On a reference from France, the Court of Justice of the European Communities (ECJ) has confirmed in Air France-KLM v Ministère des Finances et des Comptes publics 4, that the sum paid to an airline on the issue of a non-refundable airline ticket was consideration for a supply even if the passenger did not use the ticket.


The case concerned the supply of domestic air passenger transport services in France, provided either directly by Air France-KLM or in accordance with a franchise agreement with Brit Air   (now Hop!-Brit Air SAS). The flights were subject to VAT, and the tickets were sold at prices inclusive of VAT.

From 1999, Air France ceased paying to the Treasury VAT on the sale of tickets issued to but not used by passengers of its domestic flights in the following circumstances:

  • non-refundable tickets which were no longer valid as a result of customers being “no-shows” at boarding and
  • invalid exchangeable tickets which were not used during their period of validity.

In addition, where tickets were sold in accordance with the franchise agreement, Air France paid Brit Air an annual flat-rate compensation as a result of passenger “no shows”. Brit Air did not subject that sum to VAT.

Following a review of the accounts, the French tax authorities concluded that the amounts relating to tickets “issued and not used” should have been subject to VAT. Accordingly, they assessed Air France for amounts relating to VAT together with default interest. Brit Air were subsequently assessed for VAT for sums corresponding to unused tickets it had received from Air France.

The domestic court had doubts concerning the liability to VAT of an unused travel ticket and referred questions to the ECJ.

The ECJ’s judgment

The ECJ was asked to consider first, whether the issue by an airline company of tickets is subject to VAT where those tickets have not been used by passengers and the latter are unable to receive a refund.

The taxpayer argued that the price paid constituted a contractual indemnity to compensate the airline for harm suffered. The ECJ did not agree. In its view such an interpretation would change the nature of the consideration paid.

The ECJ referred to paragraph 40 in Rehder 5, which set out guidance on the services provided in performance of the contract to transport passengers by air. It considered that whilst it was only possible to perform those services if the passenger turned up on the agreed date and at the agreed place of boarding, the consideration for the price of the ticket was ultimately a right to benefit from the performance of obligations under the contract, regardless of whether the passenger exercised that right. The price paid by a “no show” passenger was the full price to be paid and the sale was final and definitive. As the airline reserved the right to re-sell unused services, without being required to reimburse the first passenger, the airline did not suffer any harm.

On this first question, the ECJ was of the view that the ticket price constitutes remuneration for the transport service offered, even where the customer does not use the service.

The second question considered by the ECJ was whether the VAT paid when the air ticket was purchased by a passenger who did not use it became chargeable on receipt of the payment of the price of the ticket by either the airline or a third party acting on its behalf.

As it was evident that the airline company which sells transport tickets fulfils its contractual obligations, even in the event of a “no show”, the ECJ said that VAT becomes chargeable on receipt of payment of the ticket price.

Finally, the Court considered whether, in circumstances where a third party sells an airline’s tickets and pays a lump sum calculated as a percentage of the annual turnover from corresponding flight routes, that sum is a taxable amount as consideration for tickets.

In the light of the conclusions reached on the other questions, the ECJ was of the view that the sum, which was contractually agreed between the parties, corresponded to the value attributed by the two companies concerned to tickets issued for transport services but not used. Accordingly, the lump sum is remuneration and there is a direct link between the performance of the services provided and the remuneration received. The sum is therefore taxable as consideration for those tickets.


The ECJ considered the contract for services as one for the provision of a right to travel, in return for which the airline retained the full price regardless of whether or not the customer travelled. This judgment appears to support the distinction that HMRC draws between the decision in Customs and Excise Commissioners v Bass Plc 6, which confirmed that a non- refundable deposit paid for a hotel room was consideration for a supply, even if the consumer did not make use of the room and Société thermale d’Eugénie-les-Bains 7, which held that such deposits were compensation.

A copy of the ECJ’s decision is available to view here.