On July 19, 2012, the ECJ issued its decision in the case C-33/11 (A oy).
Context: Sixth Directive — Exemptions — Article 15(6) — Exemption for the supply of aircraft used by airlines operating for reward chiefly on international routes — Supply of aircraft to an operator who makes them available to such an undertaking — Concept of ‘operating for reward on international routes’ — Charter flights
Article in the EU VAT Directive
Article 15(6) of the Sixth VAT Directive (Article 148(f) of the VAT Directive 2006/112/EC)
Article 148 (Exemptions Related to International Transport)
Member States shall exempt the following transactions:
f) the supply, modification, repair, maintenance, chartering and hiring of the aircraft referred to in point (e), and the supply, hiring, repair and maintenance of equipment incorporated or used therein;
Facts
- In July 2002 and in October 2003, A acquired two jet aircraft from a French manufacturer. The vendor declared both transactions as intra-Community sales. A did not declare the acquisitions in question as intra-Community acquisitions of goods effected in Finland.
- Both aircraft were registered in the Finnish aircraft registry on 22 July 2002 and 23 July 2004 respectively, whilst the relevant Air Operation Certificates (‘AOCs’) were issued on 19 November 2002 and 24 October 2004 respectively. A was listed as the owner of the two aircraft and B Oy (‘B’) was designated as the user of them. On 17 December 2003 and 1 April 2005, respectively, A resold the aircraft to an undertaking registered in Cyprus.
- All of the shares in A are held by X, a natural person. A holds 25% of the shares in C Oy (‘C’). B is a 78%-owned subsidiary of C.
- B organises international charter flights and ensures maintenance and management of aircraft. Under the contract it concluded with A, B has invoiced A inter alia for the costs of maintenance work on the aircraft and for flights. That agreement also allowed B to hire the aircraft from A for its own commercial purposes, at the price indicated in the annex thereto.
- A’s total turnover for the accounting periods from 1 January to 31 December 2002 and from 1 January 2003 to 30 June 2004 of EUR 925 606.32 and EUR 2 170 503.84 respectively came entirely from accounting entries made on the basis of sales invoices addressed to X, A’s owner, with the sole exception of the invoice addressed to the Cypriot undertaking for the resale of the aircraft. The tax inspection found that A’s accounting records did not mention any income derived from aircraft hire.
- A’s expenditure entries relating to the aircraft concerned primarily the invoices issued by B to A for the maintenance of the aircraft and flights. The aforementioned tax inspection found that the invoices had been passed on to X virtually unchanged.
- A was registered as a taxable person for VAT as from 1 July 2002. In its notice of termination of business dated 14 June 2003, A declared that it had not pursued activities that were liable for VAT. The Southeast Finland Tax Office removed that company from the register of taxable persons for VAT with retroactive effect to 1 July 2002.
- On 4 November 2005, the Southeast Finland Tax Office issued two tax assessments regarding the VAT owing by A on the intra-Community acquisition of the aircraft. The tax office also found that A was not entitled to any deduction or to the refund of that VAT.
- The action brought by A against those tax assessments was dismissed by decision of 26 May 2008 of the Helsingin hallinto-oikeus (Administrative Court, Helsinki). The Administrative Court took the view that the two purchases of the aircraft had been taxable intra-Community acquisitions subject to VAT, which A had failed to declare to the tax office. A had not been operating flights for reward on international routes within the meaning of point 6 of the first paragraph of Paragraph 70 of the AVL, but rather in practice had acted as the owner of C, which was engaged in international oil product trading. Nor were the aircraft in question used by B in operating flights for reward on international routes within the meaning of point 6 of the first paragraph of Paragraph 70 of the AVL. The aim of the arrangement was merely to take care of the personal transportation needs of X, the principal owner of the companies.
- A appealed against that decision to the Korkein hallinto-oikeus (Supreme Administrative Court of Finland). It argued that the acquisition of the aircraft should be VAT exempt, since they were purchased and registered by A with a view to entrusting them to В, which is an airline operating for reward chiefly on international routes. As per usual practice in that sector, B is under assignment from A, in return for remuneration, to ensure that the aircraft are always in flight‑ready condition and to promote their commercial use on the basis of specific contracts, whilst B has in fact offered aircraft to third parties in return for remuneration per hour of flight.
- On the other hand, whilst acknowledging that B must be considered an airline operating for reward on international routes, even though X has been the only person transported for consideration, the other party to the proceedings takes the view that, since A does not operate the flights itself but had the aircraft delivered from France to Finland and has provided them for free to B for the latter’s use, the acquisitions in dispute cannot be VAT exempt.
Questions
AG Opinion
(1) Article 15(6) of the Sixth Directive must be interpreted as meaning that the concept ‘airline operating for reward chiefly on international routes’ also refers to a commercial airline operating for reward chiefly on international charter routes for the requirements of companies and private persons.
(2) Article 15(6) of the Sixth Directive must be interpreted as meaning that the exemption provided for therein applies not only to that supply of aircraft which takes place directly to airlines operating for reward chiefly on international routes, but also to the supply of aircraft to an operator which does not itself operate for reward chiefly on international routes, but which in turn supplies the aircraft for the use of an airline which carries on that activity.
(3) The fact that the owner of the aircraft in turn makes a charge for the use of the aircraft to a private person who is its shareholder and who uses the procured aircraft principally for his own business and/or private use, taking into account the fact that the airline has also been able to use the aircraft for other flights, does not alter the conclusion reached in the reply given to the second question, with the sole proviso that those factors could indicate that the aircraft was not really intended to be exploited commercially by the airline and instead was intended for the exclusive private use of a natural or legal person, a matter which it falls to the national court to determine.
Decision
1. The wording ‘operating for reward on international routes’ within the meaning of Article 15(6) 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 encompassing also international charter flights to meet demand from undertakings and private persons.
2. Article 15(6) of Directive 77/388, as amended by Directive 92/111, must be interpreted as meaning that the exemption for which it provides also applies to the supply of an aircraft to an operator who is not itself an ‘airline operating for reward chiefly on international routes’ within the meaning of that provision but which acquires that aircraft for the purposes of exclusive use thereof by such an undertaking.
3. The circumstances referred to by the national court, namely the fact that the purchaser of the aircraft passes on the charge corresponding to its use to an individual who is its shareholder and who uses that aircraft essentially for his own business and/or private purposes, with the airline also having the opportunity to use it for other flights, are not such as to affect the answer to the second question.
Summary
The concept of ‘paid international carriage’, within the meaning of Article 15(6) of the Sixth Directive, must be interpreted as including international charter flights to satisfy the demand of undertakings and individuals.
The exemption also applies to the supply of an aircraft to an operator who is not itself one of the ‘airlines mainly engaged in paid international transport’, but who purchases this aircraft for the sole use of such an airline.
The fact that the purchaser of the aircraft charges the costs of its use to a private individual who is its shareholder and who uses this aircraft mainly for its own business and/or private purposes, whereby the airline may also use it for other flights , has no effect.
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