ECJ Case C-615/23 (Dyrektor Krajowej Informacji Skarbowej) – AG Opinion – Compensation for losses isn’t taxable under VAT regulations

On February 13, 2025, the ECJ issued the AG Opinion in the case C-615/23 (Dyrektor Krajowej Informacji Skarbowej).

Context: Reference for a preliminary ruling – Common system of value added tax (VAT) – Directive 2006/112/EC – Supply of services for consideration – Taxable amount – Compensation to cover losses – Subsidy directly linked to price – Subsidised service provided by a third party in the public interest – Legal relationship and direct link between the supply of services and the consideration – Consideration from third parties

Summary

Key Question of VAT Treatment: The Advocate General’s opinion addresses how local authority subsidies for public transport services should be treated under VAT law, specifically whether such subsidies should be considered part of the taxable amount for VAT purposes.
Criteria for Subsidies: The opinion distinguishes between subsidies that are directly linked to the price of services (which would be taxable) and those that are general subsidies not tied to specific transactions, emphasizing that only subsidies with a direct link to the service provided can be included in the taxable amount.
Case Background: The case involves a public transport company that receives compensation from a local authority to cover losses incurred while providing services. The compensation is based on vehicle-kilometres rather than actual passenger numbers, raising questions about its classification for VAT.
Legal Interpretation: The Advocate General argues that the compensation does not constitute consideration for a taxable supply because it is not linked to specific services provided to the local authority or individual passengers, but rather serves a general public interest.
Conclusion and Recommendation: The opinion concludes that the compensation does not qualify as taxable consideration under the VAT Directive, proposing that the Court should rule that such subsidies do not affect the pricing of services and thus are not subject to VAT.

Article in the VAT Directive

Article 73 of the EU VAT Directive 2006/112/EC

Article 73 (Taxable amount)
In respect of the supply of goods or services, other than as referred to in Articles 74 to 77, the taxable amount shall include everything which constitutes consideration obtained or to be obtained by the supplier, in return for the supply, from the customer or a third party, including subsidies directly linked to the price of the supply.

Background

Company Background and Tax Ruling Request: P. S.A. is an independent private company engaged in passenger transport that sought an advance tax ruling from the tax authority regarding whether compensation received from local authorities would constitute taxable turnover under VAT law.
Revenue Sources and Compensation Structure: The company generates revenue from ticket sales, compensation for lost revenue due to concessionary fares, and other income. However, its revenue does not fully cover the costs of providing transport services, leading to additional compensation from the organiser, which is designed to cover losses without affecting ticket prices.
Legal Dispute Over VAT Treatment: The tax authority ruled that the compensation should be treated as taxable turnover linked to the price of services, while the court of first instance disagreed, stating that the subsidy did not directly affect ticket prices. The case is now being reviewed by the Supreme Administrative Court of Poland, which has referred the matter for further clarification.

Questions

Must Article 73 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1, as amended) be
interpreted as meaning that compensation, such as that described in the application for an advance tax ruling, paid to a separate entity (operator) by a local authority for the provision of public transport services, is included in the taxable amount referred to in that provision?

AG Opinion

Article 2(1)(c) and Article 73 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax’

must be interpreted as meaning that an ex post compensation for financial losses, the amount of which is limited by an EU regulation and is not based on the number of users, but on the vehicle-kilometres offered by reference to a flat rate, does not constitute consideration for a supply of services to the local authority making the payment. Nor does such compensation constitute consideration from a third party for the benefit of specific users of public transport because it does not affect directly, but at most indirectly, the price calculation made by the subsidised undertaking.

Source