Travel Update - VAT on ‘no shows & invalid exchangeable tickets’

15 January 2016

15 January 2016 by MHA MacIntyre Hudson

The CJEU has recently released its judgement with respect to two French VAT cases regarding airline tickets. Briefly, the issues in contention centred on whether VAT was due on ‘no-shows’ by customers boarding passenger air transport services and whether unused non refundable tickets which are not used during their period of validity should be subject to VAT. 

The proceedings concerned an assessment raised by the French Tax Authorities on Air France-KLM (formerly Air France) and Hop!-Brit Air SAS (formerly Brit Air). In the first of the two cases, Air France ceased to declare VAT on the sale of tickets issued to, but not used by passengers of its domestic flights. Unlike the UK, domestic flights are subject to the reduced rate of VAT in France. Following an inspection by the French Tax Authorities it was concluded that the amounts relating to those ‘tickets issued and not used’ should have been subject to VAT at the reduced rate of 5.5% applicable to supplies of domestic passenger air transport services. 

The second of the two cases concerned Hop!-Brit Air SAS, who operated under a franchise agreement with Air France-KLM. The latter was responsible for marketing and ticket management on the routes operated by Hop!-Brit Air SAS.  Air France-KLM received the price of the tickets and paid the monies to Hop!-Brit Air SAS.  In respect of tickets sold but not used as a result of passenger ‘no-shows’ at the time of boarding or the expiry of the validity of the ticket, Air France-KLM paid to Hop!-Brit Air SAS an annual flat-rate compensation calculated as a percentage (2%) of the annual turnover (including VAT) received from the routes operated. Hop!-Brit Air SAS did not regard the sums as subject to VAT. Following an inspection by the French Tax Authorities an assessment was raised for the sums it had received for unused tickets it had received from Air France.

In summary of the judgement, the CJEU held that:

  • The issue by an airline company of tickets is subject to VAT where the tickets issued have not been used by passengers and the latter are unable to obtain a refund for those tickets; 
  • The VAT paid when the air ticket was purchased by a passenger who has not used it becomes chargeable on receipt of payment of the ticket price; whether by the airline company itself, by a third party acting in its name and on its behalf, or by a third party acting in its own name but on behalf of the airline company; and
  • In the event that a third party sells an airline company’s tickets on behalf of that company in the context of a franchise agreement and pays that company, in respect of tickets issued and no longer valid, a lump sum calculated as a percentage of the annual turnover from the corresponding flight routes, that sum constitutes a sum that is taxable as consideration for those tickets.

This is an interesting decision which will no doubt have wider implications outside the travel sector such as cancellation charges.

If you would like to view the details of the decisions on this case, then please click here - 

If you  have any travel or other VAT issues, please do not hesitate to contact our specialist team at MHA Macintyre Hudson.