The purchase of airline tickets, not used and without refund, is subject to VAT and not deemed as indemnity. TEAC resolution 5156/2015 of July 15, 2019


This resolution follows the criteria expressed by the EU Court of Justice (ECJ) in the cumulative cases C-250/14 and C-289/14, “Air France-KLM and Hop! -Brit Air SAS”, which considers that the non-use of air tickets by the passenger without cancelling them and without reimbursement does not have an indemnity aim for the damages caused to the airline, so the purchase of the tickets is subject to VAT in any case.

In this case, it is a company that had reduced the amount of VAT corresponding to the sale of tickets to travellers “no shows”, which are those who have made their reservation and paid the amount of the ticket in advance, but then and without cancellation, do not make the trip. The company considered that when not traveling there was a damage to the company in possible alternative income (loss of earnings), so the amount paid by the passenger should have the status of indemnity, not subject to VAT, taking as an example the judgment of the ECJ “Societé Thermale d’Eugénie-les Bains”. However, the Tax Administration considered that these payments are the consideration for the transport of passenger service provided by the company and, therefore, it is an operation subject to VAT that should not be reduced.

In view of the appeal presented to the TEAC against the liquidation of the Tax Administration, the Court considers that it is necessary to determine, in the first place, whether the perception of the amounts paid by the passengers implies the accrual of the tax in accordance with the rule of Article 75.Two of advance payments and, secondly, the consequences of passengers not showing up at boarding.

In relation to the accrual of the tax, when a customer makes the reservation and pays the total amount in advance, it must be understood that it becomes due, since at that time all the circumstances of the provision of the service are known, which is individualizable and perfectly identified and, therefore, it is not a case of advance payments for services that are not yet identified or defined, where the ECJ has considered a non-subject to VAT case. In addition, the Court disagree in the application of the judgment “Societé Thermale” to the present litigation, since in that case a deposit was paid, which does not correspond to the payments made by customers for the reservation of the ticket, since the price paid in the latter case is clearly the consideration for the services of the airline. In the present case there is a direct relationship between the service provided and the consideration received, a relationship that does not exist in the case of a deposit.

On the other hand, it remains to be determined if the absence of the client on boarding without having previously cancelled the reservation, and without the right to be reimbursed, would result in changing said amount paid into an indemnity.

Here, the Court recalls the EU case-Law, stating that in order to consider whether there is compensation, there must be an act of consumption behind the operations carried out, so each case must be analysed to determine whether the purpose of the payment is to compensate for the damages and losses or if the purpose is to remunerate operations carried out within the objective scope of the VAT Law. In this case, the Court agrees with the Tax Administration considering the payment as consideration for the service, regardless it is used later or not, as well as considering that the company does not suffer a loss if the client does not travel since the ticket is paid and is not refunded, therefore, the amount withheld cannot be considered to be an indemnity for damage caused.

Finally, the Court resorts to the ECJ judgment “Air France-KLM and Hop! -Brit Air SAS”, which considers that the issuance of tickets is subject to VAT even when passengers do not use them, defending this criterion by the existence of a direct link between the service provided and the consideration received.

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