© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
H22. International transport
EU law exemptions
"Member States shall exempt the following transactions:
(a) the supply of goods for the fuelling and provisioning of vessels used for navigation on the high seas and carrying passengers for reward or used for the purpose of commercial, industrial or fishing activities, or for rescue or assistance at sea, or for inshore fishing, with the exception, in the case of vessels used for inshore fishing, of ships' provisions;
(b) the supply of goods for the fuelling and provisioning of fighting ships, falling within the combined nomenclature (CN) code 8906 10 00, leaving their territory and bound for ports or anchorages outside the Member State concerned;
(c) the supply, modification, repair, maintenance, chartering and hiring of the vessels referred to in point (a), and the supply, hiring, repair and maintenance of equipment, including fishing equipment, incorporated or used therein;
(d) the supply of services other than those referred to in point (c), to meet the direct needs of the vessels referred to in point (a) or of their cargoes;
(e) the supply of goods for the fuelling and provisioning of aircraft used by airlines operating for reward chiefly on international routes;
(f) the supply, modification, repair, maintenance, chartering and hiring of the aircraft referred to in point (e), and the supply, hiring, repair and maintenance of equipment incorporated or used therein;
(g) the supply of services, other than those referred to in point (f), to meet the direct needs of the aircraft referred to in point (e) or of their cargoes." (Article 148)
- Exemption applies to domestic flights where the airline operates mainly internationally
"[28] Thus, 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.
[29] The 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." (Cimber Air C-382/02)
Aircraft used by airlines operating for reward chiefly on international routes
- Mainly international if non-international routes are considerably less extensive
"[38] That 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.
[39] It 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." (Cimber Air C-382/02)
Services to meet the direct needs
- Refers to services necessary to the operation of the aircraft (excludes luggage storage for passengers)
"[45] In my judgment, the services supplied by the Taxpayers do not fall within Article 15(9): they do not meet the direct needs of aircraft or of their cargoes. It is common ground that the passengers' luggage stored by the Taxpayers is not aircraft cargo. The storage services supplied by EBC do not meet "the direct needs" of aircraft. "Direct needs" of aircraft refer to services necessary to the operation of the aircraft: see Berkholz v. Finanzamt Hamburg-Mitte-Altstadt [1985] ECR 2251. It is not necessary for the operation of the aircraft or their cargo that the Taxpayers supply a left luggage service for the passengers. The direct needs met by the Taxpayers' services are not those of aircraft or their cargoes at all, but those of the passengers who, for one reason or another, have not checked in and consigned to the operators of the aircraft their luggage for transportation on their aircraft flights. Until that has been done the services supplied by the Taxpayers are for the convenience of the passengers, not to meet the direct needs of aircraft or their cargoes.
[46] For similar reasons the services supplied do not fall within Article 15 (13): they are not "directly connected" with the import or export of the passengers' luggage. That direct connection does not begin until the passenger have checked in their luggage for their flight and consigned it to the aircraft operator. Once they have done that there is a direct connection with the export of the luggage by transportation and ancillary operations." (HMRC v. EB Central Services Limited [2008] EWCA Civ 486, Mummery LJ)
- Direct connection only when luggage consigned to possession of carrier
"[75] In my view, the direct connection between the storage and the luggage being carried on a subsequent flight will be established only when the luggage is consigned to the possession of the carrier at the check-in desk. Once this happens, the luggage ceases to be in the custody and control of the owner and it becomes cargo. The owner has decided to place it in the hands of the carrier with a view to being carried as cargo on an aircraft. If it becomes necessary for the carrier to store the luggage thereafter, that storage is a service to meet the direct needs of the cargo. Only then is there the necessary direct connection between storage and the luggage being subsequently carried on the aircraft. The luggage will be carried and the storage is a necessary step on the way.
[76] Similar reasoning leads to the same conclusion in relation to article 15(13). The requirement of a direct connection between the storage of the luggage and its carriage by air is explicitly articulated in article 15(13)." (HMRC v. EB Central Services Limited [2008] EWCA Civ 486, Dyson LJ)
Transport of goods for export
- Supply must be directly to the exporter or consignee of the goods
"[35] Referring, in that regard, to its settled case-law, according to which VAT exemptions must be interpreted strictly since they constitute exceptions to the general principle that that tax is to be levied on each delivery of goods and each service supplied for consideration by a taxable person, the Court has held that it follows from the wording and the objective of Article 146(1)(e) of the VAT Directive, according to which the supply of services, including transport and ancillary transactions, are exempt from VAT when they are directly connected with the exportation of goods, that that provision must be interpreted as meaning that the existence of a direct connection entails not only that, by their subject matter, the supplies of services in question contribute to the actual performance of an exportation transaction, but also that those services are supplied directly to, as the case may be, the exporter or the consignee of the goods referred to in that provision (see, to that effect, judgment of 29 June 2017, L.Č., C‑288/16, EU:C:2017:502, paragraphs 22 and 23)." (Cartrans Spedition C-495/17)
Transport of goods on import
- Supply must be connected with importation + value must be included in taxable amount of imported goods
"[31] According to Article 144 of the VAT Directive, the Member States are required to exempt the supply of carriage services relating to the importation of goods where the value of such services is included in the taxable amount in accordance with Article 86(1)(b) of that directive. Thus, two conditions are expressly laid down for such a supply of carriage services to be exempt from VAT. First, that supply must be connected with the importation of the goods concerned and, second, the value of that supply must be included in the taxable amount for VAT purposes of the imported goods (see, to that effect, judgment of 4 October 2017, Federal Express Europe, C‑273/16, EU:C:2017:733, paragraphs 39 and 40)." (Cartrans Preda C-461/21)
- Transport costs not necessarily included in taxable amount for goods
"[33] In the light of a combined reading of Articles 85 and 86 of the VAT Directive, from which it is apparent that those transport costs are not necessarily included in the value for customs purposes of imported goods, and if Article 86 is not to be deprived of its effectiveness, it cannot be held that the recording of an import transaction entails, on that very same basis and systematically, that the costs of that transport carried out by a taxable person between the Member State in whose territory the place where those goods are introduced into the European Union is situated and a place of destination in another Member State are included in the taxable amount for VAT purposes of the imported goods. If they are not already included in the value for customs purposes, which must first be verified, those costs must then be included in the taxable amount for VAT purposes of the imported goods, in accordance with the requirements of Article 86(1)(b) of the VAT Directive." (Cartrans Preda C-461/21)