CJEU on VAT treatment of subsidies in public transport
The Court of Justice of the European Union (CJEU) addressed whether a lump-sum compensation provided by a region to a public transport operator to cover their loss is a part of the taxable amount for VAT purposes. In the present case, the compensation was provided ex post to cover financial loss, was independent of the specific use of individual transport services, and according to the court did not have a direct impact on the pricing of an individual ticket. The court concluded that it did not constitute a subsidy directly linked to the price and should not be included in the tax base for the calculation of VAT.
The case involved a passenger transport company which intended to conclude a contract for the provision of transport with a local authority - the organiser of public transport. The price of passenger tickets was to be determined by the public transport organiser. The proceeds from the sale of the tickets would not be sufficient to cover the costs of the transport operator, which would therefore receive a lump-sum financial compensation from the organiser to cover their losses.
At the heart of the dispute was whether the operator was obliged to pay VAT on that financial compensation. According to the EU VAT Directive, subsidies directly linked to the price shall be a part of the tax base. The question was therefore whether or not the provided compensation fulfilled the parameters of a subsidy directly linked to the price.
The CJEU stated the following:
- For an amount to be regarded as a subsidy directly linked to the price, it must first be paid to the recipient to supply particular goods or services.
- It must be verified that the buyers of the goods/services benefit from the subsidy, i.e. that the price for them diminishes in proportion to the subsidy.
- The supplies that the subsidy recipient has undertaken to provide must be at least identifiable.
In the present case, the CJEU concluded that the lump-sum compensation was not paid to the operator to carry out a transport service for a particular recipient of that service, and that it did not affect the price of the ticket. The price was not fixed in such a way that it would diminish in proportion to the compensation paid to the operator. On the contrary, the compensation was granted ex post and was independent of the actual use of the transport services but depended on the number of offered vehicle-kilometres. According to the court, the compensation therefore did not constitute a subsidy directly linked to the price and did not enter into the VAT base.
The CJEU further stated that this conclusion did not call into question that without the compensation, the price of the tickets for passengers would have been higher. Any subsidy will inevitably affect the price calculation, no matter whether it is done by the subsidy recipient or by the organiser. As is clear from the CJEU’s previous case-law, the mere fact that a subsidy may affect the price of goods/services provided by the subsidy recipient is not sufficient for that subsidy to be taxed as a subsidy directly linked to the price.
The CJEU also reflected upon whether the subsidy in the present case constituted consideration obtained from a third party for provided transport services, and concluded that it did not because public transport services benefit not clearly identifiable individuals but all potential passengers and because the compensation had been calculated without considering the identity and number of users of the provided service.