Sales, Use and International Tax Activity Update - June 2012
Is an Airport Improvement Fee Subject to VAT?
In this UK case the Appellant was the operator of an airport that provided facilities and services to airlines enabling them to operate passenger flights to and from the airport. In 2007 the operator began to levy an airport development fee (ADF) on passengers departing on fights from the airport. The purpose of the fee was to raise funds for improvements and enhancements to the infrastructure and passenger facilities at the airport.
Passengers were required to purchase an "Airport Development Fee" ticket. This bar coded ticket was required to allow passengers to pass through a series of gates before they could proceed to airport security screening before gaining access to boarding gates. A small percentage of passengers refused to pay the ADF for a variety of reasons and were given free ADF tickets to access the security screening area. Follow up letters were sent to some passengers suggesting that they should not book future flights out of that airport if they do not wish to pay the fee.
The Appellant held the position that the fee was not consideration for any supply. They considered the ADF as outside the scope of VAT because departing passengers did not receive any service in return for their payment of the fee. The payment was not in return for access to the security screening area or the departure gates. Only the boarding pass allowed the passenger access to those areas.
The basic question that the First Tier Tribunal had to determine was whether the ADF constituted consideration for a supply. It determined that it did amount to consideration for admission to the security area. The boarding pass entitled the passenger to board the aircraft but that was irrelevant unless the passenger first paid the ADF to enter the security area. The fee was compulsory. The Appellant had to power to deny access to the security area for non-payment of the fee even if they would occasionally waive it for passengers who refused to pay.
The supply cannot be considered ancillary to zero rated transport services because ADF did not supply transport. The airlines supplied the transport service. The ADF could not be considered zero rated direct needs of the aircraft because the aircraft is capable of flying without the fees. Finally, consideration for access to land, i.e. security area, would be a standard rated supply.
The FTT denied the Appellant's appeal.
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