Court of Justice of the European Union Judgement of December 23, 2015 Cases C-250/14 and C-289/14

VAT — Chargeable event and chargeability — Air transport — Ticket purchased but not used — Provision of the transport service — Issue of the ticket — Time of payment of the tax criminal procedure – Interception of telecommunications and seizure of emails

Within the context of a preliminary ruling procedure, requested by a French court, the European Court of Justice (ECJ) issued a judgement on whether the amounts pertaining airline tickets sold, not used by the passengers and not reimbursed by the airline company, are subject to VAT or not. Simultaneously, the ECJ was questioned if the amount calculated as a percentage of the annual turnover from the routes operated within the framework of a franchise, paid by an airline company that, on behalf of other airline company, issues tickets not used by the passengers and not reimbursed, constitutes non-taxable compensation paid to the latter for the harm suffered as a result of the obsolete activation of its means of transport.

The ECJ refers that the consideration for the price paid by the passenger when the ticket is 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.

Consequently, the Court clarifies that the airline company provides its services from the moment it allows the passenger to benefit from those services.

Thus, the Court states the interpretation according to which the price paid by the ‘no-show’ passenger and retained by the company constitutes a contractual indemnity exempt of taxation would change the nature of the consideration paid by the passenger.

The Court adds that, since the airline companies reserve the right to resell the unused service to another passenger, without being required to reimburse the price to the first passenger, the assumption that the value reimbursed to the passenger would consist in a compensation to the airline company would have no justification in the absence of damage.

Hence, according to the ECJ, it must be held that the sum retained by the airline companies is not intended to reimburse them for possible damages suffered as a result of a passenger’s ‘no-show’, but constitutes remuneration, even when the passenger did not benefit from the transport.

On the other hand, the ECJ notes that the VAT paid when the airline ticket is purchased by the passenger who has not used it, the VAT becomes chargeable when the price of the ticket is received, whether by the airline company itself, by a third party acting in its name and on its behalf, or by a third party acting in its own name but on behalf of the airline company.

To sum up, the Court points out that the tax is chargeable when the payment of the ticket price is made, even if the passenger does not take the flight.

At last, the ECJ concludes that in case a third party sells the tickets of an airline company, on the behalf of that airline company, within the framework of a franchising, and pays that airline company, by virtue of the tickets sold and not used by the passengers, an amount calculated as a percentage of the annual turnover from the routes operated, that amount is subject to taxation consisting in the consideration for the aforesaid tickets.