In France domestic flights are subject to a reduced rate of 5.5 percent. This Judgment covers issues relating to no-shows. Firstly Air France-KLM decided not to charge VAT on unused non-refundable tickets for domestic flights sold directly to customers. The French Tax Authorities disagreed and issued a €4 million assessment covering three years. The second issue concerns Hop!-Brit Air which is a subsidiary of Air France. Under an agreement with Brit Air, Air France-KLM was responsible for marketing and ticket management on the routes operated by Brit Air. Air France-KLM received payment from customers and passed this on to Brit Air. In respect of no shows, Air France-KLM paid Brit Air an annual flat-rate compensation calculated at 2 percent of the annual turnover. Brit Air did not account for VAT on this amount and was also assessed for VAT. The CJEU concluded that VAT was due on airline no shows.
The CJEU noted that VAT is payable where a sum paid by a customer is directly linked with a service and that service is performed. The CJEU concluded that, in the current case, this does not require the passenger to actually board. This is on the basis that the passenger purchases a right to benefit from the performance of the transport service and has this right regardless of whether they actually board the flight. With regards to the flat rate payment the CJEU concluded that this cannot be considered compensation. The CJEU was of the view that this sum “corresponds to the value attributed by the two companies concerned to tickets issued for a transport service but not used by the purchasers”. This, the CJEU concluded, constituted a sum that is taxable consideration for those tickets.