Flashback on ECJ cases C-382/02 (Cimber Air) – Supplies of goods/services for aircraft operating domestic flights but used by airlines whose main activity is the international carriage are exempt

On September 16, 2004, the ECJ issued its decision in the case C-382/02 (Cimber Air).

Context: Sixth VAT Directive – Article 15(6), (7) and (9) – Exemption of exports outside the Community – Meaning of ‘aircraft used by airlines operating chiefly on international routes’ – Exemption for fuelling and provisioning of domestic flights.

Article in the EU VAT Directive

Articles 15(6), 15(7) and 15(9) of the Sixth VAT Directive (Articles 148(e), 148(f) and 148(g) of the EU VAT Directive 2006/112/EC.

Article 148 (Exemptions related to international transport)

Member States shall exempt the following transactions:
(e) the supply of goods for the fuelling and provisioning of aircraft used by airlines operating for reward chiefly on international routes;
(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;
(g) the supply of services, other than those referred to in point (f), to meet the direct needs of the aircraft referred to in point (e) or of their cargoes.

Facts

Cimber Air is an airline whose main activity consists in operating regular regional air services in Europe in cooperation with its two partners, SAS and Lufthansa. It operates on domestic routes in Denmark and on routes between Denmark and other countries. It also operates on routes which originate and terminate abroad.
In the main proceedings, the Skatteministeriet considers it inappropriate to exempt from VAT certain supplies to Cimber Air aircraft being used for domestic flights, that is to say flights between airports within Denmark, exemption being available only for aircraft being used for an international flight. Cimber Air considers that all supplies to aircraft being used for domestic flights must benefit from the exemption because it operates chiefly on international routes.
Cimber Air therefore brought an action before the Vestre Landsret (Western Regional Court) for an order requiring the Skatteministeriet to recognise that the goods and services supplied to it after 30 April 2001 are VAT exempt, since international transport accounts for the major part of its business.
Cimber Air also claimed that the Skatteministeriet should be ordered to repay to it the VAT which, in its view, it wrongly paid in excess. That amount comprises the VAT which Cimber Air paid to its suppliers for various supplies made for or in relation to flights on entirely domestic routes.
The parties differs as to whether Article 15(7) and (9) of the Sixth Directive in conjunction with Article 15(6) preclude the levying of VAT on supplies to Cimber Air aircraft when such aircraft are operating on domestic routes, given that the company’s flights are chiefly international.

Questions

1. Are Article 15(7) and (9) (referring to Article 15(6)) of the Sixth VAT Directive (Council Directive 77/388/EEC), to be interpreted as meaning that a Member State is entitled not to exempt from VAT supplies to aircraft operating on a domestic route, regardless of the fact that the company using the aircraft operates chiefly on international routes, or is the Member State bound to exempt such supplies from VAT?

2. If the Court finds that supplies must be exempted from VAT if the airline operates chiefly on international routes, the Court is asked to state which criteria in the form of, for example, turnover, available seat-kilometres, passenger-kilometres or number of passengers and flights, are decisive under Article 15(6) for determining whether an airline can be said to be operating “chiefly” on international routes?’

AG Opinion

Article 15(7) and (9) 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 are to be interpreted as meaning that the Member States are not bound to exempt from VAT the transactions to which those provisions refer if they relate to aircraft flying on domestic routes, even if the aircraft are used by companies whose principal activity consists of operating international air transport services for reward’

Decision

1.Article 15(6), (7) and (9) 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 must be interpreted as meaning that the supplies of goods and services referred to in those provisions to aircraft which operate on domestic routes but are used by airlines chiefly operating for reward on international routes are exempt from VAT.

2. It is for the national courts to assess the extent of the international business and the extent of the non-international business of such companies. In doing so, they may take account of all information which indicates the relative importance of the type of operations concerned, in particular turnover.

Summary

Article 15(6), (7) and (9) of the Sixth Directive must be interpreted as meaning that the supplies of goods and services referred to therein for aircraft operating domestic flights but used by airlines whose main activity is the international carriage of VAT are exempt.

It is for the national court to assess the respective importance of the share of international activity and non-international activity of those companies. For this assessment, any data which gives an indication of the relative importance of the transport activity concerned, in particular turnover, may be taken into account.

Source