European Union: Air
France-KLM: the SAFE
equivalent for services?
J.B.O. Bijl
Articles
European Union
Jeroen Bijl*
Air France-KLM: The SAFE Equivalent for
Services?
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.4
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 case6 (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).
2. Air France-KLM case
2.2. The judgment
2.1. The facts
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
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.
A. Schenk, What Is a Supply for VAT Purposes? Reflections on Qantas
Airways Ltd, 26 Intl. VAT Monitor 2, p. 83 (2015), Journals IBFD.
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.
R. Krever, What’ s in a Name? Prepayments, Deposits, Vouchers and Options,
26 Int. VAT Monitor 4, p. 241 (2015), Journals IBFD.
Customers can also choose extra comfort, extra baggage, etc. This is not
relevant for this article.
2.
3.
4.
5.
© IBFD
On the substance, the ECJ first held that passenger air
transport is subject to VAT in the cases where, first, the
6.
7.
8.
ECJ, Case C-204/08, Peter Rehder v. Air Baltic Corporation [2009]) ECR-I
06073, para. 40.
Protocol (no. 3) on the Statute of the Court of Justice of the European
Union, art. 20. OJ C83 (2010).
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.
INTERNATIONAL VAT MONITOR MARCH/APRIL 2016
95
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.
2.3. 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.
96
Joined Cases Air France-KLM (C-250/14) and Hop!-Brit Air SAS
(C-289/14), para. 25.
INTERNATIONAL VAT MONITOR MARCH/APRIL 2016
had not been provided to the customer that had not shown
up.
2.4. Schenk’ s view10
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.
2.5. Krever’ s view11
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.
11.
12.
As published in this journal, see Schenk, supra n. 2.
See Krever, supra n. 4.
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. 28.
14. Id., para. 42.
© IBFD
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
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. 40.
19. Art. 65 of Council Directive 2006/112/EC of 28 November 2006 on the
common system of value added tax, OJ L347 (2006), p. 1.
20. Joined Cases Air France-KLM (C-250/14) and Hop!-Brit Air SAS
(C-289/14), para. 42.
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.
© IBFD
21.
22.
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.
This line of thought is also found in Geen recht op teruggaaf bij “no show”,
Vakstudie Nieuws 2.12 (2016).
INTERNATIONAL VAT MONITOR MARCH/APRIL 2016
97
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