VAT is payable on airline tickets which are not used by passengers. Judgment of the ECJ of 23 December. Air France-KLM subject


The decision of the Court of Justice of the EU is quite interesting because the Court understands that the cancellation of the service does not have a character of compensation or indemnity besides that, in any case, the service has been paid and VAT is accrued and payable.

First of all, we must remember that the services consisting in air transport of passengers within the territory of application of VAT are subject to VAT. In this regard, Air France-KLM did not pay the VAT collected by the sale of tickets issued but not used by passengers, besides, in turn, the amounts paid were not refundable, since passengers were not at the boarding gate at the time of the flight. One of the arguments put forward by the company is that the amount received because of the expired flight tickets had nature of compensation, for damage caused by the passengers that did not board. However, the tax administration considered that this operation was subject to VAT and that the VAT was due with the payment in advance at the time of purchasing the ticket, resulting payable at that time.

On the other hand, the Court also pronounced regarding other accumulated case for which an airline company, acting as franchisee of Air France-KLM, received a compensation from the latter, equivalent to 2% of the annual turnover, for tickets sold but not used. In this case it is also questioned to the Court if the amounts received by the franchisee have the nature of compensation.

The Court considers that with the payment of the ticket the passenger acquires a right to enjoy the obligations arising from the contract of transportation (the passenger boarding, hosting in the place of take-off, departure at the scheduled time, passenger transportation together with their luggage, attention to the passenger during the flight and landing in the agreed place) and they may exercise this right or not. Therefore it cannot have compensation nature since, on the one hand, the concept of provision of services for the purposes of the VAT Directive must be interpreted independently of the aims and results of the operations, and, on the other hand, since the price paid does include VAT, is not justified that the amount of the indemnity exceeds the price paid by the passenger. These two aspects, together with the fact that the amount paid is the total price of the ticket and the sale is closed, as well as the airline company can even sell again the service not used, excludes it from consideration of arras, by which cannot be treated as a compensation.

Regarding the accrual of the tax, the Court refers to the exception to the general rule (the time in which the service is provided) which means an advance payment, which occurs at the time of the purchase of the ticket and, in addition to that, the services that will be provided are already identified with precision.

Finally, with respect to the compensation received by the company franchised, the Court continues on the same line excluding the compensation nature, since the company does not suffer any prejudice by the fact that the passenger is not present for boarding, so that the price paid is in any case the consideration for a service defined as the right of the passenger to enjoy an air transportation service.

Attached is a copy of the ruling with number of accumulated cases C-250/14 and C-289/14.

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