Flashback on ECJ Cases C-599/12 (Jetair and BTWE Travel4you) – Travel agents can be treated differently from intermediaries

On March 13, 2014, the ECJ issued its decision in the case C-599/12 (Jetair and BTWE Travel4you).

Context: VAT – Special scheme for travel agents – Transactions carried out outside the European Union – Sixth Council Directive 77/388/EEC – Article 28(3) – Directive 2006/112/EC – Article 370 – ‘Standstill’ clauses – Amendment of national legislation during the transposition period

Article in the EU VAT Directive

Articles 26(1),28(3) of the Sixth VAT Directive. Articles 306, 309, 370 of the EU VAT Directive 2006/112/EC.

Article 306

This special scheme shall not apply to travel agents where they act solely as intermediaries and to whom point (c) of the first paragraph of Article 79 applies for the purposes of calculating the taxable amount.

Facts

• Jetair is a Belgian company, subject to VAT in respect of its activity as a travel agent. On 1 February 2009, it joined the group Travel4you, which also includes six other companies carrying out that activity.
• Jetair and Travel4you organise holiday journeys, for the purposes of which they have recourse to the services of others, namely hotels and airlines.
• Taking the view that no VAT is payable in respect of journeys outside the European Union, each of the applicants claimed back the VAT that was demanded from them in respect of such journeys.
• The first claim related to VAT payable on journeys organised during the period covering the years 2001 to 2006 and included in a VAT return for the month of September 2007. The VAT inspection office in Ostend, having disputed the amounts claimed, made a deduction of approximately EUR 55 700 000 and recorded infringements.
• The second claim related to VAT payable on journeys organised during the period beginning in 2007 and ending in January 2010 and included in a VAT return for the month of March 2010. The VAT inspection office in Ostend, disputed the amounts claimed, made a deduction of approximately EUR 37 600 000 and recorded infringements.
• Jetair and the members of Travel4you filed, on 21 December and 24 October 2011 respectively, an application with the Rechtbank van eerste aanleg te Brugge (Court of First Instance, Bruges), which joined the two cases.
• Before the national court, the applicants argued that the transitional provision in Article 28(3) of the Sixth Directive did not authorise the Belgian legislature to amend its legislation in a manner which is contrary to the directive immediately before the date when that directive entered into force. They argued that, under Article 26(3) thereof, now reproduced in Article 309 of the VAT Directive, where the transactions for which the travel agent uses other taxable persons are performed by such persons outside the European Union, the service of the travel agent should be exempt.
• Since FOD Financiën argued, on the other hand, that Belgium had been entitled, under Article 28(3) of the Sixth Directive, to decide to tax such transactions, the referring court had doubts as to the answer to be given in the main proceedings.

Questions

(1)      Was Belgium entitled to amend its legislation by taxing an exempt service – in this case, journeys outside the European Union – at a point in time (1 December 1977) just before the introduction of the Sixth VAT Directive (1 January 1978) and thus circumvent the standstill provision in Article 28(3) of the Sixth Directive (now Article 370 of the [VAT] Directive), which provides that the journeys referred to may continue to be taxed only if they were already taxed prior to the adoption of the Sixth Directive?

(2)      Should Belgium have refrained from taxing journeys outside the European Union as of 13 June 1977 (date of publication of the Sixth Directive)?

(3)      Is Belgium in breach of Article 309 of the [VAT] Directive by not treating travel agents, as regards their services outside the [European Union], as intermediaries and continuing nevertheless to tax those services?

(4)      Do Articles 309, 153 and 370 of, and Annex X to, the [VAT] Directive infringe the general principles of Community law, the principles of equality and proportionality and the provisions concerning the free movement of persons, goods and services, inter alia, Articles 43 and 56 of the EC Treaty, by giving Member States the right to choose whether or not to tax services relating to journeys outside [the European Union]?

(5)      Is it contrary to the principles of Community law, in particular the principles of equality and proportionality and the principle of fiscal neutrality with regard to VAT, for the Belgian State, by Royal Decree of 28 November 1999, to have made only travel agents, but not intermediaries, taxable with regard to journeys outside the European Union?

AG Opinion

None

Decision 

1.      Article 28(3) 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 and Article 370 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax do not preclude the introduction by a Member State before 1 January 1978, during the transposition period of Sixth Directive 77/388, of a provision that amends its existing legislation by imposing VAT on the transactions of travel agents relating to journeys outside the European Union.

2.      A Member State is not in breach of Article 309 of Directive 2006/112 by not treating the services of travel agents as exempt intermediary activities where those services relate to journeys made outside of the European Union and by imposing VAT on those services, if it imposed VAT on those services on 1 January 1978.

3.      Article 370 of Directive 2006/112, read in conjunction with point 4 of Part A of Annex X to that directive, does not infringe European Union law by granting Member States the option to continue to tax the supply of the services of travel agents in relation to journeys outside the European Union.

4.      A Member State does not infringe European Union law, in particular the principles of equality, proportionality and fiscal neutrality, by treating travel agents, within the meaning of Article 26(1) of Sixth Directive 77/388 and Article 306 of Directive 2006/112, differently from intermediaries and by laying down a rule, such as the Royal Decree of 28 November 1999, under which only the services of travel agents, but not those of intermediaries, are taxable with regard to journeys outside the European Union.

Summary

Article 370 of the VAT Directive does not preclude the introduction by a Member State, before 1 January 1978, during the transposition period of the Sixth Directive, of a provision amending existing legislation authorizing acts by travel agents relating to travel outside the European Union subject to VAT.

A Member State does not infringe Article 309 of the VAT Directive by not equating travel agency services related to travel outside the EU with exempt transactions by intermediaries and by subjecting these services to VAT if they were supplied in the Member State concerned on 1 January 1978 were taxed.

Article 370 of the VAT Directive, read in conjunction with point 4 of Annex X, Part A, to that directive, does not infringe Union law by allowing Member States to allow travel agency services to remain outside the European Union tax.

A Member State does not infringe Union law, in particular the principles of equality, proportionality and fiscal neutrality, by treating travel agents within the meaning of Article 306 of the VAT Directive differently from intermediaries and by adopting a rule such as the Royal Decree of November 28, 1999, under which services relating to travel outside the European Union are taxed only if they are supplied by those travel agents, but not if they are supplied by intermediaries.

Source

• Curia

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