On May 8, 2025, the ECJ issued the judgment in the case C-615/23 (Dyrektor Krajowej Informacji Skarbowej).
Context: Reference for a preliminary ruling – Common system of value added tax (VAT) – Directive 2006/112/EC – Supply of services for consideration – Taxable amount – Compensation to cover losses – Subsidy directly linked to price – Subsidised service provided by a third party in the public interest – Legal relationship and direct link between the supply of services and the consideration – Consideration from third parties
Summary
- Background of the Case: The case involves a preliminary ruling request from the Naczelny Sąd Administracyjny (Supreme Administrative Court of Poland) concerning whether flat-rate compensation paid by a local authority to a transport provider for public transport services should be included in the taxable amount for VAT under Article 73 of the VAT Directive.
- Legal Question: The court was asked to determine if the compensation constitutes consideration for the supply of services and is therefore subject to VAT, considering whether there is a direct link between the compensation and the price of the services provided.
- Argument from the Tax Authority: The Polish tax authority argued that the compensation should be included in the taxable amount, asserting that it is linked to the services provided, which are necessary for the operation of public transport.
- Court’s Decision: The Court ruled that the flat-rate compensation does not form part of the taxable amount under Article 73, as it does not have a direct impact on the price of the services provided. The compensation is meant to cover losses rather than being directly linked to the ticket prices.
- Justification of the Decision: The court explained that for a subsidy to be considered part of the taxable amount, it must be specifically granted for a particular service and directly linked to the price of that service. In this case, the compensation was primarily for covering operational losses and was not tied to individual ticket pricing, thus exempt from VAT.
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
- Company Background and Tax Ruling Request: P. S.A. is an independent private company engaged in passenger transport that sought an advance tax ruling from the tax authority regarding whether compensation received from local authorities would constitute taxable turnover under VAT law.
- Revenue Sources and Compensation Structure: The company generates revenue from ticket sales, compensation for lost revenue due to concessionary fares, and other income. However, its revenue does not fully cover the costs of providing transport services, leading to additional compensation from the organiser, which is designed to cover losses without affecting ticket prices.
- Legal Dispute Over VAT Treatment: The tax authority ruled that the compensation should be treated as taxable turnover linked to the price of services, while the court of first instance disagreed, stating that the subsidy did not directly affect ticket prices. The case is now being reviewed by the Supreme Administrative Court of Poland, which has referred the matter for further clarification.
Questions
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?
AG Opinion
Article 2(1)(c) and Article 73 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax’
must be interpreted as meaning that an ex post compensation for financial losses, the amount of which is limited by an EU regulation and is not based on the number of users, but on the vehicle-kilometres offered by reference to a flat rate, does not constitute consideration for a supply of services to the local authority making the payment. Nor does such compensation constitute consideration from a third party for the benefit of specific users of public transport because it does not affect directly, but at most indirectly, the price calculation made by the subsidised undertaking.
Decision
Article 73 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax
should be interpreted as meaning that:
Flat-rate compensation paid by a local authority to an undertaking providing public transport services and intended to cover losses incurred in the provision of these services does not fall within the scope of the taxable amount of that undertaking.
Source
ECJ Cases referred to in the decision
- C-151/13 (Le Rayon d’Or) – Concept of ”Subsidy directly linked to the price”: This case is particularly significant in the judgment, as it is used to discuss the conditions under which subsidies can be considered as part of the taxable amount. The ruling established that there can be a direct link between services provided and the benefits received, which must be analyzed in the context of the current case.
- C-184/00 (Office des produits wallons) – Subsidies covering a part of the operating costs of a taxable person are liable to tax if directly linked to a specific economic activity: This case is cited to clarify that subsidies must be directly linked to the price of the supply for them to be included in the taxable amount under VAT. The judgment emphasizes that the mere impact of a subsidy on pricing is insufficient for it to be considered taxable.
- C-353/00 (Keeping Newcastle Warm) – Price subsidy part of consideration for service and in taxable amount
- C-381/01, C-495/01, C-144/02, C-463/02 (Commission vs Italy, Germany, Finland, Sweden) – Subsidy directly related to price: This case is referenced to highlight the importance of establishing a clear link between the subsidy and the specific supply of goods or services.
- C and C (VAT and agricultural subsidies) (C-573/18 and C-574/18) – These cases are referenced to elaborate on the concept that subsidies included in the taxable amount must be directly linked to the price of the taxable transaction.
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