C-382/02 Cimber Air

JUDGMENT OF THE COURT (Second Chamber)

16 September 2004 *

In Case C-382/02,

REFERENCE for a preliminary ruling under Article 234 EC

from the Vestre Landsret (Denmark), made by decision of 9 October 2002, received at the Court on 23 October 2002, in the proceedings

Cimber Air A/S

v

Skatteministeriet,

THE COURT (Second Chamber),

composed of: C.W.A. Timmermans, President of the Chamber, C. Gulmann, J.-P. Puissochet (Rapporteur), J.N. Cunha Rodrigues and N. Colneric, Judges,

* Language of the case: Danish.

Advocate General: D. Ruiz-Jarabo Colomer, Registrar: H. von Holstein, Deputy Registrar,

having regard to the written procedure and further to the hearing on 4 March 2004,

after considering the observations submitted on behalf of:

— Cimber Air A/S, by R. Mikelsons, avocat,

— the Danish Government and Skatteministeriet, by J. Molde, acting as agent, assisted by P. Biering, avocat,

— the German Government, by M. Lumma, acting as Agent,

— the Commission of the European Communities, by E. Traversa and N.B. Rasmussen, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 25 March 2004, gives the following

Judgment

Legal context and the dispute

1This reference for a preliminary ruling concerns the interpretation of Article 15(6), (7) and (9) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1 — the 'Sixth Directive').

2This reference was made in the course of proceedings between Cimber Air A/S ('Cimber Air') and the Skatteministeriet (Danish Ministry of Fiscal Affairs) concerning an application for a refund of the value added tax ('VAT') paid on supplies to aircraft for which no refund is available under the Danish VAT legislation.

Legal background

The Community legislation

3Article 15 of the Sixth Directive, which governs exemption for exports outside the Community, for like transactions and international transport, 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 evasion, avoidance or abuse:

1. the supply of goods dispatched or transported to a destination outside the Community by or on behalf of the vendor;

2. the supply of goods dispatched or transported to a destination outside the Community by or on behalf of a purchaser not established within the territory of the country, with the exception of goods transported by the purchaser himself for the equipping, fuelling and provisioning of pleasure boats and private aircraft or any other means of transport for private use;

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;

7. the supply of goods for the fuelling and provisioning of aircraft referred to in paragraph 6;

9. the supply of services other than those referred to in paragraph 6, to meet the direct needs of aircraft referred to in that paragraph or of their cargoes;

The national legislation

4The VAT exemption rules are contained in the lov om mervaerdiafgift (VAT Law) of 16 August 2000 (hereinafter 'the Law of 16 August 2000'). It governs the levying of VAT on supplies to airlines.

5Article 34(1) of the Law of 16 August 2000, which deals with VAT exemptions for supplies to certain aircraft, provides:

'The following supplies of goods and services shall be exempt from tax:

7. necessary equipment and supplies delivered for use on board aircraft and ships engaged in international transport, excluding private aircraft ... and supplies of services intended for such aircraft... ;

8. the sale and hiring of aircraft ... other than private aircraft and pleasure boats;

9. repairs, maintenance and modification of the aircraft referred to in subparagraph 8 ... and delivery, hiring, repairs and maintenance of their fixed equipment;

16. goods supplied for fuelling and provisioning, and other supplies to provisioning undertakings, and to ships and aircraft for consumption on board or sale to passengers, in accordance with customs legislation.'

6Thus, under Article 34(1), subparagraphs 7 and 16, of the Law of 16 August 2000:

— take-off and landing taxes,

— fuel, — catering,

— baggage handling

represent the 'supplies of goods' and 'supplies of services' referred to in Article 15(7) and (9) of the Sixth Directive and are VAT exempt only if they are for a flight bound abroad.

7As regards purchases made for international flights, including transit flights, the VAT paid may be refunded under Article 45(3) of the Law of 16 August 2000; no refund is available for domestic flights.

The main proceedings and the questions referred to the Court of Justice

8Cimber Air is an airline whose main activity consists in operating regular regional air services in Europe in cooperation with its two partners, SAS and Lufthansa. It operates on domestic routes in Denmark and on routes between Denmark and other countries. It also operates on routes which originate and terminate abroad.

9In the main proceedings, the Skatteministeriet considers it inappropriate to exempt from VAT certain supplies to Cimber Air aircraft being used for domestic flights, that is to say flights between airports within Denmark, exemption being available only for aircraft being used for an international flight. Cimber Air considers that all supplies to aircraft being used for domestic flights must benefit from the exemption because it operates chiefly on international routes.

10Cimber Air therefore brought an action before the Vestre Landsret (Western Regional Court) for an order requiring the Skatteministeriet to recognise that the goods and services supplied to it after 30 April 2001 are VAT exempt, since international transport accounts for the major part of its business.

11Cimber Air also claimed that the Skatteministeriet should be ordered to repay to it the VAT which, in its view, it wrongly paid in excess. That amount comprises the VAT which Cimber Air paid to its suppliers for various supplies made for or in relation to flights on entirely domestic routes.

12The parties differs as to whether Article 15(7) and (9) of the Sixth Directive in conjunction with Article 15(6) preclude the levying of VAT on supplies to Cimber Air aircraft when such aircraft are operating on domestic routes, given that the company's flights are chiefly international.

13In those circumstances, the Vestre Landsret stayed the proceedings and referred the following questions to the Court of Justice for a preliminary ruling:

'1. Are Article 15(7) and (9) (referring to Article 15(6)) of the Sixth VAT Directive (Council Directive 77/388/EEC), to be interpreted as meaning that a Member State is entitled not to exempt from VAT supplies to aircraft operating on a domestic route, regardless of the fact that the company using the aircraft operates chiefly on international routes, or is the Member State bound to exempt such supplies from VAT?

2. If the Court finds that supplies must be exempted from VAT if the airline operates chiefly on international routes, the Court is asked to state which criteria in the form of, for example, turnover, available seat-kilometres, passenger-kilometres or number of passengers and flights, are decisive under Article 15(6) for determining whether an airline can be said to be operating "chiefly" on international routes?'

The first question

14By its first question the national court seeks essentially to ascertain whether Article 15(6), (7) and (9) of the Sixth Directive must be interpreted as meaning that the goods and services referred to by those provisions, supplied to aircraft which, although carrying out domestic flights, are used by airlines operating for reward chiefly on international routes, are VAT exempt.

Observations submitted to the Court

15The Danish Government submits that, in so far as Article 15 of the Sixth Directive concerns exemption of exports outside the Community, paragraphs 7 and 9 of that article can relate only to supplies of goods or services for international flights and the status of each aircraft movement should be assessed individually. Article 15(6), under which the supplies of goods or services referred to in that article must be considered in relation to the activities chiefly undertaken by the airline, constitutes an exception only to Article 15 interpreted as a whole.

16The Danish Government states, in support of the interpretation for which it contends, that the provisions concerning exemption within the country are in Article 13 of the Sixth Directive. However, supplies to flights within the country are not exempted by the latter article, a fact which supports the argument that Article 15(7) and (9) of that directive are not concerned with supplies of goods or services for aircraft used on domestic routes, even though the company to which they belong may chiefly operate on international routes.

17That view is shared by the Commission, which also observes that the provisions of the Sixth Directive on tax exemptions must be interpreted strictly in order to comply with the principle of fiscal neutrality. That principle requires equality of tax treatment for all national transport operations.

18The Commission accepts that Article 15(6) of the Sixth Directive expressly derogates from the principle of fiscal neutrality but observes that there is nothing in the legislative history of that article to indicate that Article 15(7) and (9) allow such a derogation; the tax exemption referred to in those paragraphs can therefore cover only goods and services for aircraft used solely for international operations.

19Cimber Air, supported at the hearing by the German Government, interprets Article 15(7) and (9) of the Sixth Directive differently. It considers that the VAT exemption for the supplies covered by those provisions applies to aircraft on domestic routes when the airline to which they belong operates for reward chiefly on international routes.

20Cimber Air and the German Government consider that departure from the principle of fiscal neutrality to be justified by the difficulties involved in determining what proportion of the supplies to an aircraft that is used for both domestic and international flights should be exempt from VAT and what proportion should not.

21They consider therefore that, for the supplies of goods and services referred to in Article 15(7) and (9) of the Sixth Directive to be exempt, the decisive criterion, by virtue of which the wording of those provisions overrides the principle of fiscal neutrality, is the fact that the aircraft benefiting from the exemption belongs to an airline that operates chiefly on international routes. That criterion enables the rules laid down by Article 15(6), (7) and (9) of the Sixth Directive to be applied simply and consistently.

22On the basis of that interpretation, Cimber Air concludes that, in the circumstances of the main proceedings, the Danish rules and, pursuant to them, the application of the exemption only to aircraft being used for international flights are incompatible with Community law.

Grounds

Findings of the Court

23Exemptions constitute independent concepts of Community law which must be placed in the general context of the common system of VAT introduced by the Sixth Directive (see in particular Case 235/85 Commission v Netherlands [1987] ECR 1471, paragraph 18; Case C-2/95 SDC [1997] ECR I-3017, paragraph 21; and Case C-141/00 Kügler [2002] ECR I-6833, paragraph 25).

24That system is based in particular on two principles. First, each supply of goods and services effected for consideration by a taxable person is subject to VAT. Second, in accordance with the principle of fiscal neutrality, economic operators carrying out the same transactions may not be treated differently in relation to the levying of VAT.

25For those reasons, whilst it is common ground that the Sixth Directive may provide for exemptions which depart from the principles referred to in the foregoing paragraph, the Court considers that such exemptions must be interpreted strictly (see, to that effect, SDC, paragraph 20, Case C-216/97 Gregg [1999] ECR I-4947, paragraph 12, and Kügler, paragraph 28).

26In this case, pursuant to Article 15(7) and (9) of the Sixth Directive, the supply of goods for the fuelling and provisioning of aircraft referred to in Article 15(6) and the supply of services other than those mentioned in Article 15(6), to meet the direct needs of those aircraft or of their cargoes, are VAT exempt.

27Article 15(6) is concerned with 'aircraft used by airlines operating for reward chiefly on international routes'.

28Thus, contrary to the contentions of the Commission and the Danish Government, the exemption provided for in Article 15 of the Sixth Directive relates formally, both in paragraphs 7 and 9 and in paragraph 6 of that article, to domestic flights carried out by aircraft used by companies whose business is mainly international.

29The fact, referred to by the Commission, that the exemptions within a Member State are provided for in Article 13 of the Sixth Directive and that the conditions for exemption in Article 15 thereof are completely harmonised cannot have the effect of giving Article 15 a meaning different from that which is clear from its wording.

30The answer to be given to the first question must therefore be that Article 15(6), (7) and (9) of the Sixth Directive must be interpreted as meaning that the supplies of goods and services referred to in those provisions to aircraft which operate on domestic routes but are used by airlines chiefly operating for reward on international routes are exempt from VAT.

The second question

31By its second question, the national court seeks essentially to ascertain which criteria should be used to determine whether an airline operates chiefly on international routes.

Observations submitted to the Court

32The Commission and the Danish Government consider that it is unnecessary to answer this question in view of the answer which they suggest for the first question.

33Cimber Air maintains that the word 'chiefly' used in Article 15(6) of the Sixth Directive must be examined having regard to an airline's operations on all its routes, so that a temporal analysis must be undertaken and also an analysis of the criteria governing production and sales.

34It considers that the international portion of an airline's operations must be determined over a long period, so that, if it has, for several years, operated chiefly on international routes and in the course of one year it has done so to a lesser extent, that fact cannot give rise, in respect of that year, to different VAT treatment for the aircraft of that company.

35As regards the criteria for determining the extent of an airline's operations on international routes, Cimber Air proposes that this should be measured in terms of seat-kilometres, thus enabling the proportion of turnover accounted for by international flights to be determined.

36Cimber Air submits that indicators such as the number of paying passengers and the number of flights do not provide the same precise measure of the extent of an airline's business.

Findings of the Court

37For the reasons set out in paragraphs 23 to 25 of this judgment, the term 'airlines operating for reward chiefly on international routes' has a Community meaning and must be interpreted strictly in so far as it serves as a basis for VAT exemptions.

38That interpretation must take account of the divergence between certain language versions of the provision in question. The French, Italian, Spanish and Portuguese versions of Article 15(6) of the Sixth Directive use the word 'essentially' or the equivalent thereof, whereas the Danish, German, English and Dutch versions use, respectively, the words 'hovedsageligt', 'hauptsächlich', 'chiefly' and 'hoofdzakelijk'. According to the second group of expressions, the provision in question refers to airlines whose operations on international routes merely exceed their non-international operations, whereas, according to the first group of expressions, the international operations should account for almost all the business of those companies.

39It may be deduced from the foregoing analysis that, in any event, it is necessary to treat as airlines operating chiefly on international routes those whose operations on non-international routes are found to be considerably less extensive than their international activities.

40The answer to the second question must be that it is for the national courts to assess the extent of the international business and the extent of the non-international business of such companies. In doing so, they may take account of all information which indicates the relative importance of the type of operations concerned, in particular turnover.

Costs

41Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

Operative part

On those grounds, the Court (Second Chamber) rules as follows:

1. Article 15(6), (7) and (9) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment must be interpreted as meaning that the supplies of goods and services referred to in those provisions to aircraft which operate on domestic routes but are used by airlines chiefly operating for reward on international routes are exempt from VAT.

2. It is for the national courts to assess the extent of the international business and the extent of the non-international business of such companies. In doing so, they may take account of all information which indicates the relative importance of the type of operations concerned, in particular turnover.

Signatures.

OPINION OF ADVOCATE GENERAL RUIZ-JARABO COLOMER 1 delivered on 25 March 2004

Introduction

1Airlines which operate international passenger services usually also operate on their domestic markets. The Vestre Landsret (Western Regional Court), 2 Denmark, is not sure that, in such cases, the services provided to aircraft used on a country's domestic routes should be exempt from value added tax (hereinafter 'VAT').

2In order to resolve that doubt, it seeks from the Court of Justice a preliminary ruling on the interpretation of Article 15(6), (7) and (9) of the Sixth Directive. 3T o that end, it formulates two questions which concern the scope of the exemptions laid down in those provisions, and the appropriate criteria for deciding whether a company's principal activity is to provide air travel services between different countries.

1 — Original language: Spanish.

2 — The Vestre Landsret is a court with jurisdiction at first instance to hear civil and criminal cases, and challenges to certain administrative acts, including those relating to tax revenue.

3 — Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1).

I — The facts, the main proceedings and

the questions referred to the Court for a preliminary ruling

3Cimber Air A/S (hereinafter 'Cimber Air') is part of the Cimber Air Group, which is owned by a holding company of the same name, and the company SAS. Its principal activity consists of operating regional air services in Europe, in cooperation with SAS and Lufthansa. It operates domestic flights in Denmark and international flights between Denmark and other countries; it also covers routes with departure and arrival points outside Danish territory. 4

5

4The company has a fleet of 10 aircraft, which it uses in such a way that the same aircraft may be used for all kinds of flights.

4 — The cooperation arrangement with SAS covers domestic routes in Denmark and international routes out of the cities of Copenhagen, Karup and Sønderborg. The arrangement with Lufthansa provides connections within Germany and regional European routes out of Berlin and Hamburg.

5 — Two of the aircraft are hired out to other companies, while Cimber Air leases another five.

5Cimber Air's activity in the air traffic sector can therefore be divided into a 'national' portion and an 'international' portion. An assessment of the volume of each depends on the unit of measurement selected. If the calculation is based on turnover or on 'available seat-kilometres' and 'revenue passenger-kilometres',, international travel is slightly higher. However, the 'national' component is higher when the criterion applied is the number of passengers or the frequency of flights. 6

6Cimber Air claimed from the Skatteministeriet (Danish Ministry of Fiscal Affairs) a refund of the VAT paid for the period from 1 May 1996 to 30 April 2001 on goods and services supplied for commercial domestic passenger flights, and sought recognition that, from the latter date, both operations are VAT exempt, since it operates chiefly on international routes. The defendant contested those claims.

6 — Whichever parameter is used, the differences are not large, with a maximum of 62.2496 for domestic traffic, on the basis of the number of passengers (for the two-year period 1996-1997), and a minimum threshold of 32.41%, if the 'revenue passenger-kilometres' ratio is used (two-year period 2000- 2001). In any event, the turnover in this part of the company's activity is always lower (49.37%, 48.90%, 39.51%, 41.51% and 33.60% for the periods 1996-1997, 1997-1998, 1998-1999, 1999-2000 and 2000-2001 respectively).

7The dispute in the proceedings before the Vestre Landsret has focused on the scope of the exemptions provided for in Article 15(6), (7) and (9) of the Sixth Directive and, more particularly, on the question whether paragraphs 7 and 9 include transactions concerning aircraft operating on domestic routes.

8The Danish court is not sure how to interpret those provisions — on which the decision to be given in the case depends — and has therefore referred the following questions to the Court of Justice:

1. Are Article 15(6), (7) and (9) of the Sixth Directive to be interpreted as meaning that a Member State is entitled to refuse to exempt from VAT supplies to aircraft operating on a domestic route, regardless of the fact that the company using the aircraft operates chiefly on international routes, or as meaning that the Member State is bound to exempt such operations?

2. If the latter is the case, which criteria in the form of, for example, turnover, available seat-kilometres, numbers of passengers or flights, are decisive under Article 15(6) for determining whether an airline can be said to be operating 'chiefly' on international routes?

II — Procedure before the Court of Justice

9Written observations have been submitted in these proceedings, within the period prescribed for the purpose by Article 20 of the EC Statute of the Court of Justice, by the Danish Government, Cimber Air and the Commission.

10At the hearing, which was held on 4 March 2004, those which took part in the written stage and the German Government presented oral argument.

III — The Community legislation to be interpreted

11Title X of the Sixth Directive governs exemptions. After establishing the exemptions concerning operations within the country (Article 13) and on imports (Article 14), it lists, in Article 15, the exemptions for exports from the Community, like transactions and international transport. In this last category, it distinguishes between sea travel and air travel, which the paragraphs of which an interpretation is sought in these proceedings specifically concern; it is worded as follows:

'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 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;

7 — Title X ends with Article 16, which is entitled 'Special exemptions linked to international goods traffic'.

7. the supply of goods for the fuelling and provisioning of aircraft referred to in paragraph 6;

9. the supply of services other than those referred to in paragraph 6, to meet the direct needs of aircraft referred to in that paragraph or of their cargoes;

IV — Deduction and refund under

Danish law of VAT on services supplied to aircraft

12A knowledge of the rules of Danish law, particularly those relating to the taxation of supplies and services to aircraft used for commercial flights, is not essential in order to answer the Vestre Landsret's questions but it does provide a fuller understanding of the underlying problems in the main action.

13The lov om merværdiafgift (hereinafter 'the momsloven') governs VAT. The currently applicable version is found in consolidated Law No 804 of 16 August 2000, which replaced with effect from 1 July 1994 the previous legislation.

14Paragraph 34(1) declares exempt: (1) supplies of goods and services for the equipping and provisioning of aircraft engaged in international transport (point 7); (2) the sale and hiring of all kinds of aircraft and their fixed equipment, except pleasure craft, and also repairs, maintenance and modification of those aircraft (points 8 and 9); and (3) purchases for the fuelling and provisioning of aircraft, for use on board or for sale to passengers, in accordance with customs legislation (point 16). The application of the exemption therefore depends on the nature of the journey, except in the case of the activities covered by points 8 and 9, which are always exempt, save in the case of pleasure craft.

15On the other hand, the momsloven exempts the transport of passengers on domestic and international flights from VAT (Article 13(1)(15)) so that, under Article 37(1), airlines are not entitled to deduct VAT on purchases of goods and services for that commercial activity. However, on international routes, if the transaction is not excluded by Article 34, deduction is possible, because Article 45(3) allows for the refund of the portion paid in Denmark on transactions relating to the transport of passengers to other countries.

16In short, Cimber Air cannot obtain a refund of the tax it pays on purchases of goods and services for flights within Denmark.

V — Assessment of the questions referred to the Court for a preliminary ruling

A — A few clarifications which are more than merely terminological

17International goods traffic is governed by the principle of taxation at the place of destination or final consumption. For that reason, if it is wished to avoid the 'exportation' of indirect taxes from the country of origin — which would involve double taxation — a system must be agreed for the 8 exemption of foreign transactions. In other words, as the Court of Justice pointed out in its judgment in Lange, 9 the aim of the exemptions in Article 15 is to ensure that consumers from non-Member States are not subject to VAT (paragraph 20).

18The Sixth Directive was amended by 10 Directive 91/680/EEC, the main aim of which, after the abolition of fiscal controls at internal frontiers, is to facilitate transition to a definitive system for the taxation of intra-Community trade under the common system of value added tax, by taxing trade in the Member State of origin. However, since the required conditions could not be completely brought about by 31 December 1992 (the day before that abolition), it made provision for a transitional phase during which it retained the rule of taxation in the country of 11 destination. Until the matter is definitively settled, the tax remains payable, on a temporary basis, on intra-Community acquisitions of goods by taxable persons or by non-taxable legal persons; the taxable event is deemed to take place in the Member State in which the goods are at the time when dispatch or transport to the person acquiring

8 — Pérez Herrero, L.M., La Sexta Directiva Comunitaria del IVA, Cedecs Editorial S.L., First ed., Barcelona, 1997, p. 236. 9 — Case C-111/92 Lange [1993] ECR I-4677.

10 — Council Directive 91/680/EEC of 16 December 1991 supplementing the common system of value added tax and amending Directive 77/388/EEC with a view to the abolition of fiscal frontiers (O) 1991 L 376, p. 1).

11 — I have recently set out this position in the Opinion I delivered on 13 January 2004 in Case C-68/03 Lipjes ECR I-5879, I-5881.

them ends (Article 28a(1)(a) and Article 28b(A)(1) of the Sixth Directive). Conversely, those transactions are not subject to VAT if the purchaser is a private individual.

19The rule contained in Article 15 was amended, with the aim of establishing that the exempt exports are those effected 'outside the Community'. It was logical to clarify the point because intra-Community purchases made by a private individual are not subject to tax, as I have just pointed out, and do not therefore need to be regarded as 12 exempt, and also because those which are made for a taxable person or non-taxable legal person are always subject to tax. At the same time, in the latter case, the corresponding supply in the Member State of origin is exempt (Article 28c(A)(a)), in order to avoid double taxation.

20However, the aforementioned amendment of 1991 does not affect the transport of persons and, so far as concerns the transport of goods, it treats it as an ancillary matter, an

12 — Exemption presupposes previous subjection to tax, so that, where there is no subjection to tax, there is no need to speak of exemption.

essential means of carrying out the legal transactions referred to in Article 28a. 13 Accordingly, passenger transport services are deemed to be supplied in the place where the journey ends (Article 9(2)(b) of the Sixth Directive), so that a Member State may charge VAT on a journey made within its territorial limits, even where part of the journey is made outside those limits, provided that it does not encroach on the tax 14 jurisdiction of other States. As a result, in 15 its judgment in Reisebüro Binder, the Court of Justice held that, in the case of the supply of cross-frontier passenger transport, the total consideration for that service must be allocated on a pro rata basis, having regard to the distances covered in the different Community countries.

21Two conclusions may be drawn from the foregoing observations:

(1) The term 'international routes' used in Article 15(6) refers to routes which pass through the territory of more than one Member State, and (2) the new version does 16 not alter that definition.

13 — In respect of the supply of services in the intra-Community transport of goods, the taxable event occurs, as a rule, in the Member State of departure (Article 28b(C)(2) of the Sixth Directive).

14 — Case 283/84 Trans Tirreno Express [1986] ECR 231, paragraph 21, and Case C-30/89 Commission v France [1990] ECR I-691, paragraph 18.

15 — Case C-116/96 Reisebüro Binder [1997] ECR I-6103. 16 — The Community legislature of 1991, when it thought it necessary, made the requisite amendments to Article 15 (it amended, as well as the Article cited, Articles 1, 2, 3, 10, 12, 13 and 14).

22However, when that expression is used in the framework of the Sixth Directive, once the 1991 amendment came into force, there is a risk that, by a process of mimesis, its meaning may be extended to journeys made outside the Union. The clarifications I have just given are therefore necessary in order to avoid misunderstandings so that, in the following lines of this Opinion, that expression or other similar expressions must be understood to refer to travel outside the territory of a Member State, even though the destination may not be in a non-member country; these terms seem to have caused the Danish court to have doubts.

B — Criteria for interpretation

23In the Opinion I delivered in CSC 17 Financial Services, I set out the guidelines for interpreting the provisions exempting certain legal transactions from VAT.

24I pointed out, first, that all exemptions from liability for VAT are to be interpreted

17 — Case C-235/00 CSC Financial Services [2001] ECR I-10237. strictly, as the Community case-law has 18 indicated, since they constitute exceptions to the general principle of liability for tax laid down in Article 2(1) of the Sixth Directive.

25I also stressed the principle of neutrality that governs the common system of VAT, which the tax exemption scheme infringes in that it undermines the rule that tax charges must be of general application so as to uphold competition in a single market.

26Both views are particularly relevant to the present proceedings because, as the Commission and the Danish Government point out, the provisions referred to in the questions submitted severely detract from the impartiality of the fiscal charge, which is necessary for practical reasons associated with the difficulties involved in collecting the tax. Furthermore, in the distinction I drew, in footnote 11 to my Opinion in that case, between the objective and subjective exemptions, those contained in Article 15(7) and

18 — Case C-185/89 Velker International Oil Company [1990] ECR I-2561. paragraph 19; Case C-2/95 SDC [1997] ECR I-3017, paragraph 20; Case C-359/97 Commission v United Kingdom [2000] ECR I-6355, paragraph 64; and Case C-240/99 Skandia [2001] ECR I-1951, paragraph 32. Recently, the Court of Justice has reiterated the principle that exemptions must be interpreted strictly in three judgments delivered on 20 November 2003: Case C-8/01 Assurandor-Societetet, Case C-212/01 Margarete Unterpertinger, and Case C-307/01 Peter d'Dambrumenil, paragraphs 36, 34 and 52 respectively, ([2003] ECR I-13711, I-13859 and I-13989).

(9) of the Sixth Directive belong, as explained below, to the former category, and, because they reflect pragmatic and short-term factors unconnected with fundamental principles of the legal order, require more rigorous application of the principle of strict interpretation.

C — The exemptions for transactions relating to aircraft

27Article 15 of the Sixth Directive includes three kinds of activities relating to aircraft used for commercial purposes: 19

1. The supply, modification and chartering of aircraft, and the repair, maintenance and hiring of the aircraft and of equipment incorporated or used therein (paragraph 6).

2. The supply of goods for the fuelling and provisioning of aircraft (paragraph 7).

19 — Paragraph 2, which refers to private and leisure craft, is irrelevant in this case.

3. The supply of other services to meet the direct needs of aircraft or of their cargoes (paragraph 9).

28The connecting factor for deciding whether the tax exemption should be applied in respect of the first kind is the company providing the transport, so that, if it operates for reward 'chiefly' on international routes, the tax advantage takes effect, whether the aircraft are used for domestic flights or for flights outside the country. There is no disagreement on this point in these proceedings.

29The controversy arises over the interpretation of paragraphs 7 and 9. The Commission and the Danish Government consider that the exemptions for which they provide exempt only taxable events relating to aircraft used on international flights, whereas Cimber Air and the German Government believe that they have the same scope as paragraph 6 and that the connecting factor is also the airline, so that, if its 'international component' predominates, the services referred to in those paragraphs are not subject to tax, even where they are supplied to aircraft which operate on domestic routes.

30The arguments put forward by Cimber Air and the German Government are thought-provoking and, on an initial examination of the matter at issue, their view seems the more appropriate. The literal interpretation of paragraphs 7 and 9, in relation to paragraph 6, leads to the conclusion that the aircraft to which they refer are those 'used by airlines operating for reward chiefly on international routes' and that the kind of route they fly is therefore irrelevant. Simplicity in the application of the tax and economic realities, which are treated in 20 Community case-law as valid criteria, militate in favour of that approach, since it is difficult for suppliers to distinguish provisions and services on a domestic flight from 2 those used for an international flight. 1 In short, a systematic approach to Article 15 would support their view, because the 'like' transactions to which its provisions refer could include those relating to aircraft used on domestic flights by companies operating chiefly on international routes.

31However, a more in-depth examination of the aforementioned provisions and a closer look at the common system of VAT dissolve the arguments of the claimant in the main action and of the German Government like sugar lumps in a cup of tea and demonstrate that, whereas in paragraph 6

20 — The Court of Justice on some occasions resorts to settled and simple guidelines in applying the rules of the Sixth Directive (one example is Case C-429/97 Commission v France [2001] ECR I-637, paragraph 49). On others, it has taken the realities of the economic situation into account (Case C-260/95 DFDS [1997] ECR I-1005, paragraph 23). Article 15 of the Sixth Directive itself calls, in the introductory paragraph, for a correct and straightforward application of the exemptions. 21 — It is even more difficult if it is borne in mind that an aircraft which today flies beyond national frontiers may, tomorrow, operate on a domestic route.

the exemption is linked to the airline, rendering it subjective in nature, the other two provisions make its application depend on the kind of route actually flown by the aircraft, rendering it unquestionably objective in nature.

32Indeed, the criterion for interpretation of the structure of Article 15 leads to a different result from the one proposed by Cimber Air and the German Government. That provision sets out the exemptions for exports out of the Community, like transactions and international transport. The first category includes the first three paragraphs, which provide for a general exemption for international trade, and an exemption for goods carried by passengers in their personal luggage and on certain work on movable property which is to be removed from the territory of the Community.

33The group of exemptions for transactions similar to the dispatch of goods to other countries comprises those for purchases of goods and services made, under diplomatic and consular arrangements, by international organisations and aid bodies (paragraphs 10 and 12). The same applies to supplies of gold to Central Banks (paragraph 11), services connected with export and import of goods benefiting from special provisions, and services supplied by intermediaries, where they form part of international transactions which are exempt (paragraphs 13 and 14).

34The remaining paragraphs of Article 15 2 (paragraphs 4 to 9) 2 relate to the international operations of ships and aircraft. Therefore, the provisions analysed in these preliminary ruling proceedings, far from concerning activities assimilated to exempted exports, refer to international air 23 travel.

35Those provisions relate, therefore, to supplies of goods and services on aircraft assigned to operations of that kind. However, it happens that, because in practice the same aircraft are used indiscriminately on domestic flights and flights bound abroad, it is not feasible to differentiate, in some operations, between the parts which relate to one kind of route or the other. This applies to the supply of the aircraft and their equipment, and also to the modification, repair, maintenance, chartering and hiring thereof, referred to in paragraph 6. The fact that it is impossible to differentiate makes it so difficult to administer the tax that it is necessary to resort to a legal fiction whereby exemption is available for the aforementioned legal transactions when the recipient is a company which operates 'chiefly' for reward on international routes, that is to say, it uses its fleet mainly for transport abroad.

22 — These are, specifically, the paragraphs not amended by Directive 91/680, so that they retain their original wording. 23 — The reason for considering them to be VAT exempt is the same as that which justifies the exemption of exports and like transactions (see paragraph 20 of the judgment in Lange, cited above), but that fact does not permit the three categories to be combined.

All the participants in these proceedings are unanimous on this point.

36However, there appear to be fewer problems with regard to the supply of provisions and services included in paragraphs 7 and 9 respectively. Unlike the activities I mentioned in the previous point, which, in practical terms, are indivisible, the supply of provisions and services to meet the direct needs of the aircraft and their cargo (for example, cleaning, take-off and landing fees, the use of facilities for receiving passengers or goods, for parking and accom 24 modating aircraft or for handling luggage) are transactions which may be attributed to a particular flight. Other supplies, such as fuel, cause greater complications, but, because of their nature, may be split up and divided pro 25 rata between the various flights. It is true that this is sometimes not an easy task, but the problems which may arise are not important enough to justify an exception to

24 — The Danish Government explains in its written observations that, as regards the aforementioned takeoff and landing fees, provisioning for on-board catering and the baggage handling, suppliers invoice VAT only when the aircraft is operating on a domestic route.

25 — With regard to fuel, under the Danish system tax is always includea in invoices, but the company prepares a monthly consumption statement, dividing it between domestic and international flights. Thus it is able to recover the tax corresponding to international flights.

the principle of the general application of 2 VAT. 6 The rule of strict interpretation, which I have already mentioned, comes very much into play here to the effect that the opinion of Cimber Air and the German Government should be rejected. It should not be forgotten that, as the Court of Justice pointed out in Velker International Oil Company, a strict interpretation is especially necessary for provisions which contain exceptions to the rule that VAT is payable on transactions carried out within the country (paragraph 20).

37Otherwise, the lynchpins of the common system of VAT would be jeopardised.

38VAT, as I pointed out in my Opinion in Lipjes, to which I have already referred, is a tax on consumer transactions, as an expression of the economic capacity of persons. The aim pursued is achieved by subjecting to tax the transactions of businessmen and professionals who pass the charge on to the final consumer, thereby rendering the tax

26 — In its judgment in Case C-74/91 Commission v Germany [1992] ECR I-5437, the Court of Justice stated that the technical difficulties regarding the classification of air transport services as between Community and non-Com munity territory do not justify the non-application of the Sixth Directive (paragraph 12). It confirmed this view, in relation to sea cruises, in Case C-331/94 Commission v Greece [1996] ECR I-2675, paragraph 12. Those difficulties are, precisely, the basis for Cimber Air's arguments, as its agent acknowledged in reply to my questions at the hearing. On the other hand, the problems are not as insuperable as it claims, since, according to the Danish Government's Agent, the system introduced in his country, in relation to the claimant, has worked satisfactorily for both parties for more than 30 years.

'neutral'. For that reason, any fiscal measure which, like the objective exemptions, exempts from VAT transactions that in principle are taxable, breaks the chain and destroys neutrality, so that it must be interpreted and applied restrictively. Consequently, the chain must be broken on an egalitarian basis: supplies of goods and services of the same kind must all, without exception, be either subject to the tax or 2 exempt from it. 7

39The interpretation suggested by Cimber Air takes no account of that essential rule even though, as explained above, there are no sound reasons for disregarding it.

40If exemption were granted for the activities referred to in Article 15(7) and (9) of the Sixth Directive, relating to aircraft flying domestic routes and used by companies engaged mainly in international air passenger transport, those companies would, for no reason, have an advantage over companies operating only within the

27 — In Case C-216/97 Gregg [1999] ECR I-4947, paragraph 20, and Case C-141/00 Kügler [2002] ECR I-6833, paragraph 30, the Court of Justice pointed out that the principle of fiscal neutrality precludes economic operators carrying out the same transactions from being treated differently as far as the levying of VAT is concerned.

national borders or in which the domestic component predominated. There is no reason to exempt from tax transactions effected 28 within the country, which can be individually identified and, therefore, may be attributed to a particular route. The opposite course of action would disregard the general application of the tax, destroy its neutrality and become a serious obstacle to establishing real competition in the single market.

41The answer which I suggest is based on the structural requirements of the Community legal order and leaves aside the legisla tions of the Member States, in view of the 29 fact that they offer various alternatives. Thus, a system like the Danish one, after granting a general exemption on the supply, modification, repair, maintenance, chartering and hiring of aircraft, refers, as regards the

28 — It must be remembered that, under Article 2(1), the aim of the Sixth Directive is to levy tax 'on the supply of goods or services effected for consideration within the territory of the country by a taxable person acting as such' (emphasis added). 29 — On many occasions and in various factual circumstances, the Court of Justice has used the expression 'concept of Community law' to indicate that a specific term in a rule introduced by the Institutions of the Union is to be interpreted not from the particular viewpoints of the national systems but in the light of the requirements of the Community legal order. In the field of VAT, by way of example, I may cite the concept 'leasing or letting of immovable property' (see Case C-275/01 Sinclair Collis [20031 ECR I-5965, paragraph 22, and the cases cited therein), which I shall be considering soon in Case C-284/03 Temco Europa.

supply of goods, provisioning and other services, to the aircraft used on international 30 routes. This is also the case of the Value Added Tax Act 1994 (section 30(6)(b)) which exempts supplies of provisions for flights to destinations outside the United Kingdom.

42However, other legal systems adopt a different position. Article 43(1)(h) of the Luxembourg Law of 12 February 1979 on 31 value added tax exempts — without going into further detail — transactions catering for the transport needs of aircraft used by companies operating chiefly for reward on international routes. In Belgium, the Law of 3 July 1969, which created the Code de la 32 taxe sur la valeur ajoutée after exempting the supply of aircraft and associated services when they are used by a company of that kind (Article 42(2)(1), (2) and (3)) applies the

30 — Article 34(1)(7) of the momsloven exempts only the supply of goods and services for equipping and provisioning aircraft and ships on international routes.

31 — Memorial A 1979, p. 451 et seq.

32 — Moniteur belge of 17 July 1969.

same rule to the provisioning of the aircraft used by them (Article 42(2)(4)).

43A third group of Member States follows the same course as the Sixth Directive, so, in principle, the interpretation of their provisions raises the same doubts as the Community legislation. Examples are the Code general des impôts (Article 262(H)(4), (5), (6) and (7)) in France, the Umsatzsteuergesetz (§ 33 8) in Germany and the Ley del impuesto sobre el valor añadido (Article 22(4), (6) and 34 (7)) in Spain. However, in Spain, the Reglamento del impuesto (Tax Regulations) makes it clear that the activities concerned are those relating to aircraft 36 which operate on international routes,

33 — Law of 9 June 1999 (BGBl. 1 1999, p. 1270).

34 — Law 37/1992, of 28 December (Boletín Oficial del Estado — 'the BOE' — of 29 December 1992, p. 44247). Article 22(4) exempts 'entregas, transformaciones, reparaciones, manteni miento, fletamento total o arrendamiento de las siguientes naves: 1. Las utilizadas exclusivamente por compañías dedicadas esencialmente a la navegación aérea internacional en el ejercicio de actividades comerciales de transporte remunerado de mercancías o de pasajeros' ('the supply, modification, repair, maintenance, full chartering or hiring of the following aircraft: 1. those used exclusively by commercial companies operating for reward chiefly in the transport of goods or passengers on international routes'). Further on, in paragraphs 6 and 7, it applies the same rule to the supply of provisions and other services to aircraft covered by the exemptions laid down in paragraph 4. The previous law governing that tax (Law 30/1985 of 2 August) was clearer and, in Article 10(4), referred to 'las aeronaves que realicen navegación aérea internacional' ('aircraft which operate on international routes').

35 — These regulations were approved, the day after the Law, by Royal Decree 1624/1992 (BOE of 31 December 1992). 36 — Article 10(3) states: '1. La exención se extenderá a los transportes de ida y vuelta con escala en los territorios situados fuera del ámbito territorial de aplicación del impuesto. 2. La exención no alcanzará a los transportes de aquellos viajeros y sus equipajes que, habiendo iniciado el viaje en el territorio peninsular o en las Islas Baleares, terminen en estos mismos territorios, aunque el buque o el avión continúen sus recorridos con destino a puertos o aeropuertos situados fuera de dicho territorio' (' 1. The exemption shall extend to round trips with stopovers in territories situated outside the territorial scope of the tax. 2. The exemption shall not affect the transport of those passengers and their luggage who begin their journey in the territory of the Peninsula or of the Balearic Islands and end it in those territories, even if the ship or aircraft goes on to ports or airports situated outside that territory').

and that is the way it has been construed in 37 legal literature.

44In short, no common guideline is to be found in the legislation of the Member States such as to resolve the doubts entertained by the Vestre Landsret. The solution must therefore be arrived at on the basis of the principles governing the common system of VAT, from which it may be inferred, as I have already said, that the tax advantages contained in Article 15(7) and (9) of the Sixth Directive relate to transactions associated with flights made outside the national frontiers by aircraft used by an airline, irrespective of whether its main activity consists of operating international transport services for reward.

45The reply I suggest for the first question makes it unnecessary to examine the second.

37 — Serrano Sobrado, in J.A., El IVA en el comercio exterior, published by Banco Exterior de España, Madrid 1987, considers that the exemption relates to aircraft which actually fly international routes (p. 38). That opinion is shared by Castellano Montero, L„ El IVA en el comercio internacional: intercambios de bienes y servicios, published by the Cámara Oficial de Comercio e Industria de Madrid (Madrid Chamber of Commerce and Trade), Madrid 1997, p.

43. It must be acknowledged, however, that the Spanish authorities take a quite different view, since the Dirección General de Tributos (Revenue Authority), in a non-binding decision of 27 April 1993 (Case 496/93), stated that 'las entregas de los productos de avituallamiento están exentas, con independencia de que dichos productos se utilicen o consuman durante vuelos internacionales o nacionales de las referidas aeronaves' ('supplies of provisions are exempt, irrespective of whether the products are used or consumed on international flights or national flights made by the aforementioned aircraft'). However, interpreting Article 7(6) of the Rules implementing the Law of 1985 (approved by Royal Decree 2028/1985 of 30 October — BOE of 31 October 1985 -) it maintained that 'están exentas del impuesto las entregas de productos destinados a avituallamiento de aeronaves que realicen navegación aérea internacional o asimilada' ('supplies of products for the provisioning of aircraft operating on international or similar routes are exempt from the tax') (decision of 23 December 1986, published in the BOE of 26 January 1987).

VI — Conclusion

46In the light of the foregoing considerations, I propose that the Court of Justice reply as follows to the questions referred to it by the Vestre Landsret:

'Article 15(7) and (9) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment are to be interpreted as meaning that the Member States are not bound to exempt from VAT the transactions to which those provisions refer if they relate to aircraft flying on domestic routes, even if the aircraft are used by companies whose principal activity consists of operating international air transport services for reward'.