CJEU reaffirms criteria for applying the special VAT scheme for travel agents | Deloitte Nederland

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CJEU reaffirms criteria for applying the special VAT scheme for travel agents

In a recent judgment, the CJEU reaffirmed the criteria that have to be met in order to apply the special VAT scheme for travel companies (also known as the tour operating margin scheme or ‘TOMS’).

3 February 2021

The judgment also confirms that even after several CJEU judgments on the TOMS, some EU Member States have not correctly implemented the EU rules in their national legislation.

Background

The European Commission had decided to refer Austria to the CJEU for not applying the TOMS correctly. The TOMS means that VAT should be applied only on the margins made from sales of travel services to consumers. In return, however, tour operators cannot recover input VAT in relation to travel services purchased from other businesses.

According to the Commission, Austria does not correctly apply this rule, because it excludes travel services sold to other businesses from TOMS. Such an exclusion is not allowed under current EU rules, and can lead to a distortion of competition.

Austria also infringes on the TOMS by calculating the VAT to be paid by tour operators based on an overall margin within a tax period instead of margin per trip.

CJEU judgment

On January 27, 2021, the CJEU ruled in the Commission v Austria case (C-787/19) along the lines of its earlier case-law. In the first place it reaffirms its judgments in the Commission v Spain case (C-189/11) and the Commission v Germany case (C-380/16) that the exclusion of travel services sold to other businesses from the TOMS is not compatible with VAT law. The term “traveler” contained in the VAT Directive should be interpreted broadly and should include all types of customers, including businesses. In that regard it ruled that the interpretation proposed by Austria according to which B2B services should be excluded from the TOMS restricts the application of the scheme and is therefore incompatible with the established case law of the CJEU.

In second place, the CJEU ruled that it is not allowed to apply a global computation of the taxable base, reaffirming the above-mentioned EU case-law in which it ruled that the taxable amount must be defined for each individual sale, and not calculated on the basis of a group of sales. Again, the CJEU rules that Austria is in breach of applying the TOMS correctly.

The Netherlands

The judgment by the CJEU reaffirms the practice in the Netherlands that the TOMS also applies to travel services sold to other businesses which is confirmed by the Dutch Ministry of Finance in a decree. However, in view of the CJEU’s case-law, the Dutch ‘globalization scheme’, the method of calculating the VAT to be paid by tour operators based on the margin within a tax period, does not comply with the VAT Directive.

EU’s Tax Action Plan

The judgment comes at a time when the European Commission is working on an evaluation of the application and implementation of the TOMS to see whether the scheme is still fit for purpose. In fact, it is one of the 25 action points of the Tax Action Plan that was announced on July 15, 2020. If deemed necessary, the Commission will table a proposal amending the VAT Directive in 2022 or 2023.

Brexit & application of TOMS

In this regard it is also important to mention that due to the Brexit as of January 1, 2021 the UK is no longer part of the EU. As a result TOMS no longer applies to travel services supplied with a destination in the UK. This means that as of January 1, 2021 Dutch tour operators should apply the 0% Dutch VAT rate on the margin for travel services sold with a destination in the UK (and/or other places outside the EU).

UK travel agents can account for VAT under an amended UK (TOMS) regime, whereby UK VAT only needs to be paid on the margin on holidays spent in the UK (meaning that no VAT will be due on the margin on holidays spent in the EU). Before Brexit, VAT was due on travel services that took place in all EU countries. If UK businesses can successfully apply the EU TOMS and avoid application of the regular VAT rules for supplies in the EU, it will give them an advantage over EU based tour operators. However, Germany recently announced to not accept non-EU established businesses to apply the EU TOMS and not account for local VAT on travel supplies in Germany. It is unclear if this point of view is correct, but these developments will certainly lead to a more complex VAT position for tour operators.

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