Flashback on ECJ Cases – C-97/06 (Navicon) – Exemption for both total charter and partial charter of ships for navigation on the high seas

On October 18, 2007, the ECJ issueed its decision in the case C-97/06 (Navicon).

Context: Sixth VAT Directive – Exemptions – Article 15(5) – The concept of ‘chartering sea-going vessels’ – Compatibility of a national law allowing the exemption for full chartering only

Article in the EU VAT Directive

Article 15(5) of the Sixth VAT Directive. Article 148(c) of the EU VAT Directive 2006/112/EC.

Article 148 (Exemptions related to International Transport)
Member States shall exempt the following transactions:
(c) the supply, modification, repair, maintenance, chartering and hiring of the vessels referred to in point (a), and the supply, hiring, repair and maintenance of equipment, including fishing equipment, incorporated or used therein;

Facts

As is apparent from the decision to refer, Navicon and the Compañía Transatlántica Española SA entered into a partial chartering contract under which the former, in return for payment, provided the latter with part of the space on its vessels to transport containers between several ports on the Iberian peninsula and the Canary Islands, which is an area outside of the scope of Community legislation according to the second subparagraph of Article 3(3) of the Sixth Directive. Navicon did not include VAT on the invoices relating to that contract since it believed that the chartering transaction was exempt.
However, the Spanish tax authorities, holding that the exemption provided for in Article 22.1 of the VAT Law did not apply, in so far as the contract in question related to partial chartering and not full chartering, made adjustments for VAT linked to the sums paid under that chartering contract.
Navicon then challenged that adjustment before the Tribunal Económico-Administrativo Regional de Madrid (Regional Economic Administrative Court, Madrid), which dismissed its application. Following the decision to dismiss the application it appealed to the referring court.

Questions

(1) Is the term ‘chartering’ in the exemption provided for in Article 15(5) of the Sixth Directive ¹ to be interpreted as including only chartering of the entire capacity of the vessel (full chartering) or as including chartering relating to a part or percentage of the vessel’s capacity (partial chartering)?

(2) Does the Sixth Directive preclude a national law which allows exemption only for full chartering?

AG Opinion

(1) The term ‘chartering’ in the exemption provided for in Article 15(5) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, as amended by Council Directive 92/111/EEC of 14 December 1992, is to be interpreted as including both chartering of the entire capacity of the vessel (full chartering) and chartering relating to a part or percentage of the vessel’s capacity (partial chartering).

(2) The Sixth Directive precludes a national law which allows exemption only for full chartering.

Decision

1. Article 15(5) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, as amended by Council Directive 92/111/EEC of 14 December 1992, must be interpreted as covering both full chartering and partial chartering of vessels used for navigation on the high seas. Consequently, that provision precludes national legislation, such as that at issue in the main proceedings, which grants the benefit of the exemption from value added tax only in the case of full chartering of such vessels.

2. It is for the referring court to determine whether the contract in issue in the main proceedings satisfies the conditions of a chartering contract within the meaning of Article 15(5) of Sixth Directive 77/388, as amended by Directive 92/111.

Summary

Concept of “affreightment of sea-going vessels” – Compatibility of national rules allowing exemption only in case of total charter

Article 15(5) of the Sixth Directive must be interpreted as covering both total charter and partial charter of ships for navigation on the high seas. That provision therefore precludes national legislation, such as that at issue in the main proceedings, which provides for exemption from VAT only in the case of total chartering out of those ships.

It is for the referring court to determine whether the contract at issue in the main proceedings satisfies the conditions of a charter party.

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