Sanctions in the light of recent case law

The historically established practice that sanctions are never subject to VAT is changing. The Court of Justice of the European Union issued another judgement on the issue of sanctions, which this time decided on sanctions collected by a private parking lot operator.

In its decision C-90/20 Apcoa Parking Danmark A/S (hereinafter referred to as the “Decision”), the Court of Justice of the European Union (hereinafter referred to as the “CJEU”) expressed whether or not the penalties applicable to infringements of the rules in private parking lots imposed by a private body are subject to VAT.

Apcoa Parking Danmark A/S (hereinafter referred to as “Apcoa”) is a private parking lot operator. In the course of its activities, it established general conditions for the use of these parking lots, while it collected control fees for unauthorised parking in violation of these conditions. The following situations, for example, were involved:

  • exceeding the authorised parking time,
  • the parking ticket is not visibly located behind the windscreen,
  • unauthorised parking in handicapped spots, etc.

Following the previous case-law on the given subject, the CJEU assessed (i) the existence of a direct connection between the parking service provided and the consideration received in the form of control fees and (ii) whether the control fees constitute real remuneration for the individualised parking service.

According to the CJEU, there is a direct connection when the two transactions are mutually conditional, that is, one transaction will take place only on the condition that the other takes place and vice versa. The collection of control fees and parking by the motorist in question are inseparably linked under specific defined conditions and the control fees thus constitute an increased parking fee. In fact, unauthorised parking and consequently the imposed control fees could not exist if the parking space had not been provided before.

The CJEU also reiterated that the interpretation of the VAT Directive provisions is independent of the qualification in the national regulation, i.e., in the case of Apcoa, it is not decisive that the control fee is qualified as a sanction under the Danish Road Traffic Act.

Therefore, when establishing the VAT regime for fees that are identified as penalties, it is necessary to examine their actual substance in the light of the available case-law of the CJEU.

If you have any questions about the information given above, we are ready to discuss your particular situation.

Radka Dubnová, Tax Manager