Flashback on ECJ Cases – C-557/11 (Kozak) – Special VAT scheme for travel agencies not for transport services provided by the travel agency itself

On October 25, 2012, the ECJ issued its decision in the case C-557/11 (Kozak).

Context: VAT – Directive 2006/112/EC – Articles 306 to 310 – Special scheme for travel agents – Transport services carried out by travel agents acting in their own name – Concept of single service – Article 98 – Reduced VAT rate

Article in the EU VAT Directive

Article 306, 307, 308, 309, 310 in the EU VAT Directive

Article 306

1. Member States shall apply a special VAT scheme, in accordance with this Chapter, to transactions carried out by travel agents who deal with customers in their own name and use supplies of goods or services provided by other taxable persons, in the provision of travel facilities.

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. 2. For the purposes of this Chapter, tour operators shall be regarded as travel agents.

Article 307

Transactions made, in accordance with the conditions laid down in Article 306, by the travel agent in respect of a journey shall be regarded as a single service supplied by the travel agent to the traveller.

The single service shall be taxable in the Member State in which the travel agent has established his business or has a fixed establishment from which the travel agent has carried out the supply of services.

Article 308 The taxable amount and the price exclusive of VAT, within the meaning of point (8) of Article 226, in respect of the single service provided by the travel agent shall be the travel agent’s margin, that is to say, the difference between the total amount, exclusive of VAT, to be paid by the traveller and the actual cost to the travel agent of supplies of goods or services provided by other taxable persons, where those transactions are for the direct benefit of the traveller.

Article 309 If transactions entrusted by the travel agent to other taxable persons are performed by such persons outside the Community, the supply of services carried out by the travel agent shall be treated as an intermediary activity exempted pursuant to Article 153. If the transactions are performed both inside and outside the Community, only that part of the travel agent’s service relating to transactions outside the Community may be exempted.

Article 310 VAT charged to the travel agent by other taxable persons in respect of transactions which are referred to in Article 307 and which are for the direct benefit of the traveller shall not be deductible or refundable in any Member State.

Facts

Ms Kozak operates a travel agency which is established in Poland. In the course of 2007, she sold directly to tourists all-inclusive packages comprising accommodation and meals, for which she used the services of other suppliers, and transport, for which she used her own fleet of coaches.
When calculating the VAT, Ms Kozak applied, with regard to the services bought in from third parties, the special scheme for travel agent transactions, using as the taxable amount the travel agent’s margin, in accordance with Article 308 of the VAT Directive, making that margin subject to the 22% standard VAT rate. With regard to the in-house transport services, she applied the normal VAT rules, inter alia with regard to the taxable amount, making them subject to the reduced rate of 7% provided for in relation to passenger transport services.
The tax authorities took the view that the transport services were an essential part of the tourist services as a whole offered by the travel agent and should be regarded as an integral part thereof. Accordingly, under the Law on VAT, Ms Kozak should not, according to those authorities, have applied a reduced VAT rate to those transport services by treating them as a distinct service, but should have made them subject to the same rate as the other services, that is to say the standard rate of 22%. A decision was therefore adopted which found that Ms Kozak’s VAT calculation for the months of May to June and October to December 2007 was unlawful.
Ms Kozak disputed that interpretation of the Law on VAT and appealed against that decision to the Wojewódzki Sąd Administracyjny w Lublinie (Regional Administrative Court, Lublin). That court however upheld the stance of the tax authorities. Ms Kozak therefore appealed on a point of law to the Naczelny Sąd Administracyjny (Supreme Administrative Court).
That court has doubts concerning the reply given by the Wojewódzki Sąd Administracyjny w Lublinie according to which the 22% VAT rate must be applied to transport services provided in-house as it is to services bought in from a third party, even if their respective taxable amounts differ. It asks in particular whether it would be useful to use the concept of a ‘single supply’ referred to in paragraph 45 of Case C‑34/99 Primback [2001] ECR I‑3833, where the Court held that where a transaction consists of several elements, there is a single supply, particularly where one element is to be regarded as constituting the principal service, whilst another is to be regarded as an ancillary service sharing the tax treatment of the principal service.

Questions

Where an in-house transport service is supplied by a travel agent within the framework of an all-inclusive price which is charged to a tourist for a tourist service supplied to him that is taxed under Articles 306 to 310 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, which lay down a special VAT scheme for travel agents, is that in-house transport service taxable – as a necessary element for the supply of that tourist service – at the standard rate of tax applicable to tourist services, or at the reduced rate of tax applicable to passenger transport services under Article 98 of that directive, in conjunction with point 5 of Annex III thereto?

AG Opinion

None

Decision

Articles 306 to 310 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that where, in the context of a tourist service provided to a tourist in return for an all-inclusive price imposed in conformity with those provisions, a travel agent provides to that tourist an in-house transport service which forms part of that tourist service, that supply of services is subject to the normal value added tax regime, inter alia in relation to the tax rate, and not to the special value added tax scheme applicable to transactions carried out by travel agents. In accordance with Article 98 of that directive, if the Member States have provided for a reduced rate of value added tax for transport services, that reduced rate applies to that supply of services.

Summary

Special scheme for travel agents — Transport service provided by a travel agent acting in its own name — Concept of a single service — Reduced VAT rate

An own transport service, which is provided by a travel agent as part of a package price paid by a traveler for a travel service supplied to him and which is taxed in accordance with these provisions, and which forms one of the elements of that travel service, is subject to the general VAT scheme. application, in particular as regards the rate of taxation, and not the special regime of VAT applicable to transactions of travel agents. If Member States have set a reduced VAT rate for transport services in accordance with Article 98 of the VAT Directive, this reduced rate will apply to that service.

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