On 1 August 2022, the European Court of Justice (“ECJ”) ruled in its case C-294/21 that Luxembourg and Germany are obliged to levy VAT on passenger transport services which take place on a section of the Moselle river which constitutes a common territory under the joint sovereignty of both Member States by virtue of an international treaty of 19 December 1984.
The case concerned the Luxembourg company Navitours, which organises boat trips on the Moselle. According to the above-mentioned treaty between Germany and Luxembourg, the relevant section of the Moselle constitutes a so-called “condominium”, which means that it falls under the joint sovereignty of both Member States. Because of this common sovereignty status, the Luxembourg VAT authorities never levied Luxembourg VAT on the sale of transport tickets by Navitours. Following a decision of the Luxembourg Court of Appeal in the context of the acquisition of a vessel by Navitours, this position of the Luxembourg VAT authorities changed and it issued ex officio tax assessments levying Luxembourg VAT on the sale of the tickets. Navitours challenged the ex officio tax and the case reached the Supreme Court (Cour de cassation), which referred a question to the ECJ for a preliminary ruling. In its question the Supreme Court asked whether Luxembourg can levy VAT on passenger transport services performed within a common territory under the joint sovereignty of two Member States.
The ECJ first considered that the services provided were indeed transport services within the meaning of the VAT Directive, even though the boat tours operated by Navitours end in the same place in which they began and their purpose is of a tourist nature. The ECJ also found that the transport service was carried out “within the territory of the country" of both Luxembourg and Germany, within the meaning of the VAT Directive, insofar as the relevant section of the Moselle was not among the territories excluded from the scope of the VAT Directive. As a consequence, and in the absence of any specific provisions in the VAT Directive, services such as those at stake in the case at hand may in principle be taxed by each of the two Member States.
The ECJ rejects Germany's argument that the VAT taxation of one of the two countries would have required the prior agreement of the other State. According to the ECJ, such an approach would allow Member States to create territories in which services supplied there would escape any levying of VAT. The ECJ also considers that such an approach would be contrary to the principle of fiscal neutrality, according to which operators carrying out the same transactions must not be treated differently as regards the levying of VAT. The ECJ concludes that transport services on the relevant section of the Moselle must be subject to the VAT of one of the two Member States. However, the taxation of these services by one of the Member States prevents the other Member State from taxing them in turn. Both Member States are free to agree on the manner of taxation, provided that non-taxation of revenue and double taxation are avoided.
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