European Union – Value added tax – Exemptions – Aircraft supply
A Oy: Court of Justice of the European Union (Fourth Chamber) (Judges Bonichot, President of the Chamber, Prechal (Rapporteur), Bay Larsen, Toader, Jarašiuna): 19 July 2012
Article 15 of Council Directive (EC) 77/388 (on the harmonisation of the laws of the member states relating to turnover taxes) provides: 'Without prejudice to other Community provisions, member states shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of such exemptions and of preventing any possible evasion, avoidance or abuse: ... 6. the supply, modification, repair, maintenance, chartering and hiring of aircraft used by airlines operating for reward chiefly on international routes, and the supply, hiring, repair and maintenance of equipment incorporated or used therein; ...'.
In July 2002 and in October 2003, A company (A) acquired two jet aircraft from a French manufacturer but did not declare those acquisitions as intra-Community acquisitions of goods effected in Finland. Both aircrafts 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 aircrafts and B Oy (B) was designated as the user of them. On 17 December 2003 and 1 April 2005, respectively, A resold the aircrafts to an undertaking registered in Cyprus. All of the shares in A were held by X, a natural person.
A held 25% of the shares in C Oy (C), and B was a 78%-owned subsidiary of C. B organised international charter flights and ensured maintenance and management of aircraft. Under the contract it concluded with A, B had invoiced A, inter alia, for the costs of maintenance work on the aircraft and for flights. That agreement also allowed B to hire the aircrafts from A for its own commercial purposes, at the price indicated in the annex thereto. A’s total turnover for the relevant accounting periods had come entirely from accounting entries made on the basis of sales invoices addressed to X with the sole exception of the invoice addressed to the Cypriot undertaking for the resale of the aircrafts.
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. That 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 A 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 had not been 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 Administrative Court, Helsinki, which had taken the view that the two purchases of the aircrafts had been taxable intra-Community acquisitions subject to VAT, which A had failed to declare to the tax office. A appealed against that decision to the Supreme Administrative Court of Finland (the referring court). 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 was an airline operating for reward chiefly on international routes.
As per usual practice in that sector, B was under assignment from A, in return for remuneration, to ensure that the aircrafts were always in flight‑ready condition and to promote their commercial use on the basis of specific contracts, whilst B had in fact offered aircraft to third parties in return for remuneration per hour of flight. Against that background, the referring court decided to stay the proceedings and to refer the following questions to the Court of Justice of the European Union for a preliminary ruling.
By its first question, the referring court asked, in essence, whether the wording ‘operating for reward on international routes’ within the meaning of article 15(6) of the Sixth Directive should be interpreted as encompassing also international charter flights to meet the requirements of companies and private persons. By its second question, the referring court asked whether article 15(6) of the Sixth Directive should be interpreted as meaning that the exemption for which it provided also applied to the supply of an aircraft to an operator which was not itself an ‘airline operating for reward chiefly on international routes’ within the meaning of that provision but which acquired that aircraft for the purposes of exclusive use thereof by such an undertaking.
By its third question, the referring court asked whether the answer to the second question might be influenced by the fact that the operator who acquired the aircraft then passed on the charge for the use of the aircraft to an individual who was its shareholder and who used the aircraft purchased chiefly for his own business and/or private purposes, given that the airline could also use it for other flights.
The Court ruled: (1) The answer to the first question was that the wording ‘operating for reward on international routes’ within the meaning of article 15(6) of the Sixth Directive should be interpreted as encompassing also international charter flights to meet demand from undertakings and private persons (see  of the judgment).
(2) The answer to the second question was that article 15(6) of the Sixth Directive should be interpreted as meaning that the exemption for which it provided also applied to the supply of an aircraft to an operator who was not itself an ‘airline operating for reward chiefly on international routes’ within the meaning of that provision but which acquired that aircraft for the purposes of exclusive use thereof by such an undertaking (see  of the judgment).
(3) The answer to the third question was that the circumstances referred to by the referring court, namely the fact that the purchaser of the aircraft passed on the charge corresponding to its use to an individual who was its shareholder and who had used that aircraft essentially for his own business and/or private purposes, with the airline also having the opportunity to use it for other flights, were not such as to affect the answer to the second question (see  of the judgment).