The European Court of Justice ("ECJ") has accepted the recommendation from the Advocate General regarding a recent Finnish case ("A Oy") on VAT.
Summary of Decision of the Court
1. The wording 'operating for reward on international routes' within the meaning of the Council Directive must be interpreted as encompassing also international charter flights to meet demand from undertakings and private persons.
2. Article 15(6) of Directive 77/388, as amended by Directive 92/111, must be interpreted as meaning that the exemption for which it provides also applies to the supply of an aircraft to an operator who is not itself an 'airline operating for reward chiefly on international routes' within the meaning of that provision but which acquires that aircraft for the purposes of exclusive use thereof by such an undertaking.
3. The circumstances referred to by the national court, namely the fact that the purchaser of the aircraft passes on the charge corresponding to its use to an individual who is its shareholder and who uses that aircraft essentially for his own business and/or private purposes, with the airline also having the opportunity to use it for other flights, are not such as to affect the answer to the second question.
Implications
This is very good news for the aviation sector as a whole, especially for those owners who dry lease their aircraft to operators and who currently benefit from 'look-through' provisions. This means they may continue to purchase or import aircraft at VAT zero rate with the subsequent lease to 'airlines' also being subject to VAT at the zero rate.
There is also a clear message in the ruling that there should be no distinction between 'scheduled' and 'charter' carriers. Use of the aircraft by the ultimate beneficial owner for business or private purposes should not affect the right to zero rating providing this is in conjunction with genuine third party use.
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