EGC VAT Case – T-131/26 (Europark Estonia) – Order – Contractual parking penalties remain fully subject to VAT, including their punitive component

1. Is Article 2(1)(c) of Directive 2006/112 to be interpreted as meaning that, in the case of a contractual penalty levied by a private company operating private car parks following a motorist’s failure to comply with the general conditions governing their use, a distinction must be drawn, on the basis of the economic and commercial reality of that penalty, between:

• the component constituting consideration for a supply of services effected for consideration and therefore subject to VAT; and
• the component which is not intended to replace performance of the obligation or compensate for damage, but is exclusively punitive in nature and therefore not subject to VAT?

2. Is Article 2(1)(c) of Directive 2006/112 to be interpreted as meaning that the component of such a contractual penalty which is not intended to replace performance of the obligation or compensate for damage, but is punitive in nature, must nevertheless be regarded as an integral part of the total amount payable for the supply of services and therefore, having regard to the economic and commercial reality of the penalty, as consideration subject to VAT?

AG Opinion

None.

Decision / Order of the Court

Article 2(1)(c) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax,

must be interpreted as meaning that contractual penalties levied by a private-law company responsible for the operation of private car parks where motorists fail to comply with the general terms and conditions for use of those car parks constitute consideration for the supply of services for consideration, within the meaning of that provision, and are, as such, subject to value added tax, including that part of those contractual penalties which, under national law, is punitive in nature.

This treatment applies to the entirety of the contractual penalties, including the component which has a punitive character under national law. Article 2(1)(c) does not permit the punitive component to be separated from the remainder of the amount and treated as falling outside the scope of VAT.

Source

• Curia

Argumentation

(Supply of services for consideration)
Under Article 2(1)(c) of the VAT Directive, a supply of services is effected for consideration where a legal relationship exists between the supplier and the recipient under which reciprocal performances are exchanged and the remuneration received constitutes the actual consideration for an identifiable service. Parking a vehicle in a privately operated car park creates such a legal relationship between the operator and the motorist.

(Reciprocal obligations)
The general conditions governing the car park define the parties’ respective rights and obligations. Europark makes a parking space available, while the motorist is required to pay the ordinary parking fee and, where applicable, the contractual penalty arising from non-compliance with those conditions. The requirement of reciprocal performance is therefore satisfied.

(Direct link with the parking service)
The fact that a contractual penalty becomes payable only where the motorist uses the parking service irregularly does not sever the direct link between the service and the amount received. The penalty originates directly from the conditions under which the motorist actually used the parking space. It consequently forms part of the consideration connected with that service, even where the use was excessive, unauthorised or otherwise contrary to the agreed conditions.

(Lump-sum nature of the penalty)
The predetermined or lump-sum nature of the contractual penalty is irrelevant. The classification of a transaction as a supply for consideration does not depend on whether the amount received is equal to, higher than or lower than the supplier’s costs or the objective value of the service. The taxable consideration is the subjective value actually received by the taxable person, provided that it can be expressed in monetary terms.

(Payment in addition to the parking fee)
The fact that the contractual penalty does not replace the ordinary parking fee does not prevent it from constituting consideration. The concept of consideration may include surcharges and additional charges resulting from the legal or contractual framework governing the relationship between the supplier and the person who used the service, including where that service was used unlawfully or irregularly.

(National classification as a penalty)
Whether an amount is paid in return for a supply of services is a question of EU law that must be determined independently of its classification under national law. It is therefore immaterial whether Estonian law classifies the amount as remuneration, compensation, damages or a contractual penalty.

(Punitive and deterrent purpose)
The purpose pursued by the payment is not decisive when assessing the existence of consideration. Even if part of the contractual penalty is intended to punish the motorist or deter breaches of the parking conditions rather than compensate Europark for loss or additional operating costs, the amount continues to arise within the legal relationship under which reciprocal performances are exchanged.

(Indivisibility of the consideration)
No component of the contractual penalties could be separated and excluded from VAT solely because it had a punitive or sanctioning character. The penalties constituted indivisible consideration resulting from the application of the general conditions governing the parking service and had, in their entirety, a direct link with that service.

(Reasoned order)
The General Court considered that the requested interpretation could be clearly deduced from Apcoa Parking Danmark (C-90/20) and Credidam (T-643/24). It therefore decided the case by reasoned order under Article 226 of the Rules of Procedure of the General Court.

References to Other ECJ Case Law

• C-16/93, Tolsma – Cited for the principle that a supply is effected for consideration only where a legal relationship exists under which reciprocal performances are exchanged; the purpose of the payment is not determinative.
• C-295/17, MEO – Serviços de Comunicações e Multimédia – Cited for the principle that the VAT classification of a payment must be determined under EU law independently of its classification as remuneration, compensation or a penalty under national law.
• C-21/20, Balgarska natsionalna televizia – Cited for the requirement that there must be a direct link between the identifiable service supplied and the consideration received.
• C-90/20, Apcoa Parking Danmark – Cited for the principles that charges imposed for irregular use of private car parks may constitute consideration for the parking service; that reciprocal performance and a direct link may exist despite irregular use; and that the amount or national legal classification of the charge does not alter its VAT treatment.
• T-643/24, Credidam – Cited for the principles that the taxable amount is the consideration actually received by the taxable person and that surcharges or additional charges arising from the legal framework governing the supplier-customer relationship may form part of the consideration for the service.