Lessons from ECJ case law – C-260/95 (DFDS) – VAT due where agent fixed establishment effectively operates

On February 20, 1997, the ECJ released the judgment in the case C-260/95 (DFDS).

Link to the European VAT legislation

Article 26(2) of the Sixth Council Directive (77/388/EEC) of 17 May 1977. Art. 307 of the EU VAT Directive 2006/112/EU.

The referring articles are actually referring to the Travel Operating Margin Scheme, while the case is referred to in many Fixed Establishment discussion and ECJ cases on the same subject.

Facts

DFDS, a company incorporated in Denmark, whose objects are shipping, travel and general transport, has an English subsidiary, DFDS Ltd. An agency agreement concluded by the two companies designates the subsidiary as a ‘general sales and port agent’ for the parent company in the United Kingdom and as ‘central booking office for the United Kingdom and Ireland for all … the passenger services’ of the Danish company.
In 1993 the Commissioners of Customs and Excise took the view that VAT was payable by DFDS on the package tours marketed on its behalf by its English subsidiary. They took the view that, by means of the agreement with its subsidiary, the Danish company established its business in the United Kingdom or made the supplies in question from a fixed establishment in the United Kingdom within the meaning of those terms in the United Kingdom legislation giving effect to Article 26 of the Sixth Directive.
DFDS, on the contrary, contended that the services at issue were taxable at the place where it had established its business, namely Denmark, a Member State which has availed itself of the possibility of exempting such services from VAT under Article 28(3)(b) and Annex F of the Sixth Directive. It therefore appealed to the Value Added Tax Tribunal, which found in its favour in 1994.

Question

O n the proper interpretation of Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes
(the Sixth VAT Directive), and in particular Article 26 thereof, where a tour operator has its headquarters in Member State A but supplies services in the form of
package tours to travellers through the agency of a company in Member State B:
(a) in what (if any) circumstances is the supply of those services by the tour operator taxable in Member State B?
(b) in what (if any) circumstances can it be said that the tour operator “has established [its] business” in Member State B or “has a fixed establishment from
which [it] has provided the services” in Member State B?’

AG Opinion

Where a tour operator has its headquarters in Member State A but supplies services in the form of package tours through its agent in Member State B, the supply
of those services by the tour operator is subject to VAT in Member State B, provided that the company acting as agent is not autonomous and independent from
the tour operator but is a mere auxiliary thereof and is in a form, which includes both human and technical resources, such that it is able to provide the services in
question.

Decision

Article 26(2) of the Sixth Council Directive (77/388/EEC) of 17 May 1977, on the harmonization of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment, is to be interpreted as meaning that, where a tour operator established in one Member State provides services to travellers through the intermediary of a company operating as an agent in another Member State, VAT is payable on those services in the latter State if that company, which acts as a mere auxiliary organ of the tour operator, has the human and technical resources characteristic of a fixed establishment.

Source