European Union: Air France-KLM: the SAFE equivalent for services? J.B.O. Bijl

Transcription

1 European Union: Air France-KLM: the SAFE equivalent for services? J.B.O. Bijl

2 Articles European Union Air France-KLM: The SAFE Equivalent for Services? Jeroen Bijl* In the ECJ decision in the Air France-KLM case, the ECJ stated that the issue of tickets by an airline company is subject to VAT where the tickets issued have not been used by passengers and the latter are unable to obtain a refund for those tickets. After briefly highlighting the facts of the case, as well as previous views given on it before it was actually decided, in this article, the author focuses on the content of the decision and, more specifically, on the potential impact of the definition of supply of services given by the ECJ. 1. Introduction The author already had the opportunity to share his views on what the outcome of the Air France-KLM case should be in previous editions of the International VAT Monitor, 1 as a reaction to Prof. Alan Schenk s views as published in an earlier issue of this same journal. 2 Now that the ECJ has decided the case, 3 it is known that the author s view was not correct. However, and even though the author had not expected this outcome, the ECJ has ruled this case in a way that he can comfortably agree with. In this article, he elaborates on what the ECJ decided on the question of whether or not VAT is payable and/or recoverable in cases where tickets are sold for events and where the holder of the ticket decides not to use the ticket, and on the relevance and impact of this decision. Before that, he briefly describes the relevant facts of the case, as well as the views published in earlier issues of the International VAT Monitor of both Schenk and Rick Krever Air France-KLM case 2.1. The facts Air France-KLM, an airline operator, sells tickets for air transportation of passengers and their luggage. Air France-KLM s customers purchase tickets for a specific flight at a specific date and time to a specific destination. 5 The customers pay the full price of the ticket at the time * EY Amsterdam. 1. J. Bijl, Supplies for EU VAT Purposes: Reflections on Air France KLM and Vouchers, 26 Intl. VAT Monitor 3, p. 136 (2015), Journals IBFD. 2. A. Schenk, What Is a Supply for VAT Purposes? Reflections on Qantas Airways Ltd, 26 Intl. VAT Monitor 2, p. 83 (2015), Journals IBFD. 3. FR: ECJ, 23 Dec. 2015, Joined Cases C-250/14 and C-289/14, Air France KLM and Hop!-Brit Air SAS v. Ministère des finances et des comptes publics, ECJ Case Law IBFD. 4. R. Krever, What s in a Name? Prepayments, Deposits, Vouchers and Options, 26 Int. VAT Monitor 4, p. 241 (2015), Journals IBFD. 5. Customers can also choose extra comfort, extra baggage, etc. This is not relevant for this article. of the purchase. The ticket is the proof of payment for the agreed transportation service and is used to, at a later point in time, check in online or on site and, after that, to physically check in the luggage at the airport and to board the plane through a series of checks and procedures. In the Rehder case 6 (which is not a VAT case), the ECJ gave an elaborate description of what comprises the service in this case: the services provided in performance of obligations arising from a contract to transport passengers by air are the checking-in and the boarding of passengers, the on-board reception of those passengers at the place of take-off agreed in the transport contract, the departure of the aircraft at the scheduled time, the transport of the passengers and their luggage from the place of departure to the place of arrival, the care of passengers during the flight, and, finally, their disembarkation in conditions of safety at the place of landing and at the time scheduled in that contract. Initially, Air France-KLM remitted the VAT included in the price of the tickets to the French tax authorities. However, at some point, it decided that VAT was not due in the case of passengers not using their tickets, because no services were provided to them and, therefore, according to the airline company, no taxable event had taken place. The argument was thus that since only taxable transactions can be subject to VAT, any VAT remitted should be refunded and no VAT should be payable in the event of no-shows. However, the French tax authorities disagreed with Air France-KLM s view in this respect and the case ended up in court and was referred to the Court of Justice of the European Union (ECJ) The judgment First of all, it is noteworthy that after hearing the Advocate General (AG), the ECJ decided to proceed to give the judgment without an Opinion of the AG. According to the Statute of the ECJ, where the ECJ considers that the case raises no new point of law, it may decide, after hearing the AG, that the case should be determined without a submission from the AG. 7 Apparently, the author missed the point of law that had already been decided by the ECJ. 8 On the substance, the ECJ first held that passenger air transport is subject to VAT in the cases where, first, the 6. ECJ, Case C-204/08, Peter Rehder v. Air Baltic Corporation [2009]) ECR-I 06073, para Protocol (no. 3) on the Statute of the Court of Justice of the European Union, art. 20. OJ C83 (2010). 8. Although, in hindsight, it might be possible to read this in UK: ECJ, 3 May 2012, Case C-520/10, Lebara Ltd v. The Commissioners for Her Majesty s Revenue & Customs, ECLI:EU:C:2012:264, ECJ Case Law IBFD, even though no reference is made to this case in the Air France-KLM ruling. IBFD INTERNATIONAL VAT MONITOR MARCH/APRIL

3 Jeroen Bijl sum paid by a passenger to an airline company, in the context of the legal relationship constituted by the transport contract, is directly linked with an identifiable service for which it constitutes the remuneration and, secondly, that the service is performed. 9 It then describes what elements a passenger air transportation contract consists of and observes that it is possible to perform those services only if the passenger of the airline company turns up on the agreed date and at the agreed place of boarding. The ECJ therefore came to the conclusion that the consideration for the price paid when the ticket was purchased consists of the passenger s right to benefit from the performance of obligations arising from the transport contract, regardless of whether the passenger exercises that right, since the airline company fulfils the service by enabling the passenger to benefit from those services. Later on the ECJ stressed that in the event of a no-show, the airline company which sells a transport ticket does fulfil its contractual obligations by putting the passenger in a position to claim his rights to the services provided for by the transport contract The author s view before the judgment In the Air France-KLM case, the author assumed that two outcomes could possibly be considered and he also had a view on which one of the two he considered to be the correct one. Based on existing case law, the author thought that the transaction in this case (i.e. the purchase of a ticket followed by a no-show), could either be considered a prepayment for a future taxable transaction that, in the end, did not take place, or the payment for a right, which implied that a no-show as such was not relevant for the VAT becoming due, since the right was provided but just not exercised. It should be noted, that it is possible to make or receive a prepayment for a future right, but that is not relevant for this article. The author was convinced that the sale of an air transportation ticket should not be considered a supply of a right, e.g. a right to transportation because, in his view, the supply of a right from a VAT perspective is a supply of a service of a different nature. Rights are rights as such, e.g. the right to use specific immovable property with the exclusion of others for a specific period of time and for consideration (i.e. lease), or the right to use a patented procedure or other intellectual property under clearly agreed circumstances. In his view, which is not changed by the outcome of the Air France-KLM case, the object of the agreement between Air France-KLM and the purchaser of a ticket is not the right to be transported. He was also convinced that, in this case, the customer made a prepayment for a taxable transaction that, in the end, would not take place. This means that, even though VAT becomes payable as a result of the payment or receipt of the prepayment, this VAT should in the end be refunded because of the lack of a taxable transaction. He was of the view that a no-show simply meant that the agreed service 9. Joined Cases Air France-KLM (C-250/14) and Hop!-Brit Air SAS (C-289/14), para. 25. had not been provided to the customer that had not shown up Schenk s view 10 In his column entitled What Is a Supply for VAT Purposes? Reflections on Qantas Airways Ltd, Schenk argues that the supply of an airline ticket should be taxed, irrespective of whether it is used or not, because the supplier is entitled to the consideration for the contracted services, whether or not the person making the advance payments demands the services or receives any benefit from the service provider. Although the exact technical substantiation of Schenk s view is not easy to determine due to the fact that it appeared in a column, which is brief by nature, the relevant element in deciding on taxation seems to be the entitlement to the consideration, irrespective of the actual use of the agreed service Krever s view 11 Krever is of the view that the actual elements of the transaction should be used for determining its VAT treatment, instead of what Schenk and the author did, which was analysing the transaction on the basis of the notional legal label for what the enterprise has done or not done. In Krever s view, the customers have purchased an option. More precisely, in the case of an airline ticket, they purchased a right to board the flight for a cost half that paid by the person in the next seat or skip the flight without penalty. Krever concludes his article as follows: The customer bought the right to show up and utilize a service or not show up and pay no penalty. VAT applies to supplies and if a customer has irrevocably paid for something from an enterprise, the nature of that something is properly determined from the customer s perspective, not the label affixed to it by the supplier. 3. The Meaning, Relevance and Impact of the Air France-KLM Judgment The ECJ showed the author, and others, a third way, 12 by providing a definition of the taxable event for services: the airline fulfils the services by enabling the passenger to benefit from those services. 13 Or: the airline company which sells a transport ticket fulfils its contractual obligations where it puts the passenger in a position to claim his rights to the services provided for by the transport contract. 14 In other words, the ECJ, by its reasoning, ruled that basically a service should be considered as being provided at the time when the supplier enables his customer or puts his customer in a position to benefit from the agreed ser- 10. As published in this journal, see Schenk, supra n See Krever, supra n A fourth way counting Schenk s agreed payment as a trigger for VAT and possibly a fifth counting Krever s option if considered different from a right. 13. Joined Cases Air France-KLM (C-250/14) and Hop!-Brit Air SAS (C-289/14), para Id., para INTERNATIONAL VAT MONITOR MARCH/APRIL 2016 IBFD

4 Air France-KLM: The SAFE Equivalent for Services? vice. 15 In that respect, it is irrelevant whether the customer actually decides not to benefit from the agreed service, e.g. by not showing up. The ECJ thus gave a definition of when a service is supplied, or of what exactly is meant by the supply of a service. For a supply of goods, the ECJ had already decided this a long time ago in the SAFE case: 16 a good is supplied when the right to dispose of tangible property as owner is transferred. It is now also known that there is a supply of a service when the supplier enables his customer to benefit from the agreed service. In the author s view, in the Air France-KLM case, this occurs when the airline enables the passenger to hand over his luggage at check-in or to start the physical check-in or boarding procedure. Even though it may be possible to read this outcome in the Lebara case, 17 the author is not sure that this is not a new point of law that would have warranted an AG s opinion. The ECJ also made clear that the payment received by Air France-KLM can still be considered a prepayment, as long as the relevant requirements from earlier case law are met. 18 This prepayment means that the VAT that is due on the taxable transaction is payable before the actual supply of the service. 19 In the event of a no-show, the airline company which sells a transport ticket fulfils its contractual obligations where it puts the passenger in a position to claim his right to benefit from the services provided for by the transport contract. 20 In other words, there is still a VAT liability triggered by a prepayment, but this VAT liability is not undone by a no-show but rather confirmed by the airline company enabling its customers to benefit from its services. The judgment thus provided an elegant answer to what should be considered the supply of a service. However, it also raised new questions. Take the example of a person paying a telecoms company for a multi-purpose prepaid phonecard. Under the current rules, when the payment is not made for a sufficiently clearly defined future supply, the payment does not trigger VAT becoming chargeable. 21 After the Air France-KLM judgment, one could ask whether even in this case it might be possible to ascertain whether the telecoms company has, at some point, enabled its customer to benefit from its services. This could only be possible insofar as it can be ascertained what the services to be provided would have been, and whether the customer was indeed put in a position where he could have enjoyed those services. 22 In the author s view, this is not possible where the earlier payment cannot be considered a prepayment or payment made on account resulting in VAT becoming chargeable at the time of receipt of that payment. This is obviously the case if the payment can be used for supplies made by more than one supplier, but this should also apply to a single supplier that issues multipurpose vouchers for consideration. It should not be possible for this business to enable its customers to benefit from the service because the service has not been agreed to a sufficient degree. 4. Conclusion In conclusion, the ECJ gave us a definition of the supply of a service. This supply can be paid for before the service is actually supplied. If the service for which the prepayment is received is sufficiently well defined by the parties, VAT becomes chargeable at the time the prepayment is received by the supplier for a future supply. Subsequently, the actual supply is made when the supplier enables its customer to actually benefit from the agreed service. This judgment brings clarity in the situation mentioned above. However, new questions may arise, such as how to determine whether and/or when a supplier has actually enabled his customer to benefit from the agreed services. 15. There should, of course, also be an agreed consideration that is paid for the agreed service. 16. E2: ECJ, 8 Feb. 1990, Case C-320/88, Staatssecretaris van Financiën v. Shipping and Forwarding Enterprise Safe BV, ECR I-00258, ECJ Case Law IBFD. Even though this case dealt with the definition of supply of goods, in the author s view the tax point/the time when the taxable event occurs has to coincide with the time of that actual transfer. 17. Lebara (C-520/10). 18. Joined Cases Air France-KLM (C-250/14) and Hop!-Brit Air SAS (C-289/14), para Art. 65 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, OJ L347 (2006), p Joined Cases Air France-KLM (C-250/14) and Hop!-Brit Air SAS (C-289/14), para See, for example, UK: ECJ, 21 Feb. 2006, Case C-419/02, BUPA Hospitals Ltd and Goldsborough Developments Ltd v. the Commissioners of Customs and Excise, [2006] ECR I-01685, ECJ Case Law IBFD. 22. This line of thought is also found in Geen recht op teruggaaf bij no show, Vakstudie Nieuws 2.12 (2016). IBFD INTERNATIONAL VAT MONITOR MARCH/APRIL

5 Ernst & Young LLP Accountancy Belastingen Transacties Advies Over Ernst & Young Jeroen Bijl is verbonden aan Ernst & Young Belastingadviseurs LLP Tel: Verschenen in: International VAT Monitor 2016 nr. 2 March/April p , een uitgave van IBFD Publications te Amsterdam Ernst & Young is wereldwijd toonaangevend op het gebied van accountancy, belastingen, transacties en advies. Onze mensen delen wereldwijd dezelfde waarden en staan voor kwaliteit. Wij maken het verschil door onze mensen, onze cliënten en de samenleving te helpen hun mogelijkheden optimaal te benutten. Voor meer informatie: Disclaimer Dit bericht is met grote zorgvuldigheid samengesteld. Voor mogelijke onjuistheid en/of onvolledigheid van de hierin verstrekte informatie aanvaardt Ernst & Young geen aansprakelijkheid, evenmin kunnen aan de inhoud van dit bericht rechten worden ontleend. Ernst & Young European Union: Air France-KLM: the SAFE equivalent for services? / J.B.O. Bijl. - IBFD ivm 2016/02