Flashback on ECJ Cases C-58/04 (Köhler) – Cruise ships, meaning of ‘stop in a third territory’

On September 15, 2005, the ECJ issued its decision in the case C-58/04 (Köhler).

Context: Sixth VAT Directive – Place of taxable transactions – Supplies of goods effected on board cruise ships – Transport effected within the Community – Exclusion of tax where a stop is made in a third territory – Scope of the exclusion.

Article in the EU VAT Directive

Article 8(1)(c) of the Sicth VAT Directive (Article 37 of the EU VAT Directive 2006/112/EC).

Article 37 (Place of Supply of Goods – Supply of goods on board ships, aircraft or trains
1. Where goods are supplied on board ships, aircraft or trains during the section of a passenger transport operation effected within the Community, the place of supply shall be deemed to be at the point of departure of the passenger transport operation.
2. For the purposes of paragraph 1, ‘section of a passenger transport operation effected within the Community’ shall mean the section of the operation effected, without a stopover outside the Community, between the point of departure and the point of arrival of the passenger transport operation.
‘Point of departure of a passenger transport operation’ shall mean the first scheduled point of passenger embarkation within the Community, where applicable after a stopover outside the Community.
‘Point of arrival of a passenger transport operation’ shall mean the last scheduled point of disembarkation within the Community of passengers who embarked in the Community, where applicable before a stopover outside the Community.
In the case of a return trip, the return leg shall be regarded as a separate transport operation.
3. The Commission shall, at the earliest opportunity, present to the Council a report, accompanied if necessary by appropriate proposals, on the place of taxation of the supply of goods for consumption on board and the supply of services, including restaurant services, for passengers on board ships, aircraft or trains.
Pending adoption of the proposals referred to in the first subparagraph, Member States may exempt or continue to exempt, with deductibility of the VAT paid at the preceding stage, the supply of goods for consumption on board in respect of which the place of taxation is determined in accordance with paragraph 1.

Facts

During 1994, Ms Köhler operated a boutique on a cruise ship which made voyages departing from Kiel, Bremerhaven or Travemünde (towns in Germany), travelling to ports outside the Community (Norway, Estonia, Russia and Morocco) and ending in Kiel, Bremerhaven or Genoa (Italy). Those trips could only be booked for the entire cruise; it was not possible to embark for the first time or disembark finally during the cruise. However, it was possible to disembark for short periods for stops of several hours or one day in order to make sightseeing trips.
The Finanzamt decided to treat sales made in Ms Köhler’s shop as taxable transactions on the ground that the points of arrival and departure were situated within Community territory. Ms Köhler brought an appeal against that decision before the Finanzgericht, claiming that on account of stops made in a third territory the sales in question were not to be taxable in Germany.
The Finanzgericht dismissed her appeal. It held that the fact that the transport of passengers was interrupted between the points of departure and arrival by stops in a third territory did not imply that the transactions were made outside national territory. Furthermore, only those stops intended for the embarkation of new passengers or for final disembarkation should be regarded as ‘stops’ within the meaning of Paragraph 3 of the UStG.
Ms Köhler brought an appeal before the Bundesfinanzhof contesting that interpretation.

Questions

Are stops made by a ship in ports of non-member countries, at which passengers may disembark from the vessel only for a short period, for example for sightseeing purposes, but at which they may not begin or end their journey, “stops in a third territory” within the meaning of Article 8(1)(c) of [the Sixth Directive]

AG Opinion

Stops made by ships in ports of non-member countries during which passengers may disembark from the vessel only for a short period, for example for sightseeing purposes, but at which they may not begin or end their journey, constitute ‘stops in a third territory’ within the meaning of Article 8(1)(c) of Sixth Council Directive 77/388/EEC of 17 May 1977, provided that the passengers have an opportunity to make purchases in that third territory, the application of the regime provided for in that subparagraph thereby being suspended for the duration of the stop.

Decision

Stops made by a ship in the ports of a third country during which passengers may leave the ship, even for a short period, are ‘stops in a third territory’ within the meaning of Article 8(1)(c) 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 amending Directive 77/388/EEC and introducing simplification measures with regard to value added tax.

Summary

Interruptions of a ship’s voyage in ports of third countries, during which travelers can leave the ship, even for a short time, constitute ‘stopovers outside the Community’

Source