Vat taxation of airlines

The case relates to the Community tax laws which exempt from VAT, under specific conditions, supplies of goods and provision of services to airlines operating for reward chiefly on international routes.

Danish airlines, the claimant in the proceedings in question, operated on both domestic and international routes. In both cases, supplies were deemed to fall within the scope of the VAT exemption mentioned above. National tax authorities argued, however, that only supplies related to international flights may enjoy the exemption.

The European Court of Justice (the “ECJ”) explained that the Community VAT system principally requires taxation of each supply of goods and services. Hence, any exemptions should be interpreted strictly.

However, the ECJ observed in the present case that the exemption at issue will apply to all the airline operators operating mainly on international routes, without any distinction being made in case when some of their flights appear as merely domestic. According to the ECJ, the VAT exemption is linked to the overall status of an air operator and not to specific flights which he may assist with.

As a result, airlines may acquire goods and services exempted from VAT both for their international and domestic flights if only these airlines qualify as operating mainly on international routes.

The referring court further sought clarification of the notion of airlines operating chiefly on international routes so as to meet the criteria for the VAT exemption discussed.

In the opinion of the ECJ, it is for the national courts to establish, upon review of each individual case, whether an airline operator satisfies relevant conditions, although the proportion of the turnover related to international flights of the specific airlines may provide guidance.