which is subject to VAT (in principle at the 8% rate); (2) compensation for lost revenue due to the application of statutory concessionary fares, which is subject to VAT (at the 8% rate); (3) compensation for lost revenue due to the application of concessionary fares applicable within the area for which the organiser is competent; (4) other revenue (for instance, from
    the provision of advertising space); however, the sources of revenue listed in items 2–4 may all be present, or may be present only in part or not at all, depending on the provisions of the relevant contract or on statutory provisions.
  • The above sources of revenue would not cover the entire cost of the public transport services provided, and thus the applicant would receive compensation from the organiser to cover the losses incurred while providing those services. The amount of compensation may not exceed the amount corresponding to the net financial effect of the provision of urban transport services calculated in accordance with Regulation No 1370/2007.
  • The contract with the organiser would stipulate the detailed rules for calculating the net financial effect of service provision, the manner in which  ompensation is paid, and the maximum amount of compensation for a given period. A negative financial effect would form a basis for compensation. The compensation would not affect ticket prices, that is to say, the price of the service provided, since it is of a general nature and is meant to subsidise the overall cost of  transport services provided under the contract.
  • The applicant asked the tax authority, among other things, whether such compensation constituted turnover subject to VAT within the meaning of Article 29a(1) of the Law on VAT. According to the applicant, the compensation would not increase the taxable amount within the meaning of Article 29a(1) of the  Law on VAT, as it does not directly affect the price of the public transport services provided.
  • In an advance tax ruling issued on 14 May 2019, the tax authority found that position to be incorrect and stated that, when it is engaging in the activities
    described in the application, which are business activities as defined in Article 15(2) of the Law on VAT, the applicant is acting as a VAT taxable person.
  • The tax authority stated that, for the purposes of Article 29a(1) of the Law on VAT, such compensation constitutes a subsidy that would directly affect the price
    of the services provided.
  • By judgment of 26 November 2019, the court of first instance set aside the contested advance tax ruling.
  • In its reasoning, that court, citing the case-law of the Court of Justice (judgments of 22 November 2001, Office des produits wallons, C-184/00,  U:C:2001:629,
    and of 13 June 2002, Keeping Newcastle Warm, C-353/00, EU:C:2002:369), stated that it follows from the application that the compensation would not affect
    the price of tickets (the price of the service provided) as ticket prices are set by the organiser. The court disagreed with the tax authority’s position that, from an
    economic point of view, the company could not provide public transport services at the prices set forth in the contract if it were not for the compensation received, which means that the compensation affects the price. That reasoning cannot be considered correct in light of the necessary requirements highlighted by the Court of Justice, including, in particular, that the relationship between the price of the transport services provided and the compensation must be unambiguous and clearly discernible.
  • The tax authority challenged that judgment on a point of law before the referring court.

Source

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