On July 13, 2000, the ECJ issued its decision in the case (C-36/99).
Context: VAT – Sixth Directive 77/388/EEC – Transitional provisions – Retention of the exemption for international passenger transport by air – No exemption for international passenger transport by coach – Discrimination – State aid
Summary
- Case Overview: The case involves Idéal Tourisme SA challenging the Belgian State over the application of value-added tax (VAT) on international passenger transport by coach, which they argued was discriminatory compared to the exemption applied to international air transport.
- Legal Framework: The court referenced Articles 12(3) and 28(3)(b) of the Sixth Council Directive 77/388/EEC, which allows Member States to maintain existing exemptions prior to the directive, specifically regarding international transport.
- Judgment on Equal Treatment: The court concluded that the principle of equal treatment does not prevent a Member State from exempting air transport from VAT while taxing coach transport, as long as the Member State is operating within the framework of the Sixth Directive’s transitional provisions.
- Discrimination Claims: Idéal Tourisme argued that the differing VAT treatment constituted discrimination against coach operators, but the court noted that this differentiation is acceptable under current EU legislation as it allows for certain exemptions to continue.
- Final Ruling: The court ruled that Belgium’s legislation, which exempts air passenger transport from VAT while taxing coach transport, does not violate the principle of equal treatment, given the current state of harmonization in VAT laws among Member States.
Articles in the EU VAT Directive
- Article 28(3)(b) of the Sixth Directive provides:
During the transitional period referred to in paragraph 4, Member States may:
(b) continue to exempt the activities set out in Annex F under conditions existing in the Member State concerned.
- Annex F to the Sixth Directive, entitled Transactions referred to in Article 28(3)(b), mentions at point 17:
Passenger transport
The transport of goods such as luggage or motor vehicles accompanying passengers and the supply of services related to the transport of passengers, shall only be exempted in so far as the transport of the passengers themselves is exempt.
- Article 15 of the Sixth Directive, which governs inter alia the exemption of international transport, prescribes at point 6:
Without prejudice to other Community provisions Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of such exemptions and of preventing any evasion, avoidance or abuse:
6. the supply, modification, repair, maintenance, chartering and hiring of aircraft used by airlines operating for reward chiefly on international routes, and the supply, hiring, repair and maintenance of equipment incorporated or used therein.
- Under Article 17(3)(b) of the Sixth Directive, Member States are to grant to every taxable person the right to a deduction or refund of VAT in so far as the goods and services are used for the purposes of transactions which are exempt under Article 15 of the directive.
- Article 12(3) of the Sixth Directive regulates the fixing by Member States of the standard and reduced rates of VAT on taxable transactions.
Facts
- Parties Involved: The case was brought by Idéal Tourisme SA, a company based in Belgium that operates international passenger transport by coach, against the Belgian State regarding the application of value-added tax (VAT).
- Nature of the Dispute: Idéal Tourisme challenged the Belgian tax authorities over the imposition of VAT on its international coach transport services. They argued that this treatment was discriminatory compared to international air transport, which was exempt from VAT.
- Tax Treatment: According to Belgian law, international air passenger transport was exempt from VAT, while international coach transport was subject to a VAT rate of 6%. Idéal Tourisme asserted that this difference in tax treatment put them at a competitive disadvantage.
- Claim for Reimbursement: In its VAT return for June 1997, Idéal Tourisme declared its international coach transport operations at a VAT rate of 0%, arguing for an exemption similar to that applied to air transport. The Belgian tax authorities, however, demanded payment of the VAT owed, totaling BEF 554,845, along with fines of BEF 55,000.
- Legal Basis for the Challenge: Idéal Tourisme contended that the Belgian legislation violated the general principle of equality under Community law, as well as constituted State aid under Article 92 of the EC Treaty, by favoring air transport over coach transport.
- Reference to the Court: The Tribunal de Première Instance de Liège referred questions to the Court of Justice of the European Union (CJEU) for a preliminary ruling to clarify whether the EU legislation allowed such discrimination against coach transport operators in favor of air transport.
Questions
- Does Council Directive 77/388/EEC, and in particular Articles 12(3) and 28(3)(b) thereof, permit Member States to introduce, to the detriment of coach passenger transport undertakings, discrimination which is contrary to the principles of equal treatment and non-discrimination contained in Community law?
- Can a VAT regime which favours a given sector of economic activity, such as the one in issue in the present case, constitute State aid within the meaning of Article 92 of the Treaty of Rome, even where it does not exclusively protect the interests of national industry?
AG Opinion
The combined provisions of Article 28(3)(b) and Annex F, point 17, of the 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 should be interpreted as meaning that they do not authorise Member States to extend, after the entry into force of that directive, the system of exemptions from value added tax for certain passenger transport activities.
Decision
In the present state of harmonisation of the laws of the Member States relating to the common system of value added tax, the Community principle of equal treatment does not preclude legislation of a Member State which on the one hand, in accordance with Article 28(3)(b) 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, in the version of Council Directive 96/95/EC of 20 December 1996 amending, with regard to the level of the standard rate of value added tax, Directive 77/388, continues to exempt international passenger transport by air, and on the other hand taxes international passenger transport by coach.
Source
Reference to other ECJ Cases
- C-136/97 Norbury Developments Ltd v. Customs and Excise Commissioners: This case dealt with the interpretation of Article 28(3)(b) of the Sixth Directive, clarifying that Member States could maintain existing VAT exemptions that predated the Directive but could not introduce new exemptions or extend existing ones.
- Joined Cases 201/85 and 202/85 Klensch and Others v. Secrétaire d’État à l’Agriculture et à la Viticulture: This case established that the principle of equal treatment requires that similar situations not be treated differently unless the differentiation is objectively justified. This principle was pivotal in assessing the claims of Idéal Tourisme regarding discrimination against coach transport.
- Case C-165/88 ORO Amsterdam Beheer and Concerto v. Inspecteur der Omzetbelasting: This case reaffirmed that the harmonization of VAT laws in the EU is still partial and that Member States have some discretion in how they implement VAT regulations under existing exemptions.
- Case C-305/97 Royscot and Others v. Customs and Excise: This case highlighted the role of the Community legislature in establishing a definitive VAT system and the ongoing need for progressive harmonization of national VAT laws.
- Case C-437/97 Evangelischer Krankenhausverein Wien and Others v. Abgabenberufungskommission Wien: This case emphasized that the CJEU cannot provide a ruling on questions that are manifestly irrelevant to the main proceedings, which is relevant to the context in which Idéal Tourisme’s claims were assessed.
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