Comments on ECJ C-615/23: Subsidy afterwards for losses of passenger transport not subject to VAT

Understanding Subsidies and Their Impact on Pricing Dynamics

Complexity of Payment Relationships: Determining the direct link between a payment and a service becomes increasingly complex with the involvement of a third party, as illustrated by a case where a local authority compensated a passenger transport operator for losses incurred.
Court’s Reasoning on Subsidies: The Court highlighted that the subsidy does not influence ticket prices directly, stating that even without the subsidy, ticket prices would need to increase, which seems contradictory given that subsidies typically lower prices.
Independence of Subsidy from Service Provision: The Court concluded that the subsidy is not tied to the provision of passenger transport since it would still be paid regardless of whether any passengers traveled, indicating that the payment is for something other than the transport service itself. This is further emphasized by the inverse relationship between ticket sales and the subsidy amount.

Subsidy afterwards for losses of passenger transport not subject to VAT

Ruling on Subsidy Exemption: The Court of Justice of the European Union ruled that a subsidy provided by a local authority to P S.A. to cover losses in public passenger transport services is not included in P S.A.’s VAT base.
Context of the Subsidy: P S.A. operates public passenger transport and earns revenue from ticket sales. To address potential financial losses, it planned to receive a subsidy from local authorities, prompting questions about the VAT treatment of this subsidy.
Court’s Justification: The Court determined that the subsidy does not impact the pricing of transport services and stated that it should not exceed the amount of the losses incurred, ensuring it remains within a specified maximum for the relevant period.

VAT Exemption for Subsidies: The Court ruled that a subsidy received by a transport company from a local authority is not subject to VAT, primarily because the subsidy aims to cover losses rather than directly reduce ticket prices for customers.
Characteristics of the Subsidy: The subsidy is awarded after the fact, based on the company’s operational losses rather than the identity or number of passengers, indicating it does not qualify as a “subsidy directly related to price.”
Implications for Tax Base: While subsidies can influence pricing, the ruling emphasizes that not all subsidies affect the VAT taxable base, especially when they do not lead to a proportional decrease in customer prices or are not tied to the actual number of users.