(ECJ December 23, 2015(C‑250/14 and C‑289/14) - Air France‑KLM)
The ECJ assessed in this case whether VAT is due on the sale of non-refundable tickets for flights within the French territory, in the event that the passengers who bought the non-refundable tickets did not actually use it.
In general, the services carried out by Air France‑KLM, consisting of the transport of passenger within the French territory are subject to VAT. Air France‑KLM stopped paying the VAT due to the French tax authorities on non-refundable tickets, because in their view the remuneration served as a contractual indemnity.
However, the ECJ ruled that the remuneration was subject to VAT, since Air France‑KLM supplied the right to consume the passenger transport services. According to the ECJ, the remuneration should not be regarded a contractual indemnity not subject to VAT. In prior EU case law regarding the hotel industry, certain deposits were considered non-taxable contractual indemnities. There appears to be a fine line between taxable prepayments and non-taxable indemnities; the contracts and civil law seem to be important elements to establish where that line lies.
The case at hand is relevant for companies that supply tickets, subscriptions vouchers that give a "right" to consume certain services or goods on a later point in time, or credits that can be used to pay for products. It will also be interesting to see how the concept of "right to" in the context of prepayments will evolve; for VAT, the transfer of a right is a taxable event as such, whereas the taxability of a prepayment for a future supply arguably still depends on whether the future supply will actually take place.