Taxation and
Customs Union
Taxation and
Customs Union
Study on the review of the VAT
Special Scheme for travel
agents and options for reform
Final Report
TAXUD/2016/AO-05
Written by KPMG
December 2017
Study on the review of the VAT Special Scheme for travel agents and options for reform
EUROPEAN COMMISSION
Directorate-General for Taxation and Customs Union
Directorate C — Indirect Taxation and Tax Administration
Unit C1 — Value Added Tax
Contact: Arne Kubitza
European Commission
B-1049 Brussels
EUROPEAN COMMISSION
Directorate-General for Taxation and Customs Union
TAXUD/2016/AO-05
Study on the review of the VAT
Special Scheme for travel
agents and options for reform
Final Report
TAXUD/2016/AO-05
EUROPEAN COMMISSION
Directorate-General for Taxation and Customs Union
TAXUD/2016/AO-05
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Luxembourg: Publications Office of the European Union, 2017
KP-07-17-131-EN-N
ISBN 978-92-79-76931-3
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5
Table of Contents
1
Executive Summary ........................................................................................................................................... 11
1.1 Background to this report.......................................................................................................................... 11
1.2 Outline of the approach taken ................................................................................................................... 12
1.3 Structure of the report ............................................................................................................................... 12
1.4 Economic analysis .................................................................................................................................... 12
1.5 Evaluating the functioning of the current rules .......................................................................................... 12
1.6 Options for reform ..................................................................................................................................... 13
2 Introduction ........................................................................................................................................................ 15
2.1 Objectives of the study ............................................................................................................................. 15
2.2 Scope ....................................................................................................................................................... 15
2.3 Surveys..................................................................................................................................................... 15
2.4 Quantitative analysis ................................................................................................................................ 16
2.5 Introduction to the travel industry .............................................................................................................. 16
Technological change .............................................................................................................. 17
Sharing economy ..................................................................................................................... 17
Importance of tourism in the EU .............................................................................................. 18
2.6 Definitions ................................................................................................................................................. 22
2.7 Distortion of competition ........................................................................................................................... 23
3 Introduction to the Special Scheme ................................................................................................................. 26
3.1 Relevant VAT Directive Provisions ........................................................................................................... 26
3.2 History of the Special Scheme .................................................................................................................. 26
3.3 Reform of the Special Scheme ................................................................................................................. 26
3.4 Analysis of CJEU case law affecting the Special Scheme ........................................................................ 27
Commission v Germany .......................................................................................................... 27
Van Ginkel ............................................................................................................................... 27
DFDS ....................................................................................................................................... 28
Madgett and Baldwin ............................................................................................................... 28
First Choice ............................................................................................................................. 29
MyTravel .................................................................................................................................. 29
ISt ............................................................................................................................................ 29
Minerva .................................................................................................................................... 30
Commission v Spain et al ........................................................................................................ 30
3.4.9.1 Advocate General’s observations ........................................................................... 30
3.4.9.2 CJEU ...................................................................................................................... 31
Star Coaches ........................................................................................................................... 31
Maria Kozak ............................................................................................................................. 32
Findings in respect of CJEU case law ..................................................................................... 32
4 Description and economic analysis of the travel industry ............................................................................. 35
4.1 Objective................................................................................................................................................... 35
4.2 Section summary ...................................................................................................................................... 35
4.3 Business models ...................................................................................................................................... 35
6
Tour operators ......................................................................................................................... 36
Travel Management Companies (TMC) ................................................................................... 39
Travel agents ........................................................................................................................... 40
Destination Management Companies (DMC) .......................................................................... 42
MICE (Meeting, Incentives, Conference and Events) organisers ............................................ 44
Phase 1 – Qualitative analysis ................................................................................................. 45
4.3.6.1 Decisions of the Commission in areas other than taxation. .................................... 45
Phase 2 – Quantitative analysis .............................................................................................. 47
4.3.7.1 Macroeconomic data............................................................................................... 47
4.3.7.2 Discussion about the data ....................................................................................... 51
4.3.7.3 Other European Countries ...................................................................................... 51
4.3.7.4 North American Economic Data .............................................................................. 52
Findings ................................................................................................................................... 52
5 Evaluate the functioning of the current rules .................................................................................................. 55
5.1 Objective................................................................................................................................................... 55
5.2 Section Summary ..................................................................................................................................... 55
5.3 Defining distortion of competition .............................................................................................................. 55
5.4 Simplification benefits of the Special Scheme .......................................................................................... 56
5.5 Assessment of material issues and potential distortions arising from the current application of the
Special Scheme rules ............................................................................................................................... 56
Non-deductibility of input tax as a result of B2B supplies being taxed under the Special
Scheme ................................................................................................................................... 56
Advantages enjoyed by intermediaries over those falling within the Special Scheme ............. 58
Advantages enjoyed by travel agents incurring costs which may not be subject to VAT ......... 58
The effect of the taxing of the Special Scheme margin at the standard rate ............................ 58
Invoicing .................................................................................................................................. 59
5.5.5.1 B2B Special Scheme supplies – obligation to issue an invoice .............................. 60
5.5.5.2 B2B Special Scheme supplies – requirement to display Special Scheme
margin VAT on the invoice ...................................................................................... 60
5.5.5.3 Invoice reference to the Special Scheme ................................................................ 60
The interaction of the Special Scheme with VAT registration thresholds ................................. 60
Wholesale supplies .................................................................................................................. 61
5.5.7.1 Application by Member States ................................................................................ 61
5.5.7.2 Wholesale supplies of single items ......................................................................... 61
5.5.7.3 Wholesale supplies of packages ............................................................................. 61
5.5.7.4 Domestic accommodation and wholesale supplies ................................................. 62
5.5.7.4.1 Wholesale supplies considered subject to the Special Scheme .................... 62
5.5.7.4.2 Wholesale supplies considered not subject to the Special Scheme .............. 62
5.5.7.5 Wholesale accommodation illustration .................................................................... 63
5.5.7.6 DMC wholesale package illustration ....................................................................... 67
5.5.7.6.1 The DMC is established in the Member State in which the travel
facilities are consumed ................................................................................. 67
5.5.7.6.2 The DMC is established in a different Member State .................................... 69
5.5.7.7 Conclusion on wholesale supplies .......................................................................... 70
Other B2B supplies .................................................................................................................. 70
5.5.8.1 Application by Member States ................................................................................ 70
Meaning of intermediary .......................................................................................................... 71
VAT recovery by businesses receiving Special Scheme supplies ........................................... 71
Scope of the Special Scheme .................................................................................................. 72
5.5.11.1 Single travel services .............................................................................................. 72
5.5.11.2 Differences in what constitutes travel facilities ........................................................ 73
5.5.11.3 Duration .................................................................................................................. 75
7
5.5.11.4 Purchases from non-VAT registered businesses .................................................... 75
5.5.11.5 Electronically supplied services .............................................................................. 75
Mixed packages of in-house and Special Scheme B2B supplies ............................................ 75
5.5.12.1 Invoicing in-house supplies packaged with Special Scheme supplies .................... 75
5.5.12.2 In-house items itemised on an invoice .................................................................... 75
5.5.12.3 Output tax itemised for each element of the mixed package .................................. 76
5.5.12.4 Valuation and Apportionment of a mixed Special Scheme and in-house B2B
Supply ..................................................................................................................... 76
5.5.12.5 Presentation on invoice of apportionment of a mixed Special Scheme and in-
house B2B supply ................................................................................................... 77
Mixed packages of bought-in and intermediary supplies ......................................................... 77
Mixed Packages including bought-in, in-house and intermediary elements ............................. 77
Mixed Packages – conferences and events ............................................................................ 78
Margin calculation .................................................................................................................... 78
5.5.16.1 Practical implications .............................................................................................. 79
5.5.16.2 Retrospective Adjustments ..................................................................................... 80
5.5.16.3 Fixed profit % .......................................................................................................... 80
5.5.16.4 Income subject to the Special Scheme and allowable costs in margin
calculations ............................................................................................................. 80
5.5.16.5 Margin calculated by reference to VAT inclusive costs ........................................... 80
5.6 Competitive advantages enjoyed by travel agents established outside the EU ........................................ 81
Tour operators ......................................................................................................................... 81
DMC ........................................................................................................................................ 81
5.6.2.1 FIT .......................................................................................................................... 81
5.6.2.2 Packages ................................................................................................................ 82
TMC ......................................................................................................................................... 82
Travel agents ........................................................................................................................... 83
5.6.4.1 Electronically supplied services .............................................................................. 83
MICE ........................................................................................................................................ 84
6 Identify, assess and compare options for reform both under the current place of supply rules and
under place of supply rules based on the destination principle ................................................................... 86
6.1 Introduction ............................................................................................................................................... 86
6.2 Section Summary ..................................................................................................................................... 86
6.3 Background .............................................................................................................................................. 86
The VAT Green Paper ............................................................................................................. 86
The 2011 conclusions to the Green Paper consultation .......................................................... 86
The VAT Action Plan ............................................................................................................... 87
6.4 Our approach to the assessment and comparison of reform options ....................................................... 87
6.5 Introduction to the options for reform ........................................................................................................ 87
6.6 The distortions of competition and other material issues we have identified ............................................ 88
6.7 Adoption of the current rules as interpreted by the CJEU by all Member States ...................................... 88
6.8 The proper treatment of a “package” ........................................................................................................ 90
6.9 Mini One Stop Shop (MOSS) .................................................................................................................... 91
6.10 The merits of a margin based Special Scheme ........................................................................................ 91
6.11 What would happen if there was no margin scheme? .............................................................................. 93
6.12 Exemption without credit........................................................................................................................... 95
6.13 The operation of a future Special Scheme................................................................................................ 95
6.14 The nature of the future Special Scheme ................................................................................................. 98
Definition of travel facilities ...................................................................................................... 98
8
Scope of the Special Scheme .................................................................................................. 99
Nature of the calculation of VAT due ....................................................................................... 99
Taxation of the margin at a reduced rate ............................................................................... 100
Application of the Special Scheme to supplies to taxable persons ........................................ 100
6.14.5.1 TMC sector ........................................................................................................... 101
6.14.5.2 MICE ..................................................................................................................... 103
6.14.5.3 DMC...................................................................................................................... 107
6.14.5.3.1 The supply of FIT services ......................................................................... 109
6.14.5.3.2 Creation of a travel package to be sold on a wholesale basis ..................... 110
6.14.5.3.3 Wholesale supply of accommodation by Bed Banks ................................... 112
The Special Scheme opt-out ................................................................................................. 113
6.15 Equality of treatment of EU and third country travel agents .................................................................... 113
Reverse charge ..................................................................................................................... 115
6.16 The use of MOSS for travel services ...................................................................................................... 115
6.17 Future developments in the travel sector ................................................................................................ 115
6.18 Findings .................................................................................................................................................. 116
Abolition of the Special Scheme ............................................................................................ 117
The operation of a future Special Scheme ............................................................................. 118
Annex 1 Questionnaire 1 (current Special Scheme rules as applied by Member States) ............................. 121
Annex 2 Questionnaire 2 (Business Questionnaire) ........................................................................................ 125
2.1 EU businesses ........................................................................................................................................ 125
2.2 Non-EU businesses ................................................................................................................................ 128
Annex 3 Quantitative analysis ............................................................................................................................ 131
3.1 Section 1: Turnover – Europe ................................................................................................................. 131
N79 – Travel Agencies .......................................................................................................... 131
N79.1.2 – Tour operators ....................................................................................................... 131
N79.9.9 - Other ...................................................................................................................... 131
N82.3.0 – Organisation of conventions and trade shows....................................................... 131
3.2 Turnover - North America ....................................................................................................................... 132
561510 Travel Agencies ........................................................................................................ 132
561520 Tour Operators ......................................................................................................... 132
561591 Convention and Visitors Bureaus .............................................................................. 132
561599 All Other Travel Arrangement and Reservation Services ......................................... 132
WTTC – Economic Impact Analysis....................................................................................... 132
3.3 Methodology – Europe ........................................................................................................................... 132
N79 – All – Travel agency, tour operation reservation services and related activities ........... 133
N79.1.1 – Travel agencies ..................................................................................................... 134
N79.1.2 – Tour operators ....................................................................................................... 135
N79.9.9 – Other reservation .................................................................................................. 136
N82.3.0 – Organisation of conventions and tradeshows........................................................ 137
Summary of 2015 data .......................................................................................................... 138
3.4 Business Models Definitions: .................................................................................................................. 141
Tour Operator ........................................................................................................................ 141
Travel Management Companies (TMC) ................................................................................. 141
Travel agents ......................................................................................................................... 141
Destination Management Companies (DMC)/Wholesale Tour Operators ............................. 141
MICE organisers, i.e. Meeting, Incentives, Conferences and Events organisers ................... 141
3.5 NACE Definitions .................................................................................................................................... 141
9
Travel Agent .......................................................................................................................... 141
Tour Operator ........................................................................................................................ 141
Other ...................................................................................................................................... 142
Conventions and Shows ........................................................................................................ 142
Treatment of the data ............................................................................................................ 142
3.6 Methodology – North America ................................................................................................................ 142
Business Models Definitions: ................................................................................................. 143
Tour Operator ........................................................................................................................ 143
Travel Management Companies (TMC) ................................................................................. 143
Travel agents ......................................................................................................................... 143
Destination Management Companies (DMC)/Wholesale Tour Operators ............................. 143
MICE organisers, i.e. Meeting, Incentives, Conferences and Events organisers - mainly
in the corporate segment (B2B). ............................................................................................ 143
3.7 NAICS Definitions ................................................................................................................................... 143
561510 Travel Agencies ........................................................................................................ 143
561520 Tour Operators ......................................................................................................... 143
561591 Convention and Visitors Bureaus .............................................................................. 143
561599 All Other Travel Arrangement and Reservation Services ......................................... 144
3.8 Treatment of the data ............................................................................................................................. 144
3.9 VAT extrapolations ................................................................................................................................. 145
VAT throughput...................................................................................................................... 145
Wholesale illustration ............................................................................................................. 146
Illustrative calculations ........................................................................................................... 147
3.9.3.1 UK to Spain ........................................................................................................... 147
3.9.3.2 Germany to Greece .............................................................................................. 147
3.9.3.3 UK to EU ............................................................................................................... 147
Annex 4 Articles 306 to 310 of the VAT Directive ............................................................................................. 149
4.1 Article 306 ............................................................................................................................................... 149
4.2 Article 307 ............................................................................................................................................... 149
4.3 Article 308 ............................................................................................................................................... 149
4.4 Article 309 ............................................................................................................................................... 149
4.5 Article 310 ............................................................................................................................................... 149
Annex 5 List of common abbreviations used in this study ............................................................................. 151
`
Executive
Summary
11
1 Executive Summary
This report is prepared by KPMG to provide the
European Commission’s Directorate General for
Taxation and Customs Union with an overview of the
functioning of the Special Scheme for travel agents
(“Special Scheme”) contained in Articles 306 to 310 of
the VAT Directive.
1
It also addresses options for
reform in respect of the Special Scheme.
It reviews the history of the Special Scheme and the
influence of relevant judgments by the Court of Justice
of the European Union (“CJEU”) as well as the views
expressed by the Court on the proper functioning of the
scheme.
The Special Scheme has now been in place for over
40 years and must function in a world that has
changed significantly since its inception. These years
have seen enormous growth in international travel,
changes in technology, widespread deregulation
(particularly in the airline industry) and disruptive
business models that have led to ways of conducting
business that would not have been in the mind of the
original drafters of the law. The combination of these
factors, coupled with evolving CJEU case law, have led
us to conclude that modernisation is needed.
Competitive neutrality means that tax-driven price
differences should be eliminated irrespective of how a
transaction occurs. The report identifies two principal
distortions of competition that should be addressed in
order to ensure this happens. The first involves varying
definitions of what constitute “travel facilities” applied in
Member States and secondly, the treatment of B2B
transactions. This latter distortion is of particular
concern to those sectors of the industry whose
activities, by their very nature, are focused on
corporate clients.
The report also identifies material issues where a level
playing field is not assured. Differences in VAT
treatment in practice occur between EU-established
and non-established suppliers. In addition, the
requirement for the margin to be calculated on a
transaction-by-transaction basis is outdated and
unsuited to the complexities of actual business. Non-
deductibility of input tax by a travel agent is also a
significant drawback of the scheme when providing
services to a business client.
As with any tax system, any critical review will always
revert to its role in the raising of revenue. Our
indicative estimate of the amount of VAT actually
collected under the Special Scheme amounts to circa
€1.9bn whilst associated irrecoverable VAT is
indicatively estimated at circa €5.6bn
2
. In aggregate,
these are significant figures but should be read in the
context of an EU VAT system that raises almost €1tn
annually
3
.
We have concluded that the underlying concepts and
the general manner in which the scheme functions are
1
Council Directive 2006/112/EC
2
These figures should be considered to be only indicative estimates of
potential VAT impacts. All the underlying data is necessarily either
approximation or sample-based. Some of the approximations would
still fit for purpose, meeting the objectives of providing
simplicity and raising revenue, particularly where B2C
transactions are concerned. The scheme however was
conceived to deliver these objectives in a significantly
different environment. It now needs to be modernised
to ensure that it continues to deliver for another 40
years.
1.1 Background to this report
The VAT Directive makes special arrangements for
travel agents or tour operators (hereinafter we use the
collective term ‘travel agents’) who deal with customers
in their own name and use the supplies and services of
other businesses (taxable persons) in the provision of
travel facilities.
The resultant Special Scheme was intended to simplify
the application of the VAT rules for these businesses
who otherwise would have faced practical difficulties
and complexities. At the same time it sought to ensure
that tax accrues to the country where the travel
services were actually provided. Although it seemed to
be a very practical and simple taxation scheme for
those concerned, differences in interpretations and in
application in various Member States have arisen.
Over time the practical implementation of these
measures has generally been seen as one of the more
complex areas of VAT demanding specialist
knowledge and experience.
Moreover, a changed business environment has
involved taxpayers and tax administrations dealing with
outdated legislation that, even if applied consistently,
provides a number of functional challenges to
contemporary businesses. The actions of legislators
and regulators have in many instances facilitated the
process of change and ensured a reasonable level of
certainty. In the travel sector, the Commission’s recent
updating of the Package Travel Directive
4
is an
example of this. Modernisation of the VAT rules has
however proven more difficult. A previous attempt at
reform did not come to fruition due to a lack of
consensus in the European Council.
The travel industry is multi-layered, complex and, like
any dynamic business sector, does not remain static. It
is hardly surprising that a tax system unchanged in 40
years is often difficult to apply in practice and has led
to greater controversy and subsequent litigation as the
business models have developed.
Continued growth is forecast for the sector in the EU.
Europe has a larger share of the global market than
any other part of the world and European destinations
dominate any listing of popular choices. Its
contribution to GDP and to employment is widely
acknowledged and a range of public policy priorities
are targeted at ensuring that these benefits endure and
grow.
imply that the estimates are more likely to be over-estimates than
under-estimates but, overall, we cannot confirm this
3
Figure mentioned in the recent Action Plan on VAT COM (2016) 148
final.
4
Directives 2015/2302/EU
12
1.2 Outline of the approach taken
An aim of the study is to evaluate the functioning of the
current VAT rules provided for in the Special Scheme
and identify potential distortions of competition.
Services originating in another country should be taxed
in the same way for VAT purposes as domestic
services. In this respect, it is unnecessary to
demonstrate conclusive distortion of competition by
means of statistics alone. It is sufficient that distortion
of competition should be the likely effect of differences
in taxation.
5
To this end, KPMG queried how the Special Scheme
functioned at national level across the Member States
as well as how businesses perceived its impact. This
was not limited to KPMG clients alone but took an
extensive focus, gathering the views of a wide cross-
section of the industry as well as national and
international trade and professional bodies.
Based on the data received from business as well as
national and EU bodies (notably EUROSTAT and,
where available, national tax statistics), we undertook a
quantitative analysis of the relative significance of
distortions of competition we identified and an
estimation of the quantitative impact of the identified
options for reform on national budget revenues for
Member States.
In line with the Tender Specifications identified by the
Commission Services in respect of the project, this
study reflects the UK as a member of the European
Union.
1.3 Structure of the report
Section 2 sets out the principal parameters of the study
and its objective which, starting from the original aims
of the legislators in 1977, is to consider whether the
way the Special Scheme functions today meets those
aims or whether remedial action is needed. It
describes the approach to information gathering and
sets out an economic profile of the industry and its
significance as well as looking at the hallmarks
identifying how tax can distort the conditions of
competition.
Section 3 describes in detail the history and functioning
of the Special Scheme. It recounts the experiences of
previous attempts at reform and includes a detailed
case-by-case analysis of relevant case law of the
CJEU addressing both infringement proceedings and
referrals. In considering what the Court has said,
particular attention is given to the impact on the
functioning of the Special Scheme as well as the
constraints created by the obligation to avoid
competitive distortion. The Court’s understanding of
the purpose of the Special Scheme as set out in these
judgments has underpinned our evaluation of the
Special Scheme and the consideration of reform
options in sections 6.
5
Article 113 of the Treaty on the Functioning of the European Union
(2012/C-326/01) provides for the harmonisation of VAT legislation to the
extent necessary “to avoid distortion of competition”
6
Study on the impact of EU policies and the measures undertaken in
their framework on tourism, (prepared by Risk & Policy Analysts for DG
1.4 Economic analysis
Section 4 considers the five business models identified
by Commission studies
6
as operating in the tourism
industry, and how VAT impacts on the respective
supply chains. The section provides, on this basis, an
economic analysis of the industry. These models or
business categories must be seen as usefully
indicative rather than reflecting a definitive or exclusive
description, with many travel businesses spanning two
or more of them. They are however a good basis on
which to describe and analyse the manner in which
VAT functions in the travel market. Due to
inconsistencies in how the rules are applied by
different Member States, it is not always easy to make
a “like-for-like” comparison. Nevertheless, this analysis
establishes a firm basis for the more detailed technical
analysis in section 5 and gives context to the
evaluation of alternative reform options at section 6.
The total annual turnover of the EU travel and tourism
sector is calculated at around €187bn per annum
7
. In
broad terms, the Special Scheme taxes only travel,
supplied by EU established businesses, to EU
destinations. We have indicatively estimated the value
of irrecoverable input tax generated by the scheme at
circa €5.6bn annually and output tax (collected on
supplies) at circa €1.9bn. The majority of the tax
collected via the Special Scheme therefore takes the
form of irrecoverable input tax, which generally is
collected in the Member State of destination. The
estimated value of Special Scheme output tax is
smaller in totality, and is collected in the Member
States in which the respective travel businesses are
established.
Although the fundamental feature of blocked input tax
recovery is applied relatively consistently across the
EU and affects all business models in a similar
manner, there are significant differences in
implementation across Member States. This is
explored in section 5. They can impact the different
supply chains associated with the five key business
models in different ways. This section therefore
provides important context for the subsequent section
of the report.
1.5 Evaluating the functioning of
the current rules
Section 5 looks in detail at how the provisions of the
Special Scheme are applied by the Member States.
The two key aims of the Special Scheme are
simplification and efficient revenue allocation between
Member States. Regarding the first of these aims it can
be said that this has been achieved and that travel
agents appreciate the benefit of that simplification,
despite the numerous inconsistences in application as
discussed below.
In the majority of cases it appears that these
discrepancies arise simply from differing local
interpretations of the VAT Directive and/or the case law
Enterprise and Industry, September 2012) and the Study on the
Competitiveness of the EU tourism industry (prepared by Ecorys,
October 2009)
7
Based on data identified for 2015 and as described in Section 4.3.7
13
of the CJEU. It may be considered that this scope for
differing interpretations results from the absence of
precise, prescriptive provisions in the VAT Directive or
implementing regulations. A common feature across
the majority of Member States is that local legislation
and local published tax authority guidance are often
lacking the precision or detail necessary to provide
clarity on the VAT treatment of particular scenarios. As
a result, accepted local practice can be inconsistent
even within a given Member State (and Annex 1, which
summarises differences between Member States,
should be read in this context).
Whilst the inconsistencies create uncertainty and
difficulties for taxpayers operating in multiple Member
States, we have concluded from a quantitative
perspective that many create neither a material issue,
nor a distortion of competition, in aggregate for the EU
as a whole. Even so, on a qualitative basis, given the
difficulties they create it would be advisable to seek
greater harmonisation and to address these points in
the course of reform.
However, a limited number of issues are more
significant and warrant further examination. First, we
have concluded that the different treatment of
wholesale supplies and, secondly, the differing
approaches to the meaning of travel facilities create a
distortion of competition. In addition we have
concluded that the need to calculate the margin VAT
on a transaction by transaction basis and the inequality
between third country suppliers and those established
in the Member States are all material issues for the
industry that merit a resolution. Further, we have
concluded that the inability of a travel agent to deduct
input tax on travel supplies in respect of B2B services,
is a significant drawback of the Special Scheme.
Precise quantification of every potential distortion of
competition was not possible as part of this study,
although the quantitative analysis at section 4 has
informed our conclusions. In the absence of
comprehensive, publicly available economic data, this
study seeks to extrapolate and approximately quantify
the identified distortions of competition by reference to
the likely quantum of “tax collected” in real-world
examples illustrating each of the five business models
identified. Even if the estimates of total Special
Scheme revenue and therefore irrecoverable input tax
can be seen as modest, an issue manifests in the fact
that many travel agencies in the B2B sector operate as
intermediaries and therefore outside the Special
Scheme, thereby reducing VAT revenues under the
Special Scheme. In the DMC sector the issue is more
the inconsistency in the application of the Special
Scheme to wholesale supplies and it is also probable
that VAT revenue would be greater if the rules were
harmonised.
1.6 Options for reform
In section 6 we explain how we have arrived at the
conclusion that reform of the Special Scheme is
desirable.
We have concluded from industry feedback that there
is a lack of desire to abolish the Special Scheme
entirely. Nevertheless there is scope for change in
addressing the issues detailed in section 5.
The question of how travel agents established outside
of the EU who sell to EU consumers might be brought
within the scope of EU VAT needs to be addressed.
This section looks at how this might be done in
practice.
By their nature, many of the options under
consideration here would involve operators being
required to pay VAT in multiple Member States. If the
Commission considers going in that direction, in future,
we believe that an enhanced form of the current Mini
One Stop Shop (“MOSS”) arrangement might be
available to assist travel agents in their compliance
with regard to B2C supplies.
We would like to formally acknowledge and thank the
numerous businesses, travel associations, tax
authorities and experts who contributed to this study.
This study focuses in particular on potential reform
options identified by the Commission Services. We
have considered the possible effects of each option but
have not set out to reach final conclusions on how
reform of VAT as it affects travel agents should
develop in detail. Such conclusions or recommendation
on the details and implementation of any preferred
option go beyond the scope of this study. We have
therefore outlined our view of the likely high-level
effects of the options, informed by our earlier analysis.
It has to be acknowledged that there can be different
perspectives and issues in respect of the reform
options, but we believe our assessment may serve as
a framework for future debate and further analysis
which the Commission will need to undertake.
`
Introduction
15
2 Introduction
2.1 Objectives of the study
This study on the Special Scheme has been
commissioned by the Taxation and Customs Union
Directorate General of the Commission (DG TAXUD).
The overall objective is to consider how the original
objectives of the scheme can best be delivered,
whether these remain valid or are in need of updating
and if there is still a need for the Special Scheme.
This study considers issues by jurisdiction, size and
type of business and then extrapolates to make
findings at an EU level.
2.2 Scope
The following parameters define the scope of the
study:
Geographic scope; and
Business models covered.
With regard to the geographic scope of the study,
countries addressed in the report comprise the 28 EU
Member States as well as certain key non-EU
jurisdictions i.e. Turkey, Switzerland, Norway, the US
and Canada.
The business models covered in the report comprise:
Tour operators - ranging from large international
tour operators to small independent niche
operators (mainly B2C). Tour operators can also
operate “online” for this market
Travel Management Companies (TMC) - which
mainly focus on business travel as intermediaries
and serve primarily corporate customers (B2B)
Travel agents - covering mainly the leisure market
as intermediaries. Travel agents can operate as
“brick & mortar” enterprises or as “online” agents
or both (mainly B2C)
Destination Management Companies (DMC) -
which are mainly operating in the inbound
segment (mainly B2B)
MICE (Meetings, Incentives, Conferences and
Events) organisers – which are mainly operating in
the corporate segment (B2B)
With respect to the availability of underlying economic
data, this study takes into account pre-existing data
sources such as EUROSTAT data, for example, that
help to provide a wider economic backdrop to the
travel industry in the EU as a whole. As these data
sources do not distinguish between the VAT
treatments applicable to respective sales and
purchases, specific surveys (questionnaires) have also
been used to gather additional detailed VAT data from
a representative sample of businesses. The extent of
such data is limited by the willingness of businesses to
respond with what may be perceived as commercially
sensitive financial information, and is further
constrained by the practicalities of conducting a survey
within the limited timeframe. Extrapolation
methodologies have been used to combine survey
responses with macro-economic EUROSTAT data to
provide indicative figures at an EU level which we
believe to be more than reasonably informative for the
purposes of the study.
2.3 Surveys
This section of the report outlines the approach to
usage of surveys (questionnaires) and the responses
thereto.
Surveys have been used in this study for two
purposes:
To collate information on the application of the
Special Scheme local VAT rules from KPMG
specialists across the EU; and
To collate financial information from relevant
businesses, both within and outside the EU, with a
view to quantifying the impact of the Special
Scheme VAT rules.
With regard to surveys issued to KPMG VAT
specialists, a series of questions (the “KPMG
questionnaire”) was designed to obtain responses that
can be meaningfully viewed from a “high-level”, whilst
also capturing specific local detail wherever possible.
This was achieved by a multi-stage questioning format;
seeking first to gather a high-level initial “yes” or “no”
answer which can be quickly compared between EU
Member States, and subsequently to gather
qualifications, caveats and explanations in longer-form
text answers to reveal more detail. Questionnaires
were issued through an online platform in order to
ensure consistency of responses and to provide a clear
audit trail.
With regard to surveys issued to travel businesses, to
maximise the response rate a single questionnaire
(“business questionnaire”) was prepared, minimising
the burden on respondent businesses. The business
questionnaire was issued in a Microsoft Excel
document format to ensure universal accessibility –
whilst drop-down lists and table structures were
employed for consistency of responses. To allow for
consolidation of the survey responses into EU-wide
economic models, this business questionnaire was
formatted in a consistent manner regardless of the
country of response.
We sent this business questionnaire to KPMG clients
and known travel businesses within each of the
business models identified in section 4. We also sent
this business questionnaire to ETOA (European
Tourism Association); ECTAA (European Travel
Agents’ and Tour Operators’ Associations); European
Federation of the Associations of Professional
Congress Organisers (EFAPCO) as well as similar
national bodies in key Member States, for electronic
distribution to member businesses.
While responsiveness and quality of replies could not
be guaranteed as this depends on the goodwill of
respondents, we sought to obtain responses to the
business questionnaire from at least 10 businesses per
business model across each of Germany and the UK,
16
plus a further 10 businesses per business model from
the other 26 Member States, together with Turkey and
Switzerland.
The final responses utilised in the calculations covered
98 businesses in 18 Member States, spanning all five
business models. The total turnover of these
businesses represents approximately 10% of the
estimated EU market (circa €19bn). No responses
were received from non-EU businesses. Meanwhile by
turnover, 94% of the utilised respondent businesses
were based in only five Member States.
The final responses utilised in the calculations covered
98 businesses in 18 Member States, spanning all five
business models. The total turnover of these
businesses represents approximately 10% of the
estimated EU market (circa €19bn). No responses
were received from non-EU businesses. Meanwhile by
turnover, 94% of the utilised respondent businesses
were based in only five Member States.
2.4 Quantitative analysis
The approach to quantitative analysis is as set out
below.
Quantitative analysis is required in this study in respect
of:
The throughput of input and output tax in each of
the 5 key business models (addressed in section 4
of this study);
Quantifying the relative significance of potential
distortions of competition and with regard to B2B
supplies, quantifying the non-deductibility of input
tax in each of the 5 key business models
(addressed in section 5 of this study); and
Estimating the quantitative impacts of each option
on national budget revenues for each Member
State (addressed in section 6 of this study).
This study takes into account pre-existing data sources
such as EUROSTAT data, which does not distinguish
between the VAT treatments applicable to respective
sales and purchases, in addition to data gathered by
the surveys described at section 2.3.
Our figures are based on the information gathered in
the business questionnaire, scaled to and based on
industry turnover figures for the EU as a whole.
Whilst at the outset it was hoped that figures could be
scaled by each Member State and by each business
model, the relatively small sample size in the majority
of Member States meant that specific quantification of
any given issue in a particular Member State is not
possible. However, as an indication of relative value,
the relative sizes by country and by business model of
the figures in the tables at Figs. 4a and 4b in section 4
(turnover by Member State and turnover by business
model) should be borne in mind.
In section 6 our consideration of the quantitative
impacts of identified reform options on national budget
revenues is based on the quantitative outputs from
8
Travel & Tourism: Global Economic Impact & Issues 2017
9
World Economic Forum – Travel & Tourism Competitiveness Report
2017
section 5 (i.e. the percentage impact, relative to
turnover, on our sampled businesses) which we scaled
based on tax figures where these could be obtained
from the respective tax authorities. Where data was not
forthcoming from all tax authorities, an approximation
has been made based on the limited information
available from the business questionnaire (e.g. to
extrapolate from the % impact on our sampled
businesses the estimated impact on total turnover of
the relevant market in each Member State, where such
figures are available).
2.5 Introduction to the travel
industry
The travel sector is one of the most important parts of
the global economy. In 2016, according to the World
Travel and Tourism Council,
8
10% of all employment
worldwide (109 million jobs) was contributed directly by
travel and tourism and the sector contributed US$2.3tn
directly to global GDP.
The sector has grown significantly in recent years and
is forecast to continue to grow at a fast rate driven by
low airfares and various business models that
disintermediate traditional sales channels.
Travel is an important part of the EU economy in
particular. Europe is the largest global travel and
tourism market and attracted 620m of the 1.2bn
international visitors in 2016, almost twice as large as
the second largest market.
9
Several Member States
are amongst the most visited places in the world and
travel and tourism spending in the EU is highly
significant. However, growth in EU tourism is forecast
to be slower than that to be achieved in many other
parts of the world at circa 2% growth in 2016.
10
In this study, we use the definition of travel and tourism
adopted by the World Travel & Tourism Council,
namely “the activity of travellers on trips outside their
usual environment with a duration of less than one
year”. It includes travel for both leisure and business
purposes.
It can be seen that there are broadly three forms of
tourism:
Domestic tourism, i.e. residents of a country
travelling only within that country
Inbound tourism, i.e. non-residents travelling to a
country;
Outbound tourism i.e. residents of one country
travelling within a different country.
The travel sector is complex, comprising intermediaries
of varying descriptions (tour operators, travel agents
etc.) and numerous principal suppliers of services both
directly to travellers and to intermediaries (for example
hotels, airlines, attractions and car rental companies).
Distribution of travel products has become complex,
often involving numerous parties in the distribution
chain. This complexity contributes to difficulties in
compliance with VAT requirements.
10
European Travel Commission Report – Trends and Prospects 2017
17
The sector has changed enormously in recent years,
largely due to technological advances but also
because of deregulation. These developments in
technology have led to significant changes in the ways
in which travel is sold and distributed. For example,
76% of UK consumers purchased a holiday online in
2016,
11
compared to 49% three years earlier.
12
This is
unlikely to be an isolated development and the same
trend can be expected in other EU countries. These
technology changes are a significant contributory factor
to a perception that the VAT rules have become
outdated and require modernisation to reflect how
business is now conducted.
Technological change
Technological change has been highly significant for
many in the travel sector with new sales channels that
did not exist prior to 1995. For example, it has meant
disruption for many travel agents who have had to
adapt to distribution revolutionised by technology. The
growth of online travel agents and distribution direct by
principal suppliers has been marked and has meant
that many traditional travel agents have had to adapt or
disappear. It has also caused a blurring of the
distinction between traditional travel agents and tour
operators, often creating uncertainty over the status of
the supplier for VAT purposes.
These technological changes have facilitated a growth
of Fully Independent Travellers (“FIT”) who make their
own bookings, e.g. holidays and other forms of travel
organised by the FIT via separate bookings of services
from a range of suppliers. Whilst it may be argued that
such a process has been to the benefit of consumers
who enjoy greater choice, such DIY bookings fell
outside the ambit of the Package Travel Directive
13
leaving consumers unprotected in the event of the
failure of any of the suppliers with which they contract.
The response of legislators has been to update the
package travel legislation to broaden the
circumstances in which consumer protection is
provided. This has culminated in the agreement of a
new Package Travel Directive
14
that takes effect
throughout the EU on 1 July 2018.
The development of XML feeds has facilitated the
growth of specialist niche distributors of product, for
example “Bed Banks” and other aggregators. Tour
operators and travel agents now do not need to source
product direct from principal suppliers but rather often
purchase from an online intermediary such as a Bed
Bank. It is not uncommon for a single hotel room to
pass through several intermediaries before being sold
to the final consumer.
These distribution chains have become genuinely
international. Given that each sale of a hotel room is, in
principle, subject to VAT in the Member State in which
the hotel itself is located,
15
such distribution chains
pose a real challenge for the VAT system which can
11
ABTA’s Holiday Habits Report 2016
12
ABTA Consumer Trends Survey 2013
13
Council Directive on package travel, package holidays and package
tours, 90/314/EEC
http://ec.europa.eu/consumers/consumer_rights/travel/package/index_
en.htm
14
Directive 2015/2302/EU of the European Parliament and of the
Council on package travel and linked travel arrangements
15
Article 47 of the VAT Directive
only work in the way intended if each supplier is
registered in each Member State so as to recover input
tax at the previous stage in the distribution chain and
charge output tax on his own supply. There are also a
number of issues that arise from a VAT and cash
management perspective, especially around the
application of tax points and how payment flows
typically work within the industry.
Sharing economy
We have also seen the rise of the “sharing economy”.
Technology is driving new business behaviours,
leading to new entrants in the market that have
disrupted traditional travel.
16
Whilst this trend took off
with leisure travel, it is expected these supply chain
models will increasingly be relevant to business travel
arrangements,
17
and this is already noticeable in North
American corporate travel policies. This trend gives
rise to a number of issues. For traditional travel
operators there is a concern that business is lost to the
sharing economy and that the greater availability of
unregulated accommodation and other services exerts
downward pressure on price, with 32% of travel
businesses saying the sharing economy has had a
negative effect on their business.
18
For governments,
there is a concern that many services provided are not
regulated to the same extent of those provided by the
established operators in the travel sector and that tax
revenue is not collected as easily as from the
established businesses. However, another view is that
the advent of the sharing economy has not so much
detracted from the traditional travel sector as
contributed to a significant growth overall in the
frequency of travel and as a consequence, 47% of
travel businesses say that the sharing economy has a
positive effect on their businesses.
19
The digital economy has also created greater
opportunities for smaller travel and tourism businesses
that have benefitted from improved marketing and
publicity from their own online presence and from
social media and online review sites.
In this study, we are concerned with the application of
the VAT rules to the travel intermediaries
20
and not to
the primary suppliers (the hotels, airlines etc). The
VAT rules in the context of “primary” suppliers are
generally unambiguous and do not therefore require
discussion here. It is important to note that as a result
of this, the vast majority of taxation revenues that are
generated through the travel economy are therefore at
the primary supplier level that are locally collected and
remitted. The detailed analysis that follows looks at
five categories of travel intermediary: tour operators,
travel agents, TMCs, DMCs and MICE organisers.
The nature of the distribution of travel and the
application of VAT in various circumstances are
considered in section 4.
16
PhoCusWright White Paper: Managed Travel 2020
17
ACTE Global research white paper - The Sharing Economy and
Managed Travel
18
World Travel Market Industry Report 2016
19
World Travel Market Industry Report 2016
20
In this context, “intermediary” is used in the general sense, not the
specific definition of the VAT Directive
18
Importance of tourism in the EU
The importance of tourism in the EU is demonstrated
by the fact
21
that six of the ten most visited countries
(by international travellers) in the world in 2016 were
EU Member States:
Fig 2a
1
st
France
3
rd
Spain
5
th
Italy
6
th
Germany
7
th
UK
10
th
Greece
In a similar vein, when it comes to international tourism
earnings,
22
five of the top ten countries in 2015 were
Member States: Spain (3
rd
), France (4
th
), the UK (5
th
),
Italy (7
th
) and Germany (8
th
).
When it comes to individual cities, the EU is less well
represented. Even so, in 2016 London was the second
most visited city in the world and Paris the third.
23
The
relative under-representation of EU cities in the
respective top 10s suggests that travel to the EU is
less focused on large cities and is shared more equally
amongst places of interest.
It is not surprising therefore that travel and tourism are
mainstays of the EU economy. According to the World
Travel & Tourism Council,
24
the direct contributions
(i.e. those generated by those sectors which deal
directly with tourists) of travel and tourism to EU GDP
was €547.9bn (3.7% of the total) and to employment
was 11,409,000 jobs (5% of the total employment).
The total contribution (i.e. including capital investment
by all industries involved with travel and tourism,
21
According to The World Tourism Organisation
22
Also according to The World Tourism Organisation. In this context,
“intermediary” is used in the general sense, not the specific definition
of the EU VAT Directive
government spending in support of tourism activity and
the contribution to GDP and employment of those
employed directly or indirectly by travel and tourism) to
GDP was €1,508.4bn (10.2% of EU GDP) and
26,585,000 jobs (11.6% of the total).
Fig 2b
EU 2016
2016
% of total
2017
% growth
Direct
contribution to
GDP
€547.9bn
3.7
2.9
Total
contribution to
GDP
€1,508.4bn
10.2
2.6
Direct
contribution to
employment
(‘000 jobs)
11,409
5.0
2.8
Total
contribution to
employment
€26,585bn
11.6
2.2
23
According to the MasterCard Global Destination Cities Index (which
based its data on air traffic)
24
Travel & Tourism: Economic Impact 2017 European Union LCU
19
Fig. 2c
Travel & Tourism’s direct contribution to GDP
2016 % share
Caribbean
4.7
South
East Asia
4.7
North
Africa
4.4
European
Union
3.7
Oceania
3.5
Middle East
3.3
Latin America
3.2
South
Asia
3.2
North
America
2.9
Sub
Saharan Africa
2.6
Other
Europe
2.6
North
East Asia
2.5
Central
Asia
1.6
20
Fig. 2d
Travel & Tourism’s direct contribution to
employment
2016 ‘000 jobs
South
Asia 28,657.5
North East Asia
26,017.8
European
Union 11,409.2
South
East Asia 11,155.8
North
America 10,088.5
Sub
Saharan Africa 6,171.1
Latin
America 5,925.1
Other
Europe 2,552.8
Middle East
2,356.9
North
Africa 2,188.2
Oceania
9,18.9
Caribbean
725.5
Central
Asia 573.6
21
Fig. 2e
Travel & Tourism’s contribution to employment
2016 % share
European
Union 5.0
South
Asia 5.0
Oceania
4.9
North
America 4.6
Caribbean
4.2
North
Africa 4.0
South East Asia
3.6
Middle
East 3.1
North
East Asia 2.9
Latin
America 2.9
Sub
Saharan Africa 2.4
Central
Asia 1.9
Other
Europe 1.8
22
Travel and tourism’s direct contribution to GDP was
higher (in absolute terms) in the EU than in any other
of the 13 regions of the world used by the World Travel
& Tourism Council.
25
In terms of employment, the
direct contribution made in the EU was the third
highest of the same 13 regions. In relative terms, travel
and tourism’s 3.7% contribution to EU GDP was the
fourth highest of the 13 regions (exceeded only by the
Caribbean, South East Asia and North Africa) and the
contribution to employment was equal first (with South
Asia).
Spending within the EU in 2016 by international
tourists was €377.2bn, comfortably the highest figure
achieved in the 13 regions.
Travel and tourism’s direct contribution to EU GDP is
forecast to grow in 2017 by 2.9%. On the face of it,
this appears impressive but places EU travel and
tourism at only 8
th
place out of the 13 regions when
growth is measured. Over the 10 years to 2027, the
contribution to EU GDP is expected to grow by an
average of 2.3% per annum, the lowest projected rate
of growth of the 13 regions. Over the same period, the
direct contribution to employment is expected to
increase by 1.5% in the EU, the equal lowest rate of
growth of the 13 regions (with Oceania).
Spending in the EU by international tourists in the
period to 2027 is forecast to grow by 3.4% per annum,
a healthy rate of growth on the face of it but only the
12
th
best of the 13 regions (exceeding only North East
Asia).
We can conclude therefore that travel and tourism is
currently a significant part of the economy across the
EU. It is also clear that travel and tourism in the EU are
expected to grow during the next 10 years. However,
the sector’s rate of economic growth in the EU may be
lower than in most other parts of the world. In our
opinion, this would indicate the mature nature of the
EU travel and tourism sector when compared to
relatively newer destinations elsewhere. Given this,
together with the recent and ongoing changes and
disruptions within the sector’s supply chains, it is
prudent to ensure that steps are taken to promote
economic efficiency in the EU’s travel and tourism
sector. The VAT system can be a key consideration in
this.
2.6 Definitions
The following definitions are originally derived from a
2009 Commission Study on the Competitiveness of the
EU tourism industry.
25
The 13 regions are: the EU, other Europe, the Caribbean, South
East Asia, North Africa, Oceania, Middle East, Latin America, South
Asia, North America, Sub Saharan Africa, North East Asia and Central
Asia
2. Travel
Management
Companies
(TMC)
These businesses serve primarily
corporate customers (B2B). TMCs
are able to compare different
itineraries and costs in real-time,
allowing users to access fares for
air tickets, hotel rooms and rental
cars simultaneously and to
prepare bespoke travel plans for
clients.
1. Tour
operators
These businesses range from
large international tour operators
to small independent niche
operators (mainly B2C). Tour
operators organise and provide
package holidays, contracting with
hoteliers, airlines, ground transport
companies and intermediate
suppliers such as Destination
Management Companies (DMCs –
see category 4 below), and
advertising the holidays that they
have assembled online or in
printed brochures.
Tour operators often operate on
an international scale but tour
operators focusing on a very
specific niche market typically
operate on a much smaller scale.
Most tour operators focus on
leisure tourism. Historically, tour
operators relied upon traditional
“brick & mortar” sales channels;
this is gradually changing as
businesses adopt an online
presence so that the online
business is now a sales channel in
its own right. The continued
improvements in internet
connectivity and increasing access
to digital devices has resulted in
more customers seeking to book
travel online. It is expected that
more than 50% of customers in
the EU will book their travel online
in 2017 and the online travel
market will grow faster than the
overall market, enjoying 8%
growth throughout 2017. This
trend towards using online
operators and agents has allowed
customers to access providers
operating outside their own
territory. US based companies
continue to dominate the online
market with combined revenues of
more than US$115bn (at 2015).
23
2.7 Distortion of competition
As outlined at section 2.1 above, one of the aims of
this study is to evaluate the functioning of the current
VAT rules provided for under the Special Scheme,
considering potential distortions of competition and
material issues.
In this study, a “distortion of competition” is taken to
arise where we consider that an unequal treatment of
travel agents under the Special Scheme rules in force
in Member States, leads in practice to significant
changes in behaviour of the travel agent, for example
in respect of how the business may be structured
commercially. It may also manifest itself in businesses
declining involvement in a particular field. This latter
consequence is difficult to measure but nonetheless
real.
This study addresses potential distortions of
competition and material issues in respect of the
Special Scheme, relating to the following:
Differences in the application of the Special
Scheme rules by Member States; and
Competition between EU and non-EU operators.
For the purposes of quantifying an identified distortion,
in this study the “value” of a distortion is taken to be the
difference between the value of tax that is collected
under current (“distorted”) Special Scheme rules, and
the value of tax that would be collected under
“undistorted”, notional “reference” rules.
The choice of “reference” rules therefore defines the
value and significance of the distortion. We sought to
adopt the following approach in this study:
To quantify distortions in respect of the application
of the Special Scheme rules between Member
States, we considered as a reference a strict
reading of CJEU case law in relation to the Special
Scheme, assuming a reference illustrative VAT
rate (albeit the available data to identify this
reference was limited). An analysis of relevant
CJEU case law in respect of the Special Scheme
is set out in section 3.
4. Destination
Management
Companies
(DMC) /
Wholesale
tour operators
These businesses operate mainly in
the inbound segment. DMCs and
wholesale tour operators differ from
the tour operators in category 1
above in that DMCs/ wholesale tour
operators usually do not deal
directly with end-clients, but sell to
agents (mostly tour operators).
DMCs focus on inbound tourism.
They cater services for both tour
operators focusing on leisure
tourism and for MICE organisers,
and sometimes for TMCs. These
services can include transportation,
hotel accommodation, activities,
excursions, conference venues,
themed events, etc.
DMCs/wholesale tour operators
organise and sell packages but also
sell individual components e.g.
“room only”. The package business
is often referred to as the “groups
business” whilst the sale of single
components is often called “FIT”
(Fully Independent Traveller).
3. Travel
agents
These businesses operate mainly
in the leisure (i.e. B2C) market as
intermediaries. Travel agents can
operate as “brick & mortar”
enterprises or as “online” agents
or both (mainly B2C), whereas the
TMCs as referred to above focus
on business travel.
Travel agents may provide
customers with travel advice, then
sell and administer bookings
acting for a number of tour
operators and other suppliers
such as airlines, hoteliers, car
rental companies.
Large travel agencies are often
part of an international integrated
group that also organises
packaged tours and owns
accommodation, etc. We are
aware that a number of
independent travel agents have
joined forces in consortia or
networks. These networks
combine the capacity of their
members on the purchase side as
well as in providing services to the
members of the consortium (HR
management, taxation
consultancy, etc).
5. MICE
organisers, i.e.
Meetings,
Incentives,
Conferences
and Events
organisers -
mainly in the
corporate
segment (B2B)
Another segment of the industry
focusses on MICE (Meeting,
Incentives, Conferences and
Events). MICE organisers are
often specialised in that specific
segment, although TMCs can
have their own in-house MICE
department as well. These
operators combine features of
travel agents, DMCs and TMCs,
generally focused around a
specific event or collection of
events catering to a particular
purpose or special interest group.
24
To consider distortions between EU and non-EU
operators, we have considered the VAT rules in
the EU Member State with the most favourable
rules or practice (from the travel agent’s
perspective) in 2017. An analysis of the
differences in VAT rules between the Member
States is set out in sections 4 and 5.
In the absence of comprehensive, publicly available
economic data, this study seeks to extrapolate and
approximately quantify the identified distortions of
competition by reference to the likely quantum of “tax
collected” in real-world examples illustrating each of
the five business models identified.
We have also consulted extensively with businesses
and various representative organisations in relation to
perceived areas where distortions of competition may
exist. The feedback from these sources is primarily
anecdotal although it has a base in actuality given how
businesses tend to operate as a whole.
Introduction to the
Special Scheme
26
3 Introduction to the Special Scheme
3.1 Relevant VAT Directive
Provisions
The relevant legislative provisions, Articles 306 to 310
of the VAT Directive are reproduced in Annex 4.
3.2 History of the Special
Scheme
When the 6th VAT Directive
26
was adopted in 1977, a
specific scheme was introduced for travel agencies
and tour operators who deal with customers in their
own name and use the supplies and services of other
taxable persons in the provision of travel facilities. For
the purpose of the scheme, tour operators and travel
agents are treated similarly. This scheme, now set out
in Articles 306 to 310 of the VAT Directive, was
introduced due to the unique nature of the travel
industry. The services offered by travel agents usually
consist of a package of services, in particular transport
and accommodation obtained from third parties. This
did not appear in the Commission’s original legislative
proposal and there is no guidance in the records of the
Council about the thinking behind it. Nevertheless it is
clear that the scheme was intended to resolve the
practical difficulties and complexities which would
result under the general rules of the VAT Directive
27
from the use and provision by the travel agent of
services in different Member States. At the same time
it ensures that tax accrues to the Member State where
the travel services take place and to this extent, the
Special Scheme has been effective.
All transactions performed by the travel agent in
respect of a journey are regarded as a single supply to
the traveller at the place where the agent is
established. The taxable amount is the profit margin
realised by the agent on the supply i.e. the difference
between the price paid by the traveller (exclusive of
VAT) and the actual cost to the agent of supplies and
services provided by other taxable persons where
these transactions are for the direct benefit of the
traveller. The agent is not entitled to deduct VAT on
these inputs. The effect of these arrangements is that
the travel agent acts as a collection point for the
(mainly foreign) tax charged by the various suppliers to
whom the travel agent entrusts elements of the travel
package. The travel agent bears definitively the tax
chargeable on their services in the various Member
States concerned and incorporates it as a hidden tax in
the total price of the travel package. At the same time
the travel agent charges to the customer the tax on the
travel agent’s own margin payable in the Member State
in which the travel agent is established. The place of
taxation for this supply is where the travel agent has
established its business activities or has a fixed base
from which it provides the service or, failing this, the
26
Council Directive 77/388/EEC
27
Articles 43 – 59(a) of the VAT Directive. These address the place of
supply rules in the absence of the Special Scheme e.g. for services by
intermediaries, services connected with immovable property, transport
services, cultural, artistic, sporting, scientific, educational and similar
place where it has its permanent address or usually
resides.
The Special Scheme has two key aims:
To simplify application of European Union VAT
rules for these supplies, particularly so that a
travel agent avoids multiple registrations for VAT
purposes in each of the Member States where the
transactions charged to the agent take place; and
To ensure that the VAT revenue is collected by the
Member State in which final consumption of each
individual component of the single supply takes
place.
VAT revenue on services enjoyed in the course of the
“journey”, such as hotels, restaurants or transport, will
go to the Member State in which the traveller receives
the service, whereas VAT on travel agents’ margins
accrues to the Member State where the agent is
established.
In practice the Special Scheme has not been applied
uniformly by Member States, leading to potential for
double taxation, distortions of competition and possibly
unfair distribution of VAT receipts among Member
States. There are multiple reasons for this, not least of
which the administrative complexity and industry
practices mean that the consistent application of the
rules has been hard to achieve.
3.3 Reform of the Special
Scheme
On 8 February 2002 the Commission published a
proposal for a Council Directive amending the 6th VAT
Directive as regards the Special Scheme in order to:
Allow travel agents to apply VAT to their profit
margin for services sold to other travel agents as
well as to private individuals;
Include travel agents not established in the EU
within the scope of the VAT system, when selling
package tours to customers established in the EU;
Entitle travel agents to opt for application of the
“normal” VAT system; and
Authorise travel agents to calculate a single profit
margin for package tours provided over a certain
period.
To ensure neutrality, on 21 February 2003 the
Commission adopted an amended proposal to include
non-EU travel agents in the Special Scheme by
extending the simplified mechanism already adopted
for e-services. This was in response to amendments
proposed by the European Parliament. The aim was to
ensure a level playing field between the EU and non-
EU travel agents supplying to EU clients.
services, restaurant and catering services and the hiring of means of
transport
27
In its amended proposal, the Commission did include
exemption for supplies to third-country (non-EU)
established customers, as this would be contrary to
one of the basic principles of the EU VAT system
whereby supplies of goods and services are taxed
where consumption takes place. Therefore, the profit
margin generated in the EU should be taxable in the
EU, where the supply of the travel agent is realised,
and it should not be exempted when the customer is
established outside the EU.
For a variety of reasons,
28
no agreement could be
reached in the Council on this proposal and it was
finally withdrawn in 2014 after the ruling of the Court of
Justice of the European Union (hereinafter referred to
as “CJEU”) in the Commission v Spain
29
case. The
opinion given by Advocate General Sharpston
underlined this, saying that the Court found itself in an
invidious position and is “called upon to decide a
matter of VAT policy (and of legislative drafting) which
has proved beyond the capabilities or the willingness of
the Member States and the legislature”. Relevant case
law of the CJEU in respect of the Special Scheme is
listed at section 3.4 below.
3.4 Analysis of CJEU case law
affecting the Special Scheme
In this section we consider the following CJEU case
law:
30
C-74/91 Commission v Germany
C-163/91 Van Ginkel Waddinxveen BV, Reis- en
Passagebureau Van Ginkel BV and others v
Inspecteur der Omzetbelasting Utrecht
C-260/95 Commissioners of Customs and Excise v
DFDS A/S
C-308/96 & Commissioners of Customs and Excise
C-94/97 v TP Madgett and RM Baldwin
C-149/01 Commissioners of Customs and Excise v First
Choice Holidays Plc
C-291/03 MyTravel Plc v Commissioners of Customs &
Excise
C-200/04 Finanzamt Heidelberg v ISt internationale
Sprach- und Studienreisen GmbH
C-31/10 Minerva Kulturreisen GmbH v Finanzamt
Freital
C-189/11 Commission v Spain
C-193/11 Commission v Poland
C-236/11 Commission v Italy
C-269/11 Commission v Czech Republic
C-293/11 Commission v Greece
C-296/11 Commission v France
C-309/11 Commission v Finland
C-450/11 Commission v Portugal
C-220/11 Star Coaches sro v Finanční ředitelství pro
hlavní město Prahu
C-557/11 Maria Kozak v Dyrektor Izby Skarbowej w
Lublinie
Commission v Germany
In Commission v Germany,
31
the Commission took
infringement proceedings against Germany for
28
The reasons for this outcome were many but the need to change the
rules for non-EU travel agents was not among them
29
Case C-189/11
30
This study does not take account of the upcoming German infraction
proceedings with respect to German VAT legislation for travel agents
31
Case C-74/91
32
Now Article 307 of the VAT Directive
33
Paragraph 26
improper implementation of the Special Scheme.
Germany operated the scheme in such a way that the
margin made on air and sea travel within the EU but
outside Germany, was exempted. The Commission
argued that this was contrary to the requirements of
Article 26 of the 6
th
VAT Directive
32
which stated that
the transactions performed by a travel agent in respect
of a journey were to be treated as a single service
supplied to the traveller. Only where the services take
place outside the Community could the travel agent’s
service be exempted
The CJEU agreed that Germany, in operating a wider
exemption than allowed by the Directive, had failed to
fulfil its obligations.
Germany supported its position in a number of ways,
notably that applying VAT to all travel within the EU
would create a distortion of competition between travel
agents and those falling outside the Special Scheme
who could exempt many travel services and secondly
that application of the scheme would be extremely
difficult if travel agents had to calculate VAT on
itineraries both within and outside the EU. On the first
point, the CJEU seemed to recognise that such
distortions might exist but concluded that any such
distortions “cannot justify incorrect application of the
Special Scheme provided for in the directive”.
33
On the
second point, the CJEU did not agree that travel
agents cannot carry out the calculation required.
34
Van Ginkel
In the Van Ginkel case,
35
the issue was the treatment
of accommodation sold as a single service. Van Ginkel
sold accommodation without any transport service: the
customer was expected to arrange his own travel. The
Dutch authorities argued that the Special Scheme is
not applicable where there is a single service.
The CJEU examined the purposes of the scheme and
concluded that the scheme exists to adapt the normal
rules on place of supply, taxable value and input tax
deduction to overcome the practical difficulties which
would exist for many travel agents given the multiplicity
of services typically supplied and places in which they
are provided.
36
The CJEU concluded that there is no
provision in the Special Scheme requiring the travel
agent to arrange any transport of the traveller
37
and
that any such requirement of the scheme would be
counter to the aims of the scheme as summarised
above.
38
A single service should therefore fall within the
scheme, subject to the other conditions of the scheme.
The CJEU also pointed out,
39
however, that a travel
agent often provides additional services such as
information and advice and the actual reservation of
the service but does not appear to make the
application of the Special Scheme conditional upon the
existence of such additional services.
34
Paragraph 12
35
Case C-163/91
36
Paragraphs 13 and 14
37
Paragraph 22
38
Paragraph 23
39
Paragraph 24
28
A final point arising from the Van Ginkel case concerns
the requirement of the scheme that the travel agent
deals with customers in its own name. Van Ginkel was
said to be earning a commission of 20% from the
property owners.
40
In itself this might be taken to
suggest that Van Ginkel was acting solely as an
intermediary
41
with the effect that it may not have been
eligible in any case to use the Special Scheme. The
point was not considered but the CJEU noted
42
that it
is the responsibility of the national court to inquire into
the circumstances of the travel agent, particularly in
relation to its contractual obligations towards
customers, to determine if the travel agent is dealing
with customers in its own name.
DFDS
In DFDS,
43
the issue was the place of supply of
services falling within the Special Scheme. DFDS was
a Danish travel agent which sold holidays to UK
customers via its own UK subsidiary acting as its
agent. DFDS argued that supplies made via the
agency of its UK agent should be seen as supplied
where DFDS itself had established its business,
namely Denmark (which at the time exempted travel
services from VAT).
The CJEU did not agree with this position, however it
felt that, whilst having a single place of taxation for all
services supplied within the Special Scheme would be
advantageous in terms of simplicity, it would not lead to
a rational result as it would take no account of the
place where the services were marketed.
44
Such an
approach could also lead to distortions of competition
as travel agents might be encouraged to establish their
business in many Member States with a favourable
regime for travel services.
45
Accordingly, supplies
within the Special Scheme must be seen to be
supplied in the Member State in which a fixed
establishment is located when the supplies have been
provided from that fixed establishment.
46
The CJEU then considered the circumstances in which
a travel agent should be seen to have a fixed
establishment. First, the degree of independence of the
agent should be considered. The UK company was a
wholly owned subsidiary of DFDS and had various
contractual obligations imposed on it by DFDS. This
led the CJEU to describe the UK company as “an
auxiliary organ of its parent”.
47
Accordingly, it was not
independent of its parent. The CJEU also concluded
that the UK company displayed the features of a fixed
establishment.
48
Madgett and Baldwin
Messrs Madgett and Baldwin
49
ran a hotel in England
called The Howden Court Hotel (by which this case is
often known). They provided packages comprising
accommodation in the hotel plus coach transport
40
Paragraph 5
41
Article 306 of the VAT Directive
42
Paragraph 21
43
Case C-260/95
44
Paragraph 22
45
Paragraph 23
46
Paragraph 24
47
Paragraph 26
48
Paragraph 28
between customers’ homes and the hotel and an
excursion by coach. The coach transport was supplied
to Madgett and Baldwin by third parties.
There were two issues in the case: should the
packages supplied by Madgett and Baldwin fall within
the Special Scheme and, if yes, how should the values
of the in-house supplies (i.e. the accommodation) and
the bought-in transport be ascertained?
On the first point, Madgett and Baldwin argued that
their business should not fall within the Special
Scheme as they did not act as a travel agent or tour
operator in the sense that their activity did not consist
of the organisation of travel services acquired from
other taxable persons. Instead, their business was
focused on the hotel operation and the coach travel
was organised merely for their customers’ convenience
and should be regarded as ancillary to the hotel
operations.
50
The CJEU referred to the Van Ginkel case in terms of
the objectives of the Special Scheme and said that
these objectives are equally valid whether the taxable
person is a travel agent or some other type of business
which effects identical transactions which would cause
the difficulties recognised in Van Ginkel.
51
Furthermore, application of the scheme only to taxable
persons who are classified as travel agents or tour
operators would lead to the differing treatments of
identical services
52
and would prejudice the aims of the
Special Scheme, create distortions of competition and
jeopardise the uniform application of the Directive.
53
Accordingly, the Special Scheme applies to taxable
person who organises travel in his own name and
entrusts other taxable persons with the supply of the
services generally associated with travel agency
activity even if the taxable person is not, formally
speaking, a travel agent or a tour operator.
54
However, where a person such as an hotelier provides
(bought-in) services habitually associated with travel
and the services in question take up only a small
proportion of the package price, the bought-in services
do not constitute an aim in themselves of the customer
but are a means of better enjoying the principal service
supplied by the taxable person. It follows that the
taxpayer should not be included within the Special
Scheme where the bought-in services are purely
ancillary to the in-house services.
55
However, if a hotelier habitually offers services in
addition to the accommodation and the services go
beyond those normally entrusted to hoteliers and
where the additional services must have a “substantial
effect” on the price charged then they cannot be
treated as ancillary services. In this particular case, the
transport provided could not be seen as ancillary to the
accommodation.
56
49
Joined Cases C-308/96 and C-94/97
50
Paragraph 16
51
Paragraph 20
52
Paragraph 21
53
Paragraph 22
54
Paragraph 23
55
Paragraphs 24 and 25
56
Paragraphs 26 and 27
29
The second issue concerned the way to calculate the
margin where a single price covers both in-house
supplies and supplies within the Special Scheme. The
CJEU concluded, firstly, that the Special Scheme
applies only to the bought-in services included in a
package with in-house supplies.
57
It is necessary
therefore to find a way to value the margin and the in-
house supplies. Two approaches were considered: an
actual costs basis (as advocated by the UK) and an
approach based on the market value of the in-house
supplies. The CJEU recognised that there could be
difficulties with both approaches
58
but concluded that a
travel agent could not be required to use the actual
cost method where the market value of services similar
to the in-house supplies can be identified.
59
The Madgett and Baldwin case is the first case, we
believe, to state that the Special Scheme is an
exception to the normal rules and must be applied only
to the extent necessary to achieve its objective.
60
First Choice
The First Choice case
61
concerned the value of the
margin where the holiday price payable was
discounted by a disclosed agent acting on behalf of
First Choice.
First Choice accounted for VAT within the Special
Scheme and argued that it had overstated VAT
payable. The margin is calculated in part by reference
to the “total amount …. to be paid by the traveller”
62
and therefore, in not taking into account any discounts
given by agents, First Choice argued that it had
exaggerated the price paid by travellers and hence the
margin achieved.
However, the CJEU did not agree. The UK courts had
determined that the agent’s discount should be
classified as a payment made by the agent to First
Choice equal to the discount given to the customer.
That classification was an important factor in the
CJEU’s decision. The CJEU concluded that the
additional amount paid by the agent to First Choice
(i.e. the discount given and funded by the agent) was
part of the consideration received by First Choice; in
other words, the additional amount should be
construed as being a part of the “total amount … to be
paid by the traveller”.
63
In reaching this conclusion, the CJEU again relied
upon the principle that the Special Scheme is an
exception to the normal VAT regime and should
therefore only be applied to the extent required to
achieve its objective. It follows that the valuation
provisions in the Special Scheme must have the same
legal definition as the normal valuation rules in the
Directive.
64
The objectives of the Special Scheme do
not require a different approach to the valuation of
supplies made.
65
57
Paragraph 35
58
Paragraphs 43 and 44
59
Paragraph 47
60
Paragraph 34
61
Case C-149/01
62
Now Article 308 of the VAT Directive
63
Paragraph 33
64
Now Article 73 of the VAT Directive
65
Paragraph 26
66
Case C-291/03
MyTravel
Next we should consider the MyTravel case.
66
The
Madgett & Baldwin case above looked at the valuation
of in-house supplies included in a package with
bought-in services and the MyTravel case elaborated
on the circumstances in which the market valuation
approach should be taken and on the way in which the
market value might be identified.
MyTravel sold package holidays comprising various
bought-in services and flights on one of its own aircraft.
It sought to reduce previous payments made under the
Special Scheme by retrospectively applying a market
value to certain flights. This was resisted by the UK
authorities.
The CJEU concluded firstly that MyTravel had a right in
principle to seek a repayment of overpaid amounts.
67
Secondly, use of market values does not need to be
simpler than the use of an actual cost approach nor
must it produce a VAT payment of similar value to the
actual cost approach.
68
Indeed, the CJEU thought that
use of market values should not be at the discretion of
the taxpayer
69
- it follows that a travel agent must, in
principle, use market value to identify the value of in-
house supplies where a market value can be
established.
70
A travel agent can however use the
actual cost approach if he can prove that that approach
accurately reflects the actual structure of the
package.
71
The CJEU was also asked to consider how to deal with
a situation in which the travel agent can identify the
market value of certain in-house supplies but not
others. The CJEU concluded that market value must
be used for those supplies for which the value can be
established and that other supplies, for which the
market value cannot be established, may in the same
accounting be valued on some other basis (e.g. the
actual costs basis).
72
Finally, the CJEU concluded that it is for the national
court to establish the market value based on the facts
of the case but that it would be legitimate to base the
market value on the average price of flights sold by
MyTravel (as flight only sales) to the same destination
(or a comparable destination).
73
ISt
In the ISt case,
74
the CJEU had to consider whether
packages of services comprising typically travel to and
from the US, accommodation plus food and drink in the
US, education at a US high school or similar,
insurance, preparatory materials and support from a
local representative should fall within the Special
Scheme.
67
Paragraph 18
68
Paragraphs 23 and 28
69
Paragraph 31
70
Paragraph 41
71
Paragraph 34
72
Paragraph 40
73
Paragraph 44
74
Case C-200/04
30
The German authorities argued that the services were
educational and should be exempt from VAT.
75
The
CJEU did not agree. It concluded that ISt did meet the
conditions for the application of the Special Scheme.
First, the services provided were identical or at least
comparable to those provided by a travel agent and ISt
used the services of other taxable persons in the
provision of those services.
76
As per the Madgett and
Baldwin case, travel services may be treated as
ancillary where they represent a small part of the
package price but, in this case, ISt habitually offered
travel services in addition to its education services
which must have a substantial effect on the package
price. Therefore, the travel services could not be
treated as ancillary.
77
Germany argued that the services provided by ISt were
not considered to be “travel” for the purpose of the
Package Travel Directive.
78
Cyprus added that a
course such as that provided by ISt could not be
considered to be the type of service provided by a
travel agent. The CJEU stated that points made in
cases argued under another directive (i.e. in this case
the Package Travel Directive) have no bearing on
arguments about the Special Scheme.
79
Furthermore,
if the German and Cypriot arguments were accepted,
the objective of the travel and its duration would affect
the application of the scheme and there is no reason to
think that it was intended that these factors should
restrict the use of the scheme.
80
Germany also suggested that the Special Scheme
should not apply to services which fall within the
education exemption.
81
The CJEU disagreed: there is
nothing to suggest that the application of the Special
Scheme is dependent on such a point. The only
situation in which a service meeting the conditions of
the scheme can be exempted is where the service
takes place outside the EU.
82
Minerva
The Minerva
83
case concerned the scope of the
Special Scheme. Minerva was a travel agent which
argued that the sale of opera tickets should fall within
the scheme. The German authorities disagreed,
arguing that the sale of such a ticket on its own was
not a service “in respect of a journey”
84
and
accordingly could not fall within the scheme.
The CJEU agreed. A service is not automatically within
the scheme just because it is supplied by a travel
agent – the wording of the VAT Directive makes it clear
that a service is only within the scheme if it relates to a
journey.
85
It cannot be inferred from the Van Ginkel
decision that any single service supplied by a travel
agent is within the scheme.
86
The CJEU in Van Ginkel
did not hold that any service unrelated to a journey falls
within the scheme but where a service is not coupled
75
Paragraph 15
76
Paragraph 24
77
Paragraphs 26 to 29
78
Directive 90/314
79
Paragraph 33
80
Paragraph 36
81
Now Article 132(i) of the VAT Directive
82
Paragraph 44
83
Case C-31/10
84
Article 307 of the VAT Directive
85
Paragraph 15
with travel services, in particular transport and
accommodation, it does not fall within the scheme.
87
Furthermore, as per the Madgett and Baldwin decision,
the Special Scheme is an exception to the normal rules
and must therefore be applied only to the extent
necessary to achieve its objectives.
88
Commission v Spain et al
The Commission took infringement proceedings
against eight Member States
89
for alleged incorrect
application of the Special Scheme.
The eight cases all concerned the application of the
scheme to supplies made to business customers,
specifically whether it is appropriate, when considering
the scope of the Special Scheme, to take the
“customer approach” or the “traveller approach”. The
former sees the scheme applied (subject to the
scheme’s other conditions) regardless of the status of
the recipient of the supply whilst the latter sees the
scheme limited to circumstances in which the supply is
made to the “traveller” (i.e. the person who will use the
service). The dispute originated in the inconsistent use
of the words “customer” and “traveller” in different
language versions of the Directive.
The case against Spain also considered a few other
aspects of the implementation of the scheme in Spain.
On the first point, the Commission argued in favour of
the traveller approach; the eight Member States had all
adopted the customer approach. The Commission said
that the aims of the Special Scheme would be better
served by the customer approach but argued that the
Directive did not permit Member States to take this
approach. The Commission also argued that supplies
to a taxable person for the use of that person (i.e. not
for re-sale) satisfy the traveller test and should
therefore be within the scheme.
The CJEU found that the customer approach had to be
adopted. In other words, rather than applying solely to
sales of travel services to travellers, the Special
Scheme should apply to all sales of travel services to
any type of customer.
3.4.9.1 Advocate General’s observations
The Advocate General had a number of interesting
observations about the Special Scheme. First, she
summarised the purposes of the scheme to be
simplification for the travel agent and to ensure that
each service is taxed where it is provided. It is clear
from her comments that the Advocate General
considered that the place of the supply of the travel
agent’s services, if the Special Scheme did not apply,
would be his own Member State.
90
The complexity
which the scheme exists to avoid is not, thought the
86
Paragraph 19
87
Paragraphs 21 and 22
88
Paragraph 16
89
Commission v Spain (Case C-189/11), v Poland (Case C-193/11), v
Italy (Case C-236/11), v Czech Republic (Case C-269/11), v Greece
(Case C-293/11), v France (Case C-296/11), v Finland (Case C-
309/11) and v Portugal (Case C-450/11)
90
Paragraph 6 of the Opinion
31
Advocate General, the payment of VAT in each of the
Member States in which the services takes place but
rather is the need to deduct input tax incurred in those
states. It is not stated specifically but presumably the
Advocate General considered the services of a travel
agent (in the absence of the Special Scheme) to fall
within the general place of supply rules
91
when
supplied to a non-taxable person. The Advocate
General therefore saw non-application of the scheme
as giving rise to administrative difficulty for the travel
agent in offsetting input tax against the VAT due in his
own Member State and a diversion of revenue from the
Member States of consumption to the Member State of
purchase. We suggest that this interpretation is not
what was meant by the CJEU in earlier cases when
considering the complexity inherent in the rules, which
the Special Scheme was designed to avoid, and which
it seems clear the CJEU thought meant the payment of
VAT in the Member States of consumption not merely
the deduction of input tax there.
92
(We note, however,
that the Commission itself has stated that the place of
supply approach described above is the correct one.
93
)
The Advocate General felt that the terms of the Special
Scheme are not unequivocal and that they leave room
for interpretation. In order to make a proper
interpretation, it is necessary to have regard to the
purpose and general framework of the scheme.
94
The
exclusion of services supplied to another travel agent
would run counter to the two aims of the scheme, as
described above.
95
Furthermore, not only would non-
application of the Special Scheme to wholesale
supplies frustrate the purposes of the scheme itself,
but it would also run counter to a fundamental principle
of the VAT system that VAT should crystallise at the
time and place of consumption.
96
The Advocate General also felt that the wide
application of the scheme necessary to achieve its
aims helps to ensure that the principle of fiscal
neutrality is observed.
Finally, the Advocate General touched upon input tax
deduction on business travel costs and described the
loss of such a right where services are purchased from
a travel agent in the scheme as the scheme’s “most
salient drawback”.
97
This point is not sufficient to
mean that supplies of business travel should be
excluded from the scheme (as the aims of the scheme
are simplification and the correct allocation of VAT
revenue). There is nothing in the scheme to suggest
that input tax deduction on business travel costs was
an intention of the scheme, “even if that would have
been a desirable aim”.
98
3.4.9.2 CJEU
The CJEU followed the same line of reasoning as the
Advocate General. Due to the ambiguity in the text of
the Directive (i.e. the confusion between the use of the
terms “traveller” and “customer”), the text must be
interpreted by reference to the purpose of the rules in
91
Article 45 of the VAT Directive
92
See for example paragraph 14 of the Van Ginkel judgment
93
In the Commission’s press release IP/02/264 of 18 February 2002 in
which the Commission announced its proposals to reform the Special
Scheme
94
Paragraph 38
95
Paragraph 48
question. As is well established, the purposes are
simplicity and a fair allocation of revenue to the
Member States. VAT revenue relating to each
individual service should accrue to the Member State
in which final consumption of the service took place
and that on the agent’s margin to the Member State in
which the agent is established. The customer approach
is most conducive to the achievement of these
objectives.
The CJEU also pointed out that “traveller” was given a
wide meaning in the First Choice case, should not be
interpreted literally and is not the same as the final
consumer.
This decision demonstrates that the Special Scheme
should apply regardless of whether sales are made in
a “retail” environment to consumers, in a “wholesale”
supply-chain to businesses for onwards supply, or in a
business-to-business scenario for the purposes of
business travel.
There were two other main issues addressed in the
Commission v Spain case, namely the basis of the
travel agent’s margin calculation and the ability to state
an amount of VAT on an invoice issued for a supply
within the scheme.
On the first point, Spain allowed travel agents to
calculate the margin made in aggregate on all supplies
made in a period and the Commission challenged this.
The CJEU concluded that the Special Scheme
contains no provision for the overall determination of
the margin and that the margin must be calculated by
reference to each single service provided by the travel
agent.
On the invoicing point, Spain allowed an amount equal
to 6% of the invoice value to be shown as VAT, but
only where the travel services were actually performed
in Spain. The CJEU judged that the practice of
showing the 6% as VAT was not permitted under either
of the invoicing and input tax deduction rules and was
also inconsistent with the method of margin calculation
required.
Star Coaches
In Star Coaches,
99
the CJEU was asked whether the
supply of transport by coach in isolation should fall
within the Special Scheme. The facts presented to the
CJEU were that Star Coaches supplied transport totally
on its own, i.e. with no information, advice or
reservation service. The CJEU decided that
passenger transport supplied in isolation in this way
does not fall within the Special Scheme: a single
service supplied in isolation does not fall within the
Special Scheme.
96
Paragraph 50
97
Paragraph 62
98
Paragraph 65
99
Case C220/11
32
Maria Kozak
Maria Kozak
100
argued that the Polish authorities were
wrong to seek VAT within the scheme on her in-house
supply of transport services.
Ms Kozak ran a travel agency selling packages
comprising various bought-in services and the
provision of transport in her own coaches. The Polish
authorities sought VAT at the standard rate on the
transport, rather than the reduced rate ordinarily
applied to passenger transport in Poland, on the
grounds that the transport was an essential part of the
overall service supplied by Ms Kozak.
101
The CJEU agreed with Ms Kozak. The Special
Scheme cannot be applied to services supplied by the
taxpayer himself.
102
The CJEU justified this approach in part by following
the line of reasoning first set out in the Madgett and
Baldwin case that the Special Scheme must be applied
only to the extent necessary to achieve its
objectives.
103
Finally, the CJEU ruled
104
on the proper interpretation
of wholesale supplies and the nature of the calculation
of VAT payable.
Findings in respect of CJEU case law
Our understanding of the interpretation of the Special
Scheme in the relevant case law is as follows:
a) The Special Scheme is broad in application and
should apply, subject to satisfying all conditions for
use of the scheme, regardless of the status of the
customer (the Commission v Spain case et al). As
a result, there is no reason to exclude services
provided to a taxable person simply because of the
status of that client.
b) The scheme is wide in application also in the
sense that it applies to both the supply of a
package and a single item such as
accommodation sold on its own (the Van Ginkel
case). We note, however, an apparent
contradiction between the Van Ginkel and Star
Coaches decisions. The Van Ginkel case suggests
that the supply of a single service should be within
the Special Scheme as otherwise complications
would arise to defeat the purposes of the scheme.
Advice, information etc. may be provided as part of
the provision of the accommodation so that the
service offered is not strictly a single service but,
on our reading, the CJEU did not make the use of
the Special Scheme dependent on the existence of
these additional services. Star Coaches does,
however, seem to make the use of the scheme
dependent on these additional services, seemingly
in contradiction of Van Ginkel.
c) Having said that, the Special Scheme is an
exception to the normal rules and should only be
applied to the extent required to achieve its
objectives (several of the above cases)
100
Case C-557/11
101
Paragraph 10
102
Paragraph 26
d) Use of the scheme must not be limited to traders
formally recognised as travel agents or tour
operators. Any person organising travel in his own
name in the circumstances envisaged by the
scheme must apply the scheme (the Madgett and
Baldwin and ISt cases). Although logical, this has
the unintended impact of spreading the ambit of
the Special Scheme very wide in circumstances
where compliance with the scheme is very difficult.
e) However, a service provided by a travel agent is
not automatically within the scheme simply
because the supplier is a travel agent. A service
can only be within the scheme if it relates to a
journey (the Minerva case). It can be inferred from
this case, however, that a service which does not
in itself relate to a journey (e.g. an opera ticket)
does fall within the scheme when sold together
with an additional service which does relate to a
journey.
f) Services supplied by the travel agent himself
cannot fall within the scheme (the Maria Kozak
case).
g) Furthermore, where bought-in services are sold
together with services to which the Special
Scheme does not apply, and the bought-in
services are responsible for only a small proportion
of the price, the full value should be excluded from
the scheme (also the Madgett and Baldwin case).
h) The only situation in which the margin made on
services within the scheme is exempted is where
the services take place outside the EU. The
treatment of similar services when supplied
outside the scheme are not relevant in determining
the treatment within the scheme (Commission v
Germany and the ISt case).
i) Where services satisfying the conditions for
application of the Special Scheme are sold
together with in-house services (i.e. services which
do not satisfy those conditions), the scheme
applies only to those services which do match the
scheme’s conditions (the Madgett and Baldwin
case).
j) In such circumstances, the in-house services must
be valued by reference to their market value
whenever this market value can be established. A
travel agent may only use an actual costs basis to
identify the market value where he can prove that
that basis accurately reflects the structure of the
package supplied or where it is simply not possible
to establish the market value (the MyTravel case).
k) Arguments about the status of travel agents for the
purposes of other directives (e.g. the Package
Travel Directive) are not relevant when considering
the application of the Special Scheme (the ISt
case). Questions on the value of the travel agent’s
margin must be considered in a manner consistent
with the other valuation provisions in the VAT
Directive (the First Choice case).
103
Paragraphs 19 and 20
104
Case C-189/11
33
l) Supplies within the scheme are not necessarily
supplied in the Member State in which the travel
agent has established his business. The place of
supply should be the Member State in which a
fixed establishment is located whenever the
circumstances demonstrate that the services are
provided from that fixed establishment (the DFDS
case).
m) VAT payable within the scheme must be
calculated separately on each supply. Calculation
of the margin cannot be performed on an
aggregated basis.
n) Lastly, while the Advocate General’s opinion in the
Commission v Spain case is not the settled
position of the Court and therefore not legally
binding, it is noteworthy that the Advocate
General’s view was that where a travel agent
supplies a service within the Special Scheme to a
taxable person, he should issue an invoice
indicating the VAT due on the margin so that the
taxable person client can deduct the VAT in
question as input tax (see section 5).
Description and
economic analysis of
the travel industry
35
4 Description and economic analysis of the travel
industry
4.1 Objective
This section examines how five key business models in
the tourism industry, as identified in certain
Commission studies
105
operate, and how VAT impacts
the respective supply chains. This section also
provides an economic analysis of the travel industry. It
should be noted that in reality many travel businesses
operate via two or more of the five identified business
models at the same time, and therefore these models
should be considered as a useful device to understand
the basic mechanics of VAT in the travel market, rather
than a completely accurate representation of specific
trading businesses. The inconsistent application of
how the rules are applied also compounds the difficulty
in consistently comparing “like-for-like” businesses
across different Member States.
4.2 Section summary
This section sets the scene for the more detailed
technical analysis which follows in section 5; and in
turn influences the consideration of reform options at
section 6.
The total annual turnover of the EU travel and tourism
sector is circa €187bn. The Special Scheme broadly
results in the taxation only of travel supplied by EU
established businesses to EU destinations. As outlined
further in this section, the annual value of Special
Scheme output tax collected on these supplies has
been indicatively estimated at circa €1.9bn whilst the
value of irrecoverable input tax on direct Special
Scheme costs has been indicatively estimated at circa
€5.6bn. The majority of the tax collected via the
Special Scheme therefore takes the form of
irrecoverable input tax, which generally is collected in
the Member State of destination. The estimated value
of Special Scheme output tax is smaller in totality, and
is collected in the Member States in which the
respective travel businesses are established.
The fundamental feature of blocked input tax recovery
is relatively consistently applied across the EU and
affects all business models in a similar manner.
However, the implementation of Special Scheme rules
differ in other respects between different Member
States, as explored in section 5. Each of these
differences has potential to impact the different supply
chains used under the five key business models in
different ways. This section therefore provides
important context for the subsequent sections of this
report. The relative significance of each business
model across the EU is summarised at Fig. 4b.
4.3 Business models
The five key business models considered are:
Tour operators;
Travel Management Companies (TMC);
Travel agents;
Destination Management Companies (DMC); and
MICE (Meeting, Incentives, Conference and
Events) organisers
105
Study on the impact of EU policies and the measures undertaken in
their framework on tourism (12/10/2012)
(
http://ec.europa.eu/growth/content/study-impact-eu-policies-and-measures-
undertaken-their-framework-tourism-0_en) and Study on the
Competitiveness of the EU tourism industry (05/10/2009)
(
http://ec.europa.eu/growth/content/study-competitiveness-eu-tourism-
industry-0_en)
36
Tour operators
Scenario 1a – Tour operator incurs all costs as principal
Article 306 of the VAT Directive applies the Special
Scheme to transactions undertaken by travel agents as
principal to customers in the provision of travel
facilities.
Most inbound costs of the tour operator will be subject
to VAT at a positive rate in the Member State of
destination. Per Annex 3 of the VAT Directive, some
inbound costs may benefit from a reduced rate of VAT
in certain Member States.
Based on the KPMG questionnaire in respect of how
the current Special Scheme rules are applied by
Member States (as described at section 2.3 above),
tour operators in all Member States making supplies of
the travel facilities within the Special Scheme are
unable to recover the VAT incurred on the costs of
buying-in the travel facilities per Article 310 of the VAT
Directive. There are no exceptions to this rule and it
therefore demonstrates that one of the fundamental
tenets of the scheme is consistently applied.
In addition, tour operators are permitted to recover
local VAT, incurred in a Member State in which the
business is established for VAT purposes, on costs
(i.e. overheads) that are not directly incurred in respect
of transactions under the Special Scheme in all
Member States.
The tour operator is required to account for output tax
on gross profit margin earned on the onward supply of
bought-in travel facilities, per Article 308 of the VAT
Directive. By contrast, output tax must be accounted
for on the full value of consideration received for “in-
house” supplies.
Most Member States consider that the margin made on
a package including both “bought-in” and “in-house”
elements will be required to be apportioned between
in-house and Special Scheme supplies in order to
ascertain the respective value of the in-house and
Special Scheme supplies respectively. Invoicing
requirements for B2B supplies vary significantly
between Member States as outlined at section 5.5.5.
In general, for B2C requirements, there is no obligation
to issue a VAT invoice.
Where the traveller is a business customer, certain
Member States allow the business customer to recover
the VAT accounted for by the travel agent on its margin
where a VAT invoice is held (including Finland, France,
Hungary, Sweden and Belgium). In Belgium there are
additional restrictions to input tax recovery per the
Belgian VAT code.
The remaining Members States do not allow business
travellers to recover VAT in respect of supplies subject
to the Special Scheme.
37
Scenario 1b – Tour operator acts as both a principal and agent
The VAT recovery on inbound costs for the tour
operator in respect of its bought in travel facilities in
Scenario 1b is the same as referred to in Scenario 1a.
The tour operator in this scenario is supplying a single
package that contains a mixture of “bought-in” travel
facilities and travel facilities arranged as an
intermediary.
No Member States (with the exception of Lithuania)
generally apply the Special Scheme to the provision of
travel facilities by intermediaries, albeit Romania
applies the Special Scheme where the intermediary
makes a profit which is not disclosed to the customer.
However, where a single package that contains a
mixture of “bought-in” travel facilities and travel
facilities arranged as an intermediary, Member States
including Lithuania, Cyprus, Belgium, Slovenia and
Hungary, would treat the whole package as subject to
the Special Scheme.
The remaining Member States would treat the travel
facilities supplied as intermediary as being subject to
normal VAT rules, with the bought-in travel facilities
subject to the Special Scheme. This requires an
apportionment of value. Invoicing requirements for B2B
supplies vary significantly between Member States as
outlined in section 5.5.5. In general, for B2C
requirements there is no obligation to issue a VAT
invoice.
Where the traveller is a business customer, in respect
of the intermediary element of the package supplied by
the tour operator, the business customer will be able to
recover the VAT charged subject to normal VAT rules.
38
Scenario 1c – Tour operator buys from a Bed Bank intermediary (or DMC)
The entitlement of “Bed Banks” to VAT recovery in
respect of the direct costs of the purchase of
accommodation varies from Member State to Member
State, and also depends on the particular VAT
treatment applicable to the supply by the Bed Bank to
the tour operator. Ten Member States consider the
supply by the Bed Bank to be outside the scope of the
Special Scheme and taxed under normal rules in which
case the Bed Banks are able to recover VAT incurred
on the direct costs accommodation, subject to normal
rules. Meanwhile thirteen Member States consider the
Bed Bank’s supplies are subject to the Special Scheme
such that no VAT recovery is possible (equivalent to
Scenario 1a).
The choice to treat wholesale supplies as subject to
the Special Scheme in Estonia, Ireland, Sweden, the
UK and the Czech Republic is optional at the discretion
of the taxpayer, and accordingly the entitlement to VAT
recovery varies dependent on which option the
taxpayer chooses.
There is the potential for non-taxation and double
taxation where wholesale supplies of accommodation
are made and the hotel and Bed Bank supplier are
located in different Member States, if there is a
mismatch in the VAT treatment considered to apply to
the Bed Bank’s wholesale supply to the tour operator.
For further detail see section 5.5.7.
The VAT position of the tour operator in Scenario 1c is
the same as Scenario 1a. Both the Bed Bank and tour
operator are permitted to recover VAT on costs (i.e.
overheads) that are not directly incurred in respect of
transactions under the Special Scheme in all Member
States.
39
Travel Management Companies (TMC)
Scenario 2 – TMC acting as an intermediary
As with Scenarios 3a and 3b, a TMC typically acts as
an intermediary in the supply of the hotel
accommodation and transport to the traveller.
No Member States (with the exception of Lithuania)
generally apply the Special Scheme to the provision of
travel facilities by intermediaries, albeit Romania
applies the Special Scheme where the intermediary
makes a profit which is not disclosed to the customer.
In this supply chain the TMC will be able to recover
VAT incurred on overheads. The TMC typically
provides intermediary services to the hotel or airline,
and to the traveller. Subject to local variations in the
definition of “intermediary”, all Member States other
than Lithuania exclude bookings made as intermediary
from the scope of the Special Scheme.
In respect of the intermediary services supplied to the
airline, the airline is typically required to account for
VAT under the reverse charge (but this depends on the
rules in the relevant Member State), and would able to
recover any VAT charged subject to local rules.
Intermediaries often pay suppliers “net” of commission
and the supplier is often not aware of the full value on
which reverse-charge VAT should be brought to
account, and in practice many suppliers will not
therefore bring this VAT to account (albeit such VAT
would typically be fully recoverable by the supplier).
See Scenario 3b (which is broadly the same as
Scenario 2) in respect of booking fees and credit card
charges made to the traveller.
Where the traveller is a business traveller, any VAT
charged by the TMC should be recoverable via a local
VAT return or an overseas VAT reclaim.
A variant on this Scenario involves an in-house TMC
within a corporate group which buys in travel facilities
and re-charges the cost to other members of the same
corporate group (i.e. as principal for consumption).
Twenty Member States responded that the Special
Scheme would apply to the re-charge with the
remaining eight responding that the re-charge would
be subject to normal rules.
All analysis in this section pertains to supplies which
are considered to be taxable supplies, rather than
those which may be considered not to be taxable
supplies under local VAT grouping rules.
40
Travel agents
Scenario 3a – Travel agent acting as an intermediary
In this scenario, the travel agent is acting as a
disclosed intermediary of the tour operator in supplying
a package of travel facilities to the traveller.
The VAT treatment of the tour operator’s supply (the
accommodation as well as the other elements of the
package) and VAT recovery will be the same as those
noted within Scenario 1a; specifically regarding
supplies of bought-in travel facilities.
Both the tour operator and travel agent will be able to
recover the VAT on overheads subject to normal VAT
rules.
Article 306 of the VAT Directive excludes from the
Special Scheme transactions where travel agents act
solely as "intermediaries". The definition of
“intermediary” differs from Member State to Member
State. Subject to local variations in the definition of
“intermediary”, all Member States other than Lithuania
exclude bookings made as intermediaries from the
scope of the Special Scheme.
As such, the supply of intermediary services by the
travel agent to the tour operator is subject to normal
rules regarding the place of supply, taxable amount
and VAT recovery entitlement on costs. The VAT
liability of the travel agent’s intermediary services will
depend upon the nature of the underlying travel
services. The travel agent may be liable to register and
account for VAT in various Member States where the
place of supply of its service is in another Member
State i.e. for B2C services relating to accommodation
albeit in practice such registration obligations are often
ignored. See Scenario 2b for the potential variations in
respect of “undisclosed” profits retained by the Travel
agent.
Where the travel agent makes charges for credit card
use and booking fees to the traveller as intermediary
and the traveller is a business customer the customer
may be liable to account for VAT via the reverse
charge mechanism for this service which will likely be
subject to VAT further to the CJEU judgment in
Bookit.
106
See Scenario 1a in respect of VAT recovery in
circumstances where the tour operator’s supply is to a
business traveller.
106
Bookit Ltd v Commissioners for Her Majesty’s Revenue and
Customs (Case C-607/14)
41
Scenario 3b – Travel agent acting as an intermediary (undisclosed profit)
On the basis that the hotel’s supply of accommodation
is not bought-in, the VAT liability of the hotel’s supply
to the traveller will be subject to local VAT at the rate
applicable in the Member State within which the hotel
is located.
The travel agent provides intermediary services to
either (or both) the hotel and the traveller. Subject to
local variations in the definition of “intermediary”, all
Member States other than Lithuania exclude bookings
made as intermediary from the scope of the Special
Scheme.
Further, where the commission earned by the travel
agent is undisclosed as in this Scenario, Romanian
rules would consider this indicative of sales made as
principal, and therefore would fall within the scope of
the Special Scheme. All other Member States would
still consider a travel agent making an undisclosed
profit to still fall outside the scope of the Special
Scheme.
The place of supply of the travel agent’s intermediary
services to the hotel will be the Member State where
the accommodation is located and the travel agent
may be liable to register and account for VAT in that
Member State.
See Scenario 3a where booking fee/credit card
charges are made to the traveller.
As in this scenario, where the travel agent makes a
“secret profit” which it does not disclose to the hotel,
the hotel will not be able to account for VAT on the full
value of the cost of the Hotel accommodation to the
traveller, leading to a potential tax loss.
See Scenario 1a in respect of VAT recovery in
circumstances where the tour operator’s supply is to a
business traveller.
42
Destination Management Companies (DMC)
Scenario 4a – DMC supplies to a tour operator
Where the DMC is located in one of the ten Member
States in which “wholesale” supplies of travel facilities
are considered outside the scope of the Special
Scheme and taxed subject to normal rules, the DMC
would be able to recover the VAT on its direct costs as
well as on overheads subject to normal rules on its
supply to the tour operator.
Where each of the underlying services are purchased
by the tour operator separately from the DMC, the
DMC will be required to account for output tax subject
to the place of supply rules for each underlying service
i.e. for accommodation, where the accommodation is
located.
However, where the tour operator purchases from the
DMC all the underlying elements at the same time, it is
likely that there is a single supply subject to CPP
107
principles, with the accommodation likely to be
considered the principal service, and the remaining
services a means of better enjoying the
accommodation (refer to section 5.5 for more detail).
It is sometimes the case that the DMC will be located
in the country of travel destination, in which case it is
unlikely that issues will arise regarding non-taxation or
double taxation as per Scenario 1c. In respect of cross-
border DMCs, see section 5.5.7 in relation to
mismatches regarding the VAT treatment of wholesale
supplies in different Member States.
The tour operator incurs all costs as principal and as
such its VAT recovery on those bought-in travel
facilities will be blocked with VAT recovery on
overheads as above for Scenario 1a. The tour
operator’s onward supply of the package to the
traveller will fall within the scope of the Special
Scheme.
See Scenario 1a in respect of VAT recovery in
circumstances where the tour operator’s supply is to a
business traveller.
107
Card Protection Plan (CPP) v Commissioners for Customs & Excise
(Case C-349/96)
43
Scenario 4b – DMC in Special Scheme supplies to a tour operator
In contrast to Scenario 4a, where the DMC is
established in one of the thirteen Member States in
which wholesale supplies are considered to fall with
the scope of the Special Scheme (or one of the fifteen
Member States where the supply is either subject to
the Special Scheme or optionally subject to the Special
Scheme and that option has been exercised by the
DMC), the VAT treatment will be different.
It is sometimes the case that the DMC will be located
in the country of travel destination, in which case it is
unlikely that issues will arise regarding non-taxation or
double taxation as per Scenario 1c. In respect of cross-
border DMCs, see section 5 in relation to mismatches
regarding the VAT treatment of wholesale supplies in
different Member States.
Neither the DMC nor the tour operator will be able to
recover VAT incurred on direct costs in relation to the
Special Scheme package supplied by each, however,
they will be able to recover the VAT on overhead costs.
The DMC and the tour operator will be required to
account for VAT within the Special Scheme.
Finally, see Scenario 1a in respect of VAT recovery in
circumstances where the tour operator’s supply is to a
business traveller.
44
MICE (Meeting, Incentives, Conference and Events) organisers
Scenario 5 – MICE organiser supply to a traveller
To the extent that a MICE organiser purchases from a
DMC, see Scenarios 4a and 4b in respect of the
DMC’s ability to recover VAT on costs, as well as the
treatment of the DMC’s supply subject to the specific
VAT treatment of wholesale supplies in the relevant
Member State, i.e. wholesale treated as within or
outside of the Special Scheme. MICE organisers may
also purchase travel facilities direct from travel
suppliers.
MICE organisers are unable to recover VAT incurred
on the costs of bought-in travel facilities, as they relate
directly to the supply of travel facilities as principal to
the traveller; which is subject to the Special Scheme.
With regard to overheads, the MICE organiser will be
able to recover overheads subject to normal rules.
The VAT treatment of MICE supplies varies
significantly from one Member State to another and
this is addressed at section 5.
108
108
In the absence of the Special Scheme, the determination of the
place of supply involves a number of different Articles of the VAT
Directive and the analysis can be complex
45
Phase 1 – Qualitative analysis
4.3.6.1 Decisions of the Commission in areas
other than taxation.
We believe it is appropriate to consider how
economists and competition authorities have described
both the markets in which travel industry operators
compete and relevant aspects of competition in those
markets.
Such descriptions are typically set out most usefully in
the decisions and reports published by competition
authorities. These can help to inform our consideration
of potential distortions of competition by confirming the
relevant economic markets within which we should be
assessing such distortions. Whilst this analysis is
intended to inform and deepen the context of the study,
it should not be seen as conflicting with the well-
established principle that the provisions of EU VAT law
are to be given an independent EU definition to avoid
divergences in the application of the VAT system from
one Member State to another.
109
We have focused on the Commission’s many decisions
in the sector (as defined by the NACE codes N.79,
N.79.1, N.79.11, N.79.12, N.79.9 and N.82.30), which
decisions therefore relate to the business models
considered throughout this study. The most relevant
and up-to-date findings from these Commission
decisions are summarised below.
a) Case M.7968 – EQT Services UK / Kuoni Travel
Holding
110
This merger case decision, dated 22 April 2016,
confirmed that, in this and other cases in the travel
sector, the Commission has identified a market for
hotel accommodation and has considered that this
market might be segmented by price/comfort levels
and/or by ownership type and might be both national
and local in geographic market terms. However,
ultimately, the Commission has left its precise market
definitions open.
With respect to “intermediated hotel reservations”
(including both reservations made by online travel
agents (“OTA”) and reservations made to corporate
customers), the Commission noted its previous
conclusions that the market for the provision of global
distribution systems’ services constitutes a separate
market. It has also concluded that, in geographic
terms, this market is world-wide on the upstream side
(i.e. the provision of booking inventory by travel service
providers, such as hotels) and at least national on the
downstream side (i.e. the provision of services to travel
agents, tour operators, etc).
Finally as regards market definition, the Commission
also concluded that the precise product and
geographic definitions could also be left open as
regards the markets in which Kuoni’s Global Travel
Services business is active through the provision of
both group travel and MICE services.
109
EU terminology and the interpretation of VAT law is dealt with by
Terra and Kajus in “Introduction to EU VAT – 2010” (section 6.3.3)
110
http://ec.europa.eu/competition/mergers/cases/decisions/m7968_120_3.p
df
b) Case M.8231 – Kuoni Travel Holding / MTS
Globe
111
This merger case decision, dated 15 November 2016,
repeated findings from the above Case M.7968 with
respect to hotel accommodation and hotel
intermediation market definitions. In addition, the
Commission also considered the merging parties’
submissions regarding relevant markets for (i) B2B
supply of destination management services, and (ii)
B2B supply of group tour packages. However, the
Commission concluded that the precise scope of the
relevant product and geographic markets could be left
open.
c) Case M.8046 – TUI / Transat France
112
This merger case decision, dated 20 October 2016,
identifies and, from an economic perspective,
considers the product and geographic market
definitions of the key travel sector markets other than
those in the decisions referred to above.
First, with respect to the supply of travel services by
tour operators, the Commission confirms its practice of
defining a distinct market for such services and
typically further distinguishing between leisure travel
and business travel. The Commission concluded that,
within leisure travel, it could leave open the question of
whether package holidays should still be regarded as
constituting a distinct economic market from
independent holidays (and also the questions of
potential further distinctions by package holiday types
and/or destinations). The Commission also concluded
that the markets for leisure travel and for package
holidays are national in scope (i.e. for travel/holidays
from each country respectively).
Second, the Commission also defines national markets
for the wholesale supply of airline seats by airlines to
tour operators.
Third, with respect to destination management (DMC)
services, the Commission notes that it has not
considered the supply of such services in its previous
decision practice. It concluded that the questions of
whether the supply of such services constitutes a
separate market and of its exact delineation and/or
geographic scope can be left open, since the
transaction in question did not raise serious issues
under any plausible product or geographic market
definitions.
Finally, with respect to the provision of travel agency
services, the Commission in this case also leaves open
all product and geographic market definition questions
but it notes that in its prior decision practice it has:
Defined a separate market for the provision of
travel agency services and further distinguished
between the provision of business travel and
leisure travel services;
Left open whether the market for the provision of
leisure travel services should be further
segmented by distribution channel (i.e. as
between distribution via outlets and online
111
http://ec.europa.eu/competition/mergers/cases/decisions/m8231_134_3.p
df
112
http://ec.europa.eu/competition/mergers/cases/decisions/m8046_559_3.p
df
46
distribution) or by types of products (e.g. package
holidays, independent holidays, hotel
accommodation only, or flights); and
Generally considered that markets for the
provision of travel agency services are national in
scope because of linguistic and cultural borders,
without excluding the possibility to find regional or
local markets within countries.
d) Case 40308 – Holiday Pricing
113
Finally, we note the Commission’s statement regarding
its antitrust case number 40308 (“Holiday Pricing”),
which reads as follows:
“On 02/02/2017, the European Commission
has initiated formal antitrust proceedings
against four large European tour operators
(Kuoni, REWE, Thomas Cook, TUI) and one
hotel chain (Meliá Hotels) for a suspected
breach of EU rules (Article 101 of the Treaty
on the Functioning of the European Union).
The initiation of proceedings is based on
Article 11(6) of the Antitrust Regulation
(Council Regulation No 1/2003) and Article
2(1) of its implementing Regulation
(Commission Regulation No 773/2004).
The Commission intends to investigate
agreements regarding hotel accommodation
concluded between tour operators and
hotels. The agreements in question may
contain clauses that discriminate between
customers, based on their nationality or
country of residence - as a result customers
would not be able to see the full hotel
availability or book hotel rooms at the best
prices. This may breach EU competition
rules by preventing consumers from booking
hotel accommodation at better conditions
offered by tour operators in other Member
States simply because of the consumer's
nationality or country of residence. This
would lead to the partitioning of the Single
Market.
The initiation of proceedings does not signify
that the Commission has made a definitive
finding of an infringement but merely
signifies that the Commission will deal with
the case as a matter of priority.”
In addition to the Commission’s case decisions in the
sector, we also note the recent (6 April 2017)
publication of a report by a group of European
Competition Authorities on certain aspects of
competition in the online hotel booking sector.
114
This
report presents the results of a coordinated monitoring
exercise carried out in the online hotel booking sector
by a group of 11 EU competition authorities in
2016. The purpose was to measure the effects of
113
http://ec.europa.eu/competition/antitrust/cases/dec_docs/40308/40308_84
7_3.pdf
114
http://ec.europa.eu/competition/ecn/hotel_monitoring_report_en.pdf
115
http://ec.europa.eu/competition/ecn/hotel_monitoring_report_en.pdf,
paragraph 3, page 5. In brief, “wide” parity clauses are defined in the
report as obliging the hotel to give the OTA the lowest room prices and
best room availability relative to all other sales channels. “Narrow”
parity clauses are defined as allowing the hotel to offer lower room
recent changes to the parity clauses used by OTAs in
their contracts with hotels.
By way of background, the report noted that since
2010 several national competition authorities had
investigated OTA parity clauses, which were also
known as most favoured nation (“MFN”) clauses, and
that the various authorities had adopted differing
approaches both in their investigations and in their
resulting actions. The 2016 monitoring exercise
covered various aspects of the way hotels market and
sell their rooms but it focused on parameters which
had been central to the theories of harm applied by the
authorities in such investigations.
As summarised in the report:
“The theory of harm for wide parity clauses
in this sector is, first, that they lead to a
softening of competition between incumbent
OTAs and, second, that they foreclose entry
or expansion by new or smaller OTAs” and
“[T]he theory of harm for narrow parity
clauses in this sector is that they have the
effect of preserving the restriction of
competition caused by wide parity, because
they reduce the incentive for hotels to offer
differing room prices on different OTAs.”
115
In light of these theories of harm, the
monitoring exercise focused on room price
differentiation by hotels between sales
channels, room availability differentiation by
hotels between sales channels, and OTA
commission rates. In particular, it examined
how changes to room pricing terms and
other recent developments had affected the
market and especially whether the Europe-
wide removal, in July 2015, by two OTAs
(Expedia and Booking.com) of certain parity
clauses in their standard contracts with
hotels had affected pricing and commission
rates.
The full results of the exercise are set out in
the report. One example of the competition
authorities’ responses to these findings was
that the UK’s Competition and Markets
Authority (“CMA”) announced on 6 April
2017 that it had decided “not to prioritise
further investigation on the application of
competition law to pricing practices in this
sector at this stage”.
116
This example is consistent with the Commission’s
press release on 6 April 2017 regarding publication of
the report on online hotel booking. This press release
stated that:
“[T]he results of the exercise suggest that
measures applied to the parity clauses,
namely (a) allowing large online travel
agents to use narrow parity clauses, and (b)
prices and better room availability on other OTAs and on offline sales
channels, but allowing the OTA to stop the hotel from publishing lower
room prices on the hotel’s own website
116
https://assets.publishing.service.gov.uk/media/58e61bd5e5274a06b00000
e8/update-6-april-2017.pdf
47
prohibiting online travel agents from using
them altogether, have generally improved
conditions for competition and led to more
choice for consumers. Based on the results,
the European Competition Network
(comprising the national competition
authorities of all EU Member States and the
European Commission) has agreed to keep
the online hotel booking sector under review
and to re-assess the competitive situation in
due course. This will allow the sector more
time to make full use of the measures that
have already been taken.”
117
Phase 2 – Quantitative analysis
Our industry expertise recognises that it is difficult to
quantify economic activity accurately across sub-
sectors or business models in this sector. Our
approach is, therefore, to use the available official
statistics as the starting point and then to complement
these statistics with our industry research.
This industry research will give us the basis to be
commenting on the official statistics and, then, to
potentially make adjustments and extrapolations to the
statistics in order to finalise the base market data. The
VAT-related findings from our questionnaires will then
be able to be applied to this base data.
4.3.7.1 Macroeconomic data
To provide a foundation for our quantitative analysis,
macroeconomic data has been gathered to identify the
turnover of the travel and tourism sector across the
EU, Turkey, Norway, Switzerland and North America.
This been broken down by country and across the five
business models identified. The source data has been
obtained from EUROSTAT for Europe and from the US
Census Bureau for the USA and Statistics Canada for
Canada.
For Europe, a review of NACE codes identified four
categories of detailed statistics for services which
captured data for the five business areas as follows:
N79.1.1 Travel Agencies, N79.1.2 Tour Operators,
N79.9.9 Other and N82.3.0 Organisation of
conventions and trade shows.
For North America, a review of NAICS codes identified
four categories of detailed statistics for services which
captured data for the five business models as follows:
561510 Travel Agencies, 561520 Tour Operators,
561591 Convention and Visitors Bureaus, 561599 All
Other Travel Arrangement and Reservation Services.
The Economic Indicator of “turnover or gross premiums
written” was selected in turn for each of the NACE
codes detailed above and the turnover data for the
NAICS codes. The raw data was downloaded (in €m).
There were a number of gaps in the raw data. Using
sound economic principles, estimates have been
derived in order to complete turnover data for 2015 for
all countries. See Annex 3 for details of the
extrapolations and assumptions made.
The total turnover of the EU travel and tourism sector
(including MICE), is estimated at circa €187bn.
118
The
total for North America, Switzerland, Turkey and
Norway is estimated at circa €41.7bn. Further
breakdown by country can be seen in the tables below
and is detailed in Annex 3.
Detailed explanation of the quantitative calculation can
be found at Annex 3. This has provided indicative
figures at an EU level as follows:
(€bn)
119
Special Scheme output tax can be
indicatively estimated to be in the
order of
1.9
Of which, Special Scheme output
tax pertaining to B2B supplies can
be indicatively estimated to be in
the order of
0.29
Output tax accounted for under
"normal rules" can be indicatively
estimated to be in the order of
3.7
Irrecoverable input tax on direct
Special Scheme costs can be
indicatively estimated to be in the
order of
5.6
Of which, irrecoverable input tax on
direct costs of B2B Special Scheme
supplies can be indicatively
estimated to be in the order of
1.15
117
http://europa.eu/rapid/press-release_MEX-17-896_en.htm
118
This is a turnover figure for the group of travel agent, tour operator
and related businesses representing, in EUROSTAT’s statistics, an
approximation of the types of businesses likely to be included in the
Special Scheme. This is, therefore, to be taken as a rough
approximation for the total “top-line” income in Special Scheme
calculations across the EU. This figure is not comparable to the World
Travel & Tourism Council figures referred to in section 2.5, which relate
to GDP figures for the industry as a whole. GDP is not the same as
turnover. Also, in particular, the GDP figures do not just include travel
agents and tour operators; they will also include “direct” spend within
the industry as a whole, where the traveller does not buy from a
business included in the Special Scheme.
119
These figures should be considered to be only indicative estimates
of potential VAT impacts. All the underlying data are necessarily either
approximations or sample-based. Some of the approximations would
imply that the estimates are more likely to be over-estimates than
under-estimates but, overall, we cannot confirm this
48
Fig. 4a – Total EU Travel and Tourism Market by Jurisdiction
Using sound economic principles, the turnover for the EU as a whole and within each country, has been split into the
five business models. The methodology can be found in Annex 3. This shows us that the largest market is travel
agents, followed marginally by tour operators, occupying over 60% of the industry. TMCs, MICE and DMCs then
account for the remaining 40% between them.
Fig. 4b – Total EU Market split by Business Model (€bn)
120
120
Rounding applied
51
Fig. 4g – Total Non-EU Travel and Tourism market by jurisdiction (€bn)
125
4.3.7.2 Discussion about the data
The results of our macroeconomic analysis based on
EUROSTAT data show that the largest EU market for
travel and tourism businesses is the UK, accounting for
31% of the EU market. This is followed in descending
order by: Germany, Spain, France, Italy and the
Netherlands. The remaining 22 EU countries make up
the remaining 20%.
Fig. 4h
Country % EU
Market
Share
Turnover
(€m)
UK
31% 57,818
Germany
18% 33,852
Spain
11% 19,147
France
8% 15,375
Italy
7% 13,181
Netherlands
5% 9,518
Remaining 22 EU
Member States
20% 38,096
The comparative size of the UK market was somewhat
surprising, especially in relation to Germany. Indeed,
ECTAA’s analysis of the turnover data
126
showed
Germany to be closer to €51bn and the UK at €33bn.
However, our assessment of the size of the German
market has been corroborated through Deutscher
ReiseVerband (“DRV”).
127
The DRV facts and figures
125
Rounding applied
126
http://www.ectaa.org/files/cms/ad17-085-448.pdf
127
https://www.drv.de/securedl/106/0/0/1501876888/4635fe5fd423ec5ebb90f4327a38588e250cc4fa/fileadmin/user_upload/Fachbereiche/Statistik_und_Mar
ktforschung/Fakten_und_Zahlen/17-04-24_DRV_ZahlenFakten2017_engl.pdf
128
Data from the European Travel Agents’ and Tour Operators’ Association (ECTAA) (http://www.ectaa.org/files/cms/ad17-085-448.pdf)
129
http://www.ectaa.org/files/cms/ad17-085-448.pdf
show that the total turnover of the German tourism
market in 2016 is €59.7bn. That is split into €30.2bn for
tour operators (this includes tour operators and travel
agents selling travel packages), €8bn for product
portals (defined as portals that sell only single
products, e.g. hotel-, flight-, car rental portals, etc.),
and €21.6bn for suppliers. Since product portals are
also intermediaries / travel agents, the total turnover of
travel agents and tour operators in Germany can be
summed up to €38.2bn. This is close to the
EUROSTAT data for 2015.
On further research, we found that the UK travel
agents and tour operators employ more people than
Germany.
128
Additionally, there are large differences
between the use of other online commercial services
such as tour operators, airline companies etc. with
28% of Germans reporting booking their holiday
through this method compared to a much higher level
in the UK. However, this might be slightly
counteracted by the fact that Germans are more likely
to book over the counter at a travel agency (27%
versus 15%).
Further research has been undertaken to corroborate
the UK figures. It has been confirmed that the UK
turnover figure was sourced from the Office of National
Statistics. As this study is in part focused on the
potential scale of effect of any proposed VAT changes,
the UK EUROSTAT figure has been assumed correct,
rather than reducing the country’s turnover figure to be
more in line with Germany.
The comparative market sizes of the other EU
countries are in line with industry experts’ expectations
and largely align with ECTAA’s analysis.
4.3.7.3 Other European Countries
These results were in line with industry expectations
and, in the case of Norway and Switzerland, are similar
to the results found by ECTAA.
129
52
Fig. 4i
Country
Turnover (€m)
Norway
€4,416
Switzerland
€8,612
Turkey
€6,055
4.3.7.4 North American Economic Data
Our analysis for the North American market shows the
US industry turnover as a little over 1/3 of that of the
UK and smaller than Germany.
Fig. 4j
Country
Turnover (€m)
US
€21,871
Canada
€1,754
According to the American Society of Travel Agents
(ASTA) in 2014, US based travel agencies earned
$17bn in revenues. This is close to the figure obtained
from the US Census Bureau for 2015 of $15bn.
Further there is some evidence that would support the
idea of the US travel agency market being smaller than
the UK market. In 2014 there were 74,100 persons
employed by travel agents in the US.
130
In the UK
there were 87,900 persons employed by travel agents
in 2015.
131
Additionally US citizens, in general, tend to travel
internationally less than UK residents. In 2015, US
citizens took 31.8 million overseas trips
132
however it is
estimated that these trips are taken by just 5% of the
US population.
133
In comparison, UK residents made
65.7 million visits abroad in 2015.
134
Of the total
population, 77% of the UK population took a holiday in
2015 with the average person taking 3.2 holidays a
year.
135
Finally, the use of travel agents in the US is much
lower than in the UK, with 22% of the US population
using travel agents to book a trip
136
compared to 47%
of the UK population.
137
So overall with a combination
of less trips and lower use of travel agents it does not
seem implausible for the US market to be smaller.
Findings
As outlined at 4.3.7.1 and Annex 3, our extrapolations
from travel businesses sampled as part of our
quantitative analysis would suggest a likely total
Special Scheme margin VAT across the EU in the
order of €1.9bn.
Whilst at the outset of the project it was hoped that
figures could be scaled by each Member State and by
each business model, the relatively small sample size
in the majority of Member States is such that specific
quantification of any given issue in a particular Member
State is not possible. However, as an indication of
relative value, the relative sizes by country and by
business model at Figs. 4a – 4d should be borne in
mind.
The level of VAT that is collected under the Special
Scheme is difficult to precisely ascertain because
these figures are generally not reported by the tax
authorities in respect of national statistics. To sense
check output from the quantitative analysis at Annex 3,
we have cross-referenced with anecdotal and other
feedback that we have received informally from various
tax authorities, industry representatives, experienced
professionals and from the larger taxpayers to provide
a likely ‘best guess’ of the likely amount of VAT that is
collected annually across the EU. It bears stating that
this figure does not take account of blocked input tax,
which arguably could be deemed to also constitute
VAT receipts that are generated by the Special
Scheme. The figure that we have arrived is therefore
the VAT on the margin alone.
Our informal data sources suggest that the likely level
of VAT collected by the UK Tax Authorities annually is
in the region of around €300m; this is based on
anecdotal feedback provided to us by various industry
bodies. In Spain, published figures
138
report that the
level of VAT collected under the scheme is €120m.
We understand that in Sweden, the level of Special
Scheme VAT that is collected is around €110m. In the
Netherlands, we understand that when VAT was
introduced on travel supplies (2012), the Dutch
Finance ministry forecast that the likely additional VAT
revenues that would be generated from the addition of
VAT on the margin would be €50m. In Germany, the
German Federal Statistical Office reports that in 2016,
the total travel sector output tax was calculated as
being €1.9bn – however, as we know that Germany
has elected not to apply the Special Scheme to B2B
supplies, this figure will include ‘normal’ VAT on such
transactions which cannot be accurately quantified.
We therefore estimate that with respect to Germany –
the likely margin scheme output tax is likely to be in the
region of between €100m – €200m.
Our study has covered in previous sections the
distortions and differences that exist across the EU and
indeed there are certain interpretations by a number of
tax authorities that mean as a result, the optimal level
of VAT on the margin, is simply never going to be
collected. For example, within Spain, a large number
of tour operators are located in the Canary Islands and
as a consequence, simply do not pay Spanish VAT in
this respect. Within the UK, allowing travel agents to
opt-out of the Special Scheme has a deleterious
impact on the revenues collected, as does the ability
for travel agents to manage the impact of the margin
by utilising in-house travel resources.
130
Occupational Outlook Handbook
131
UK Office for National Statistics
132
National Travel and Tourism Office
133
https://www.huffingtonpost.com/william-d-chalmers/the-great-american-
passpo_b_1920287.html
134
UK Office for National Statistics
135
Association of British Travel Agents (“ABTA”)
136
ASTA
137
ABTA
138
2015 -
http://www.minhafp.gob.es/Documentacion/Publico/Inspgral/Memorias/Mem
oria%20Tributaria%202015/MAT%202015%20Tomo%202%20(acc).pdf
53
Fig. 4k
Member State
Third party
estimated Special
Scheme VAT
Revenue (€m)
Travel
industry
turnover
(€m)
Netherlands
55 9,500
UK
300 58,000
Sweden
110 7,000
Germany
150 34,000
Spain
120 19,000
735 127,500
Implied
indication of
Special Scheme
VAT Revenue at
EU level
1,355 186,000
Per the table above, this “sense-check” would suggest
Special Scheme margin output tax revenue to be of the
order of €1.4bn. This figure is considered to be
consistent with the €1.9bn estimate per Annex 3, given
the limitations of available information. This gives some
reassurance that despite the limitations of the
methodology at Annex 3, the numerical output is likely
to be reasonably indicative of the actual ballpark
Special Scheme output tax figure.
Evaluate the
functioning of the
current rules
55
5 Evaluate the functioning of the current rules
5.1 Objective
Our objective in this section is to identify how the
provisions of the Special Scheme are applied by the
Member States. We will consider deviations from the
way in which the Special Scheme is intended to
operate, as established by the CJEU (as described in
section 3) and we will describe how VAT works in
various scenarios. We will identify and seek to quantify
any notable material issues arising from the design and
operation of the Special Scheme and to assess which
of these issues, if any, may be considered distortions
of competition.
5.2 Section Summary
The two key aims of the Special Scheme are
simplification and efficient revenue allocation between
Member States. Regarding the first of these aims there
is good evidence that this has been achieved and that
travel agents appreciate the benefit of that
simplification, despite the numerous inconsistences in
application as discussed below.
In the majority of cases it appears that these
discrepancies arise simply from differing local
interpretations of Articles 306 to 310 of the VAT
Directive, in addition to differing local implementations
of the case law of the CJEU. It may be considered that
this scope for differing interpretations results from the
absence of precise, prescriptive provisions in the VAT
Directive or of implementing regulations. A common
feature across the majority of Member States is that
local legislation and local published tax authority
guidance is often lacking the precision or detail
necessary to provide clarity on the VAT treatment of
particular scenarios. As a result, accepted local
practice can be inconsistent even within a given
Member State (and Annex 1, which summarises
differences between Member States, should be read in
this context).
Whilst the inconsistencies create uncertainty and
difficulties for taxpayers operating in multiple Member
States, we have concluded that many create neither a
material issue, nor a distortion of competition on
aggregate for the EU as a whole. Even so, on a
qualitative basis, given the difficulties they create it
would be advisable to seek greater harmonisation and
to address these points in the course of reform.
However, a limited number of issues are more
significant and warrant further examination. First, we
have concluded that the different treatment of
wholesale supplies and the differing approaches to the
meaning of travel facilities create distortions of
competition. In addition we have concluded that the
need to calculate the margin VAT on a transaction by
transaction basis and the inequality between third
country suppliers and those established in the Member
States are all material issues for the industry that merit
a resolution. Further, we have concluded that the
travel agent’s inability to deduct input tax on costs is a
significant drawback of the scheme when providing
B2B services.
Precise quantification of every potential distortion of
competition was not possible, although the quantitative
analysis at section 4 has informed our conclusions.
Although the estimates of total Special Scheme
revenue and therefore irrecoverable input tax can be
seen as modest, the distortion manifests in the fact that
many travel agencies in the B2B sector operate as
intermediaries and therefore outside the Special
Scheme, thereby reducing VAT revenues under the
Special Scheme. In the DMC sector the issue is more
the inconsistency in the application of the Special
Scheme to wholesale supplies and it is probable that
VAT revenue would be greater if the rules were
harmonised.
5.3 Defining distortion of
competition
As noted in section 2.7 “distortion of competition” is
taken to arise where we consider that an unequal
treatment of travel agents under the Special Scheme
rules in force in Member States leads in practice to
significant changes in behaviour of the travel agent.
The legal basis of the VAT Directive and thus the rules
for the Special Scheme is Article 113 of TFEU. It
obliges the Council to adopt provisions for the
harmonisation of VAT legislation to the extent that such
harmonisation is necessary to ensure the
establishment and the functioning of the internal
market and to avoid distortion of competition.
The analysis in this section however goes beyond
examining distortion of competition in the internal
market by also taking into account the potential
problem of a lack of a level playing field between
operators based in the EU and operators located
outside the EU, in respect of the Special Scheme.
Moreover, in the course of this analysis we take
account of matters raised by the travel industry that
may not be seen as distortions of competition, but
constitute material issues affecting businesses taxed
under the Special Scheme.
This study considers distortions of competition and
material issues in respect of two categories:
Differences in application of the Special Scheme
rules by Member States
Competition between EU and non-EU operators
It should be noted that some other potential distortions
and material issues result from the existence of a
Special Scheme. We also make observations in
respect of other distortions of competition and material
issues resulting from the existence of the Special
Scheme.
The differences in treatment are amplified by differing
national rules, which originate from:
Member States not having implemented or not
fully implemented established case law by the
CJEU
56
the provisions of the Special Scheme in the VAT
Directive rules having not been adapted since
1977, leaving room for Member States to
determine the scope and functioning of the Special
Scheme (e.g. by defining travel facilities and the
treatment of single supplies).
5.4 Simplification benefits of the
Special Scheme
This section only looks at VAT liabilities when
quantifying material issues and potential distortions of
competition. It does not weigh the respective VAT
liabilities under the Special Scheme against the key
benefits for travel agents in the form of administrative
ease and associated compliance costs savings
provided for by the Special Scheme. In particular, the
Special Scheme alleviates the requirement for travel
agents to be VAT registered in each Member State
from which travel services are purchased or where
customers reside. This avoids the need to understand
and comply with those Member States’ differing VAT
regimes and to interact with the tax authorities in
different languages and locations. It therefore reduces
the resource requirement of the travel agent and salary
costs and external advisory budgets needed to fulfil
those requirements.
Furthermore, under the Special Scheme there is no
necessity to obtain documentary evidence to support
input tax refunds, which are subject to different
evidential requirements in each Member State. This is
of particular relevance as travel agents frequently deal
with many small suppliers and where such suppliers
have limited VAT expertise, this can result in issuing
inconsistent invoicing documentation.
In the absence of the Special Scheme, the loss of
these simplifications would create administrative
burdens and associated costs for travel agents. These
costs are difficult to quantify, however evidence that we
have been able to gather from the KPMG Compliance
Centre in Hungary (acting for over 400 clients and
preparing in excess of 70,000 Indirect Tax filings per
annum) would suggest that the cost of basic, local
compliance per jurisdiction on an outsourced basis
would amount to approximately €8,000 – €15,000 per
VAT registered entity, per annum.
5.5 Assessment of material
issues and potential
distortions arising from the
current application of the
Special Scheme rules
We consider the effect of the rules of the Special
Scheme, as interpreted by the CJEU, in creating
inconsistencies when comparing travel agents with
suppliers of similar services which fall outside of the
scheme, demonstrate how the application of the
scheme can put taxable persons within the Special
Scheme at a different competitive position when
compared with those falling outside the scheme.
Our interpretation of the proper application of the
Special Scheme is summarised in section 4.
In addition, our purpose is to illustrate the effects of the
varying applications of the Special Scheme and to
demonstrate how the application of the Special
Scheme to taxable persons established in one Member
State creates a different competitive position when
compared to taxpayers established in a different
Member State.
VAT rates across all 28 Member States differ
significantly. Whilst these rate differences can have a
competitive impact, the differing VAT rates are not a
feature of the Special Scheme per se and for this
reason the impact of non-harmonisation of VAT rates
between Member States is considered to be beyond
the scope of this study. Our focus of this section of the
study is on the differences which arise solely due to
how the Special Scheme is applied across Member
States.
Non-deductibility of input tax as a
result of B2B supplies being taxed
under the Special Scheme
One of the main features of the Special Scheme is that
it prevents the deduction of input tax on the costs of
goods and services supplied within the scheme. Given
that input tax cannot be deducted, it is necessary for
travel businesses to pass on costs, which include
irrecoverable VAT charged by suppliers, to the travel
agent.
The effect of this varies considerably from sector to
sector. In the DMC sector, whilst the immediate client
will always be a business, the final consumer is often a
non-business person and therefore the use of the
Special Scheme may not be an issue as there would
be no final right to input tax deduction by the end
consumer. However, in the MICE and TMC sectors
(where the end customer is normally a taxable person
who would expect to deduct VAT incurred on business
expenditure) and in the DMC sector when the final
customer is a business, the application of the Special
Scheme would deny that final business customer the
right to input tax deduction. With the exception in some
Member States of the ability to recover VAT on the
margin made by the travel agent, there is no VAT to be
deducted where services are supplied by a travel
agent. As the VAT charged to the travel agent cannot
be recovered, a VAT-inclusive cost needs to be
recovered from the client.
This can place the travel agent at a disadvantage when
compared to suppliers of similar services when the
Special Scheme is inapplicable (e.g. if the business
bought direct from the travel provider, or bought
through an intermediary outside of the Special
Scheme).
57
Fig. 5a
In the first example above, a taxable person purchases
hotel accommodation direct from a hotel for a total
price of €110. The (illustrative) local VAT rate for hotel
accommodation is 10% and the price paid therefore
equates to €100 plus VAT. The taxable person obtains
a VAT invoice from the hotel and, assuming that the
taxable person uses the accommodation in the course
of taxable business activities, the VAT can be
deducted as input tax. The net cost to the taxable
person is €100.
In the second example, the taxable person purchases
the accommodation from a travel agent, such as a
TMC, acting in his own name so that the Special
Scheme is applicable. The travel agent has an
agreement with the hotel under which the agent is able
to access discounted room rates, the discounted price
in this case being €99 (i.e. €90 plus VAT). The agent is
able to make the room available at a lower gross price
than the taxable person is able to achieve when
approaching the hotel direct.
However, the travel agent is unable to deduct the input
tax of €9 and cannot issue a VAT invoice to the taxable
person. The price paid of €105 is VAT-inclusive but the
taxable person cannot deduct any input tax. The gross
cost is therefore €105. The travel agent makes a
margin of €6 and therefore, if the standard rate in his
Member State is 20%, he must pay VAT of €1.
What appears at first to the taxable person to be a
good price is in fact considerably more expensive than
could be achieved if contracting with the hotel itself. In
our experience, this is not an unusual outcome and
can certainly create difficulties in the relationship
between a travel agent and business client. A client
aware of this effect would be likely to contract directly
with a primary supplier. In practice, a travel agent
faced with a situation such as this would be likely to
introduce intermediary arrangements to overcome the
competitive disadvantage which he would otherwise
suffer.
The above illustrates a simple comparison of the
purchase of a single service but we believe this is a
good illustration of the problem faced by travel agents
operating in the B2B sectors. In many circumstances,
particularly in the MICE sector, numerous services may
be combined to create the service but the effect of the
Special Scheme can still be reduced to the problem
illustrated above.
The blocked input tax on direct costs of B2B supplies
resulting from the application of the Special Scheme
has been indicatively estimated to be worth circa
€1.15bn annually across the EU per Annex 3.
This value may be considered to be an inevitable
consequence of the Special Scheme in its current
form. Notwithstanding this irrecoverable VAT cost, the
58
applicability of the Special Scheme to travel services
sold to business customers ensures that VAT revenue
is allocated to the Member State where the
consumption actually takes place, which is the ultimate
aim of the Special Scheme.
Advantages enjoyed by intermediaries
over those falling within the Special
Scheme
It is well established that under the Special Scheme
the margin made by a travel agent is subject to VAT at
the standard rate (except to the extent that the services
provided by the travel agent are enjoyed outside the
EU). This is so irrespective of the nature of the
underlying services being supplied. However, in some
Member States at least, where an intermediary
arranges a service such as passenger transport, any
fee earned for doing so may be VAT exempt. There is
a contrast, therefore, between travel agents falling
within the Special Scheme and intermediaries falling
outside the scheme: whilst the margin of a travel agent
is subject to VAT (provided the underlying service
takes place within the EU), a fee charged by an
intermediary, in some circumstances at least, is
exempted from VAT, introducing an advantage to
those acting as an intermediary.
The extent of this advantage for intermediaries outside
of the Special Scheme is to some extent offset by the
burden of increased VAT registration and compliance
obligations as referred to in section 5.4. However in
practice we understand the enforcement of
intermediaries’ cross-border registration obligations by
Member States is inconsistent and can be problematic
to guarantee.
The differing treatment of intermediaries and principals
is an inherent feature of the Special Scheme and
provides incentives for businesses to adopt an agency
rather than a principal model. The magnitude of this
potential distortion cannot easily be measured, on the
basis that no data is available to indicate the extent to
which businesses which are currently structured as
intermediaries would in fact act as principals in the
hypothetical absence of the Special Scheme (or vice
versa).
Advantages enjoyed by travel agents
incurring costs which may not be
subject to VAT
As VAT is payable on the margin, the Special Scheme
effectively allows for a credit for input tax on all costs of
goods and services supplied within the scheme,
regardless of whether VAT is actually incurred on the
costs involved. Equally, the rate of VAT assumed on
the purchase is the local standard rate even if VAT is
actually charged at a reduced rate.
This can create an advantage for the travel agent over
a supplier of a similar service who does not come
within the Special Scheme (where VAT is not incurred
on the costs involved).
For example, if a travel agent was to incur a cost of
€48 (with no VAT being incurred on the cost) and re-
139
Case C-74/91
sell the service in question for €60, then (with an
illustrative VAT rate of 20%) the agent would pay VAT
of €2 on the margin made of €12 leaving a net margin
of €10. However, a supplier of the same service (for a
VAT inclusive price) selling in circumstances which did
not involve the Special Scheme would pay VAT of €10
on his supply (again applying an illustrative VAT rate of
20%) but would have no input tax to deduct against
that amount due, leaving a net margin of €2. In this
example the Special Scheme business is “better off” by
€8 on a very similar transaction.
This outcome could arise for example either where a
service that is taxable in principle is purchased from a
business which does not charge VAT (such as a guest
house trading below the VAT registration threshold) or
from a business such as a Bed Bank which does not
charge VAT. It could also arise where a travel agent
purchases a VAT exempt cultural service such as a
museum admission but the travel agent does not
qualify for the same exemption.
Per the illustrative numerical example above, it can be
seen that the magnitude of this particular issue is
driven by the differential between the relevant reduced
rate applicable to the travel service when sold
separately and the standard rate applicable when sold
in a Special Scheme package. This differential will vary
considerably from one Member State to another and
will also depend on the relative values of reduced-rated
and standard-rated elements sold in each Special
Scheme package. The information obtained from the
business questionnaire in this study was not sufficiently
granular to allow this to be calculated. However, the
value of additional VAT collected as a result will be
only a fraction of the indicative circa €1.9bn Special
Scheme output tax, and is not considered significant
on aggregate for the EU as a whole.
The effect of the taxing of the Special
Scheme margin at the standard rate
We know from the judgment in the Commission v
Germany case
139
that the margin is wholly subject to
VAT except to the extent it relates to services enjoyed
outside the EU. The treatment of services when
supplied outside of the Special Scheme is not relevant
in determining the position within the scheme.
This approach can be justified by seeing the travel
agent’s margin as consideration for the travel agent’s
service in co-ordinating and managing the creation of
the service and related services. Clearly, this argument
is more relevant the more complex is the travel agent’s
supply.
However, it has often been suggested that the need to
pay VAT on the full margin at the standard rate creates
a distortion between travel agents and suppliers of
similar services who do not fall within the scheme.
The problem is exacerbated by the application of
exemptions and reduced rates to many tourism
services. Such services can include international
passenger transport, hotel accommodation, restaurant
services and admission to cultural events and facilities.
The effect is that many taxable persons pay VAT at an
effective rate considerably below the standard rate on
59
many tourism services. However, a travel agent must
pay standard rate VAT, putting the travel agent in a
situation in which it can be difficult to compete on price.
There are two circumstances in which this problem
manifests itself:
Where the travel agent is competing against a
person falling outside of the scheme; and
Where a travel agent is competing against another
travel agent who is supplying the services from its
own resources (i.e. an in-house supply) which the
case law described in section 3 demonstrates is
not subject to VAT within the Special Scheme but
is subject to “normal” VAT rules.
These issues have led to the introduction of the means
to avoid the distortions created such as the mitigation
arrangements which have operated in the UK since
1996. The most used of these arrangements is
commonly known as the “transport company scheme”.
This allows a travel agent to establish arrangements
which see passenger transport purchased by a
separate legal entity (often a subsidiary of the travel
agent) for re-supply to the travel agent. The value of
the supply to the travel agent is set at the level
required to “shift” the margin made on the passenger
transport from the travel agent to the supplier of the
transport. The effect is that no margin is made by the
travel agent on the passenger transport and hence no
VAT is due on any such transport. The supply of the
transport to the travel agent is a wholesale supply
which, as the UK does not compulsorily apply the
CJEU decisions on the treatment of wholesale
supplies, is a VAT exempt with credit (“zero rated”)
supply. Accordingly, no VAT is due. The effect is the
same as if the margin achieved on passenger transport
was “zero rated”.
This arrangement overcomes the perceived difficulty of
taxing the margin made on passenger transport when
suppliers of transport which fall outside the Special
Scheme would not pay any VAT (as passenger
transport in the UK is “zero rated”). It also helps to
avoid a distortion of competition between travel agents
who purchase passenger transport from third parties
and those which supply similar services on an in-house
basis. It does however create a competitive advantage
in favour of travel agents established in the UK when
compared with those established in a Member State
without such a facility.
When a travel agent supplies services to a business
client the problem is exacerbated by the inability to
raise a VAT invoice (except possibly for the margin
element), as described below.
This issue applies to taxable persons within each of the
five business models described in this study. This
issue arises from the Special Scheme rules at an “EU
level” (i.e. that certain services fall within the scheme
as a result of Articles 306 to 310 of the VAT Directive),
but is also exacerbated by the differing interpretations
and scope of those rules at a “Member State level” (i.e.
where Member States then implement those rules
differently).
140
Paragraph 24 of the Advocate General’s opinion
141
Paragraph 31 of the Advocate General’s opinion
As per section 5.5.4, the magnitude of this particular
issue is driven by the differential between the relevant
reduced rate applicable to the travel service when sold
separately and the standard rate applicable when sold
in a Special Scheme package. This differential will vary
considerably from one Member State to another and
will also depend on the relative values of reduced-rated
and standard-rated elements sold in each Special
Scheme package. The information obtained from the
business questionnaire in this study was not sufficiently
granular to allow this to be calculated. Suffice to say,
the value of additional VAT collected as a result will be
only a fraction of the indicative circa €1.9bn Special
Scheme output tax and is not considered to be a
material issue on aggregate across all sectors.
However, anecdotally we are aware that for certain
taxable persons this is an important matter.
Invoicing
Articles 306 to 310 of the VAT Directive do not set out
any formal invoicing requirements in respect of Special
Scheme transactions either regarding the necessity to
issue invoices, nor if the output tax declared on the
margin should be shown on invoices. However, the
reference at Article 226(13) of the VAT Directive, which
states that where supplies fall under the Special
Scheme, namely that the invoice must mention “Margin
scheme – travel agents”, is indicative of the
requirement to issue invoices. This lack of clear
legislative guidance has led to uncertainty for those
making Special Scheme supplies and indeed for
Member States in the implementation of the VAT
Directive and the provision of clear guidance at a
national level. This is highlighted by the vast
inconsistency in invoicing treatment for Special
Scheme supplies across Member States, which is
detailed below.
Though not binding, the Advocate General’s opinion in
Commission v Spain did provide some obiter comment
on Special Scheme invoices. The Advocate General
opined:
“I therefore wonder whether the Commission
went far enough at the hearing by regarding
an invoice indicating the VAT on the travel
agent’s margin as merely an option, unlikely
to be exercised in practice. There may, it
seems to me, be grounds for considering it a
requirement”
140
And, further:
“… I have concluded above that it is at least
possible, if not compulsory, within the
margin scheme to apply the normal rules
concerning the indication of VAT on the
travel agent’s margin on invoices and its
subsequent deduction by the customer”
141
The CJEU, in dealing only with Spain’s “6% rule", was
however not required to comment on the Advocate
General’s position in this respect.
60
This absence of clear guidance
142
is reflected by the
inconsistent responses received in respect of Member
States from the KPMG questionnaire regarding Special
Scheme B2B invoicing requirements, which are
discussed below in more detail.
143
For ease of
reference, responses received in respect of a Member
State from the KPMG questionnaire are listed below by
reference to the name of the relevant Member State.
5.5.5.1 B2B Special Scheme supplies –
obligation to issue an invoice
Member States are largely consistent in requiring
businesses to issue invoices in respect of travel
facilities supplied to B2B customers under the Special
Scheme. Notably Cyprus does not permit or require a
supplier to issue an invoice for a B2B supply subject to
the scheme, while in Germany the Special Scheme is
not applicable to B2B supplies such that normal
invoicing rules apply. Similarly, in respect of Austria, at
present the Special Scheme is not applicable to B2B
supplies, however, the Special Scheme will apply from
May 2018.
AT BE BG HR CY CZ DK
EE FI FR DE EL HU IE
IT LV LT LU MT NL PL
PT RO SK SI ES SE UK
Invoice must be issued to B2B customers
Invoice cannot be issued to B2B customers
Special Scheme not applicable to B2B supplies (not in conformity
with legislation/case law)
5.5.5.2 B2B Special Scheme supplies –
requirement to display Special Scheme
margin VAT on the invoice
Member States’ responses were inconsistent as to
whether the VAT on the margin could or should be
displayed on an invoice for supplies which are subject
to the Special Scheme. Seventeen Member States
responded that the invoice must not display the VAT
on the margin.
France, Spain, Greece, Luxembourg and Sweden
indicated that it was optional to display the VAT on the
margin on the invoice.
In Germany the Special Scheme is not applicable to
B2B supplies such that normal invoicing rules apply.
Similarly, as Austria does not currently apply the
Special Scheme to B2B supplies there is no clear
guidance on this point for when the Special Scheme
changes in 2018.
Belgium, Finland, Hungary, Latvia and Malta indicated
that the invoice must display the VAT on the margin.
Whilst Maltese and Irish legislation does not expressly
exclude the requirement for taxpayers making Special
Scheme supplies to show the VAT on invoices, in
practice many taxpayers do not in fact separately
indicate the VAT element on the invoice.
142
Article 226 of the VAT Directive
143
Article 168 of the VAT Directive
Of course, VAT incurred by businesses within the
Special Scheme is not recoverable as input tax.
However, businesses purchasing travel services for
consumption are not taxed under the Special Scheme,
and may therefore be entitled to recover any VAT
shown on the invoice. It should be borne in mind that
this is not always the case, as explained at section
5.5.10.
AT BE BG HR CY CZ DK
EE FI FR DE EL HU IE
IT LV LT LU MT NL PL
PT RO SK SI ES SE UK
Invoice must display VAT on margin
Invoice must not
display VAT on margin
Can opt to display VAT on the margin
Other / Guidance could not be obtained
5.5.5.3 Invoice reference to the Special
Scheme
Article 226(13) of the VAT Directive states that where
an invoice is issued in respect of Special Scheme
supplies it must mention “Margin scheme – Travel
agents”.
This specific guidance is applied by the majority of
Member States. Cyprus is the only Member State not
requiring a reference to the Special Scheme on the
invoice.
AT BE BG HR CY CZ DK
EE FI FR DE EL HU IE
IT LV LT LU MT NL PL
PT RO SK SI ES SE UK
Invoice refers to the
Special Scheme
Invoice does not need to refer to the
Special Scheme
The interaction of the Special Scheme
with VAT registration thresholds
The value of a supply within the Special Scheme is the
margin.
144
Where a Member State’s rules provide that
the value of supplies made by a travel agent, when
considering if the agent has exceeded the registration
threshold, is the margin made (e.g. in Austria), this
should be contrasted with the position of other taxable
persons whose obligations to register are determined
by the gross turnover achieved (e.g. in Denmark). This
distinction means that a travel agent can remain
unregistered whilst achieving a gross turnover
considerably greater than taxable persons who fall
outside the scheme.
By definition, any difference in treatment between
businesses below and above the VAT registration
thresholds is small in magnitude and therefore not
considered a significant distortion for the purposes of
this study on aggregate for the EU as a whole.
144
Article 308 of the VAT Directive
61
There is inconsistency across Member States as to the
measurement of turnover for the purposes of applying
VAT registration thresholds.
Eight Member States including Austria, Bulgaria,
Croatia, Cyprus, Latvia, Malta, Sweden and the UK
responded that VAT registration for Special Scheme
taxpayers is required when the magnitude of the
Special Scheme margin exceeds the respective VAT
registration threshold in each Member State.
Ten Member States including the Czech Republic,
Denmark, Estonia, Finland, Ireland, Lithuania,
Luxembourg, Romania, Poland and Slovakia
responded that VAT registration is required when the
magnitude of the Special Scheme income or turnover
exceeds the respective VAT registration threshold in
each Member State.
Meanwhile there is no VAT registration threshold in
eight Member States including France, Germany,
Greece, Hungary, Italy, Netherlands, Portugal and
Spain.
In respect of Belgium and Slovenia no clear guidance
could be obtained on this issue.
AT BE BG HR CY CZ DK
EE FI FR DE EL HU IE
IT LV LT LU MT NL PL
PT RO SK SI ES SE UK
Registration based on turnover
Registration based on margin
No registration threshold
No guidance could be obtained
Wholesale supplies
Practice is divided between Member States on the
treatment of wholesale supplies. Two approaches exist
at the moment to the taxation of wholesale supplies:
Application of the Special Scheme; and
Exclusion of supplies made from the Special
Scheme and application of the “normal” rules.
DMCs and other wholesale suppliers of travel facilities
provide either services to be used on their own or
packages of services to be used in combination with
each other.
5.5.7.1 Application by Member States
AT BE BG HR CY CZ DK
EE FI FR DE EL HU IE
IT LV LT LU MT NL PL
PT RO SK SI ES SE UK
Conforms with legislation/case law
Not in conformity with legislation/case law
Optional to apply
Special Scheme (not in conformity)
145
Under Article 47 of the VAT Directive
In respect of “wholesale” supplies of travel facilities,
whereby a travel service is supplied to a business
customer for onward supply to a traveller, eleven
Member States consider such supplies are outside the
scope of the Special Scheme and taxed under normal
rules, whilst twelve Member States consider such
wholesale supplies are subject to the Special Scheme,
as per Commission v Spain. Meanwhile, the treatment
of wholesale supplies as subject to the Special
Scheme in Estonia, Ireland, Sweden and the Czech
Republic is currently optional at the discretion of the
taxpayer. In the UK, whilst the guidance identifies that
wholesale supplies are outside of the Special Scheme,
the Tax Authorities acknowledge taxpayers’ ability to
rely on direct effect of EU law to the contrary.
In Spain, the option is relevant only to businesses
supplying a business customer with the right to recover
VAT, i.e. where that business customer is not itself
subject to the Special Scheme.
In Romania, the legislation does not specifically
provide for any distinction in treatment (i.e. such that
the Special Scheme should apply to wholesale
supplies). However, in practice, we understand that
many Romanian taxpayers apply normal VAT rules to
wholesale supplies, regardless of the Romanian law.
There are greater differences for wholesale supplies
than there are for B2B supplies for consumption (see
section 5.5.8). These differences create distortions
and are a significant barrier to the efficient application
of VAT to the wholesale sector.
5.5.7.2 Wholesale supplies of single items
The acronym FIT is often used to describe a situation
in which a travel agent supplies a single service. Most
commonly these comprise the supply of
accommodation or of passenger transport. Some
Member States require the inclusion of FIT and similar
in the Special Scheme; others require the application
of normal VAT and others allow a choice between
normal VAT and the Special Scheme.
For FIT (and any other situation in which there is a
supply of a single item), normal VAT means (in
principle) the payment of VAT in the Member State in
which the service is enjoyed (for most tourism related
services). Accordingly, a supply of accommodation
should be subject to VAT in the Member State in which
the accommodation is situated
145
whilst passenger
transport falls within the scope of VAT in the Member
State in which the transport takes place.
146
The supply
would then be subject to VAT at the rate stipulated by
the Member State of supply. However, often this is not
followed by taxpayers nor enforced by the Member
State involved (although we should recognise that the
Commission v Spain et al 2013 decisions do
complicate enforcement).
5.5.7.3 Wholesale supplies of packages
For “packages”, normal VAT can mean a number of
things:
The “multiple supply” approach, i.e. identify all the
component parts of the package, attribute a value
146
Under Article 48 of the VAT Directive
62
to each part and tax each part accordingly (i.e.
following the appropriate place of supply, valuation
and liability rules for each supply identified).
The “predominant supply” approach, i.e. what is
the main item within the package? The treatment
then depends wholly on the rules applicable to that
main item.
The “general rule” approach, i.e. subject to certain
tests, a package is a single supply taxed in
accordance with Article 44 of the VAT Directive
(i.e. VAT payable where the client is established –
using the reverse charge).
We note that the Commission Services interpret past
decisions by the CJEU
147
such that the predominant
supply approach applies. However, our experience
indicates that this is not the most common approach
amongst those Member States which exclude
wholesale supplies from the Special Scheme (or allow
for exclusion at the choice of the travel agent).
It can be seen, however, that potential distortions exist
in the wholesale package market between:
Travel agents established in a Member State
which requires the use of the Special Scheme and
those established in a Member State which
excludes such supplies from the scheme;
Travel agents established in a Member State
which requires the compulsory use of normal VAT
rules and those established in a Member State
which allows taxpayers a choice between normal
VAT rules and the use of the Special Scheme
(although we should recognise that such a choice
is in practice available in all Member States which
do not enforce the use of the Special Scheme);
Travel agents established in Member States with
differing interpretations of what is meant by normal
VAT rules in the context of wholesale packages
Distortions may also exist in general between travel
agents established in the EU and those in third
countries and this point is considered below.
5.5.7.4 Domestic accommodation and
wholesale supplies
This section considers two examples of wholesale
supplies of accommodation.
5.5.7.4.1 Wholesale supplies considered
subject to the Special Scheme
Where a wholesale supply of accommodation, located
in one of the thirteen Member States which consider
that wholesale supplies are subject to the Special
Scheme (see above), is made by a supplier
established in one of the other eleven (or fifteen
including those States where the VAT treatment is
optional) Member States in which wholesale supplies
fall outside of the Special Scheme, there is a potential
mismatch in VAT treatment which may lead to non-
taxation of the margin.
For example where a Bulgarian hotel room is sold as a
wholesale supply by a travel business in Germany to a
travel business in Bulgaria the German tax authorities
would consider this is taxable under normal rules (in
Bulgaria) whilst the Bulgarian tax authorities would
consider this is taxable under the Special Scheme (in
Germany).
In this case, six (Bulgaria, Finland, France, Lithuania,
Malta and the Netherlands) of the thirteen Member
States which consider wholesale supplies to be subject
to the Special Scheme responded that such a supply
would be considered to fall outside the scope of local
VAT, as local rules would deem the Special Scheme to
apply. This results in non-taxation of the margin and a
possible distortion of competition. Meanwhile Croatia,
Poland, Portugal, Romania and Spain will seek to tax
this as a local supply, subject to normal VAT rules.
Similarly the Czech Republic and Sweden indicated
that such transactions would likely be taxed locally. No
clear answer could be identified for this scenario in
Poland, Italy, Greece and Estonia.
5.5.7.4.2 Wholesale supplies considered not
subject to the Special Scheme
Where a wholesale supply of accommodation, located
in one of the eleven Member States which consider
that wholesale supplies are not subject to the Special
Scheme, is made by a supplier established in one of
the other thirteen Member States, there is a potential
mismatch in VAT treatment which may lead to double-
taxation.
For example where a German hotel room is sold as a
wholesale supply by a travel business in Croatia to a
German travel business, the German Authorities would
consider this is taxable under normal rules (in
Germany) whilst the Croatian Authorities would
consider this is taxable under the Special Scheme (in
Croatia).
The survey responses indicate that this potential
double-taxation would arise for accommodation located
in Austria, Germany, Cyprus plus Belgium and
Hungary as the profit margin is taxed in the supplier’s
Member State of establishment, whilst the full value of
the accommodation is taxed in the Member State of
destination. This results in double-taxation. (No clear
answer could be identified for this scenario in
Denmark, Slovakia, and Slovenia). For accommodation
in Latvia and Luxembourg, despite the rules outlined at
section 5.5.7.1 we understand that no double-taxation
is likely to arise in practice.
Issues arising from the application of VAT to wholesale
supplies are considered in more detail below.
147
See section 3.1.4.2(b) of Working Paper No 814
63
5.5.7.5 Wholesale accommodation illustration
The following table and diagram provides illustrative
examples indicating how the total VAT collected, and
the specific Member States in which that VAT is in fact
collected, can vary in wholesale supply chains of
accommodation according to differing local treatments
of wholesale supplies. This example assumes that
reduced rated accommodation is sold in MS1 at a 10%
VAT rate whilst margin scheme VAT is collected at
20% in MS2, MS3 and MS4 accordingly.
Fig. 5b
64
Fig. 5c
65
Fig. 5d
66
Fig. 5e
In this illustration (assuming a 10% VAT rate), the total
VAT collected differs by €1.56 or 13% between the two
most extreme examples. The aggregate magnitude of
this issue across the EU will be driven by differing local
VAT rates, the size of wholesale mark-ups, the number
of wholesalers in each supply chain, and the
prevalence of wholesale supply chains in each
Member State. The information obtained in the survey
was not sufficiently wide reaching to seek to quantify
this. Indeed, many players in a long supply chain may
be unaware of the number of wholesalers participating
in the chain, so this would be extremely difficult to
quantify. It is understood that many wholesalers
operate on very small margins, but as many supply
chain contain several intermediate suppliers,
cumulatively it can be a significant issue.
67
5.5.7.6 DMC wholesale package illustration
Fig. 5f
We will use the above example to illustrate how the
varying approaches to a wholesale package affect the
profitability of the DMC and the VAT revenue
generated. We firstly consider a scenario where the
DMC is established in the same Member State as that
in which the travel facilities are consumed. We then
address a scenario where the DMC is established in a
different Member State.
The DMC creates a tour package for a client
established in the US which in turn will sell the tour to a
group of travellers resident in the US. All parties in this
example are dealing with customers in their own name.
The DMC contracts with several hotels, coach
operators, restaurants, attractions and guides in order
to acquire the services needed to create the package.
The tour takes place wholly within MS1.
The VAT rate in MS1 on hotel accommodation and
passenger transport is assumed for illustrative
purposes to be a reduced rate of 10% whilst 20%
applies to restaurant meals. Some entrances to
attractions attract the 20% rate whilst others qualify for
the cultural exemption.
148
The services of guides are
in principle subject to VAT but the suppliers used in
this example are small businesses not registered for
VAT.
It can be seen that the total cost of the services
purchased by the DMC is €20,000 plus VAT of €2,200,
giving a gross cost of €22,200.
The DMC sells the package of services to its US client
for €25,200 which in turn sells to the final customer for
the equivalent of €28,000.
5.5.7.6.1 The DMC is established in the
Member State in which the travel
facilities are consumed
We will now consider the effect of the four possible
VAT applications we have identified for the supply of
such a package: the Special Scheme, the multiple
supply approach and the single supply approach with
both the place of supply and rate of VAT determined by
either the package’s predominant element or by the
place of establishment of the client.
148
Article 132(1)(n) of the VAT Directive
68
Fig. 5g
The Special Scheme (€)
Selling price 25,200
Cost 22,200
Margin 3,000
VAT due 500
Net margin 2,500
The DMC has made a margin of €3,000 which includes
VAT at 20%. The VAT due is therefore €500, leaving
the DMC with a net margin of €2,500.
The total VAT accruing to MS1 is €2,700, i.e. the non-
deductible input tax of €2,200 plus the Special Scheme
payment due of €500.
Fig. 5h
The Multiple Supply Approach (€)
Selling price 25,200
Cost 20,000
VAT due 2,749
Margin 2,451
The DMC is now making a supply which falls outside of
the Special Scheme. Accordingly, input tax on the
costs can be deducted leaving a cost to the DMC of
€20,000. The selling price of €25,200 is the
consideration for all the supplies made by the DMC
and needs to be apportioned as different VAT
treatments apply to the various supplies made. The
values are identified by a cost apportionment.
149
The
values attributed to the accommodation and the coach
transport are subject to VAT at 10% whilst the values
of the restaurant meals and the entrances attract VAT
at 20%. (Whilst some of the entrances purchased by
the DMC qualified for the cultural exemption, none of
the value of the DMC’s supply of the same services
can be exempted as the DMC is not a body governed
by public law nor a cultural body as recognised by
MS1
150
). Guiding services are considered to fall within
the general place of supply rule
151
and therefore in this
situation are outside the scope of EU VAT.
MS1 receives total revenue of €2,749, being the output
tax payable from the primary suppliers of €2,200 plus
the net payment due from the DMC of €549.
Fig. 5i
The Predominant Element Approach (€)
Selling price 25,200
Cost 20,000
VAT due 2,291
Net margin 2,909
149
The apportionment sees the aggregate cost of the reduced rate
items (the accommodation and transport) expressed as a proportion of
the total VAT-exclusive cost (i.e. 65%), whilst the equivalent proportion
for the standard rated items (the restaurants and entrances) is 30%
Again, the supply falls outside the Special Scheme so
the input tax can be deducted. If we take the
accommodation as the predominant supply, the full
selling price of the package is taxed at the
accommodation rate of 10%. The VAT due is €2,291.
The DMC makes a net payment of €91. MS1 receives
revenue of €2,291, €91 from the DMC and the output
tax of €2,200 from the primary suppliers.
Fig. 5j
The Reverse Charge Approach (€)
Selling price 25,200
Cost 20,000
VAT due Nil
Net margin 5,200
Once again the Special Scheme is not applicable so
input tax can be deducted. The place of supply is the
place of establishment of the client which in this
example is the US so the supply is outside the scope
of EU VAT. The DMC accordingly pays no VAT but
deducts the input tax. Revenue accruing to MS1 is nil.
In the above examples, it can be seen that the multiple
supply approach results in the greatest sum of revenue
for MS1 and the Special Scheme is the second most
beneficial in terms of VAT revenue. We will see in later
examples, however, that the multiple supply approach
can generate considerably less revenue in the context
of the Member States’ current approach to the taxation
of wholesale supplies. In this example, the Special
Scheme generates less revenue as it allows (in effect)
a credit for input tax where none is charged or for a
credit at the standard rate when a reduced rate is paid
by the supplier. The main advantage of the multiple
supply approach to the DMC, namely that VAT is
declared at the rate appropriate to each supply made,
is not large enough, in this example, to outweigh the
benefits of the Special Scheme. The predominant
supply generates less revenue than either the Special
Scheme or the multiple supply approach as the full
value can be taxed at the reduced accommodation
rate; clearly, if accommodation in MS1 was taxed at
the standard rate, a very different result would ensue.
As is to be expected, the reverse charge approach, in
these circumstances, generates the least revenue.
The above figures illustrate how the approach taken to
the supply of a package can impact upon the
profitability of a DMC. In practice, it could be expected
that competition would force prices to fall where the
accepted practice is to give a relatively low VAT cost
so that net margins made would not differ as much as
suggested by the above. It is also clear that the price
payable by visitors (buying an organised package such
as this) can be reduced significantly by the impact of
VAT at the wholesale distribution stage.
It is also clear that, in the circumstances of this
example, the multiple supply approach is the most
and for the guides (outside the scope of VAT) is 5%. VAT due can then
be calculated as €25,200 x (0.65 x 1/11) + €25,200 x (0.30 x 1/6)
150
The conditions imposed on the application of the exemption by
Article 132(1)(n)
151
Article 44 of the VAT Directive
69
complex of the four approaches and therefore the least
compliant with the desire for simplicity. We will return
to this point in section 6.
5.5.7.6.2 The DMC is established in a different
Member State
We can now take a look at the position if the DMC is
established somewhere other than MS1.
Scenario 1: A first possibility is that both MS1 and
MS2 require the inclusion of wholesale supplies in the
Special Scheme. If the VAT rate in MS2 is also 20%,
the overall revenue and net margin of the DMC are as
illustrated in the Special Scheme example above, the
only difference being that MS1 now enjoys revenue of
€2,200 and MS2 has the Special Scheme margin
revenue of €500.
Scenario 2: MS1 requires the inclusion of wholesale
supplies in the Special Scheme but the DMC is
established in MS2 which excludes such supplies from
the scheme. The DMC is not subject to the Special
Scheme in MS1 as it has no place of establishment (or
fixed establishment) there. It is not subject to VAT
either in MS2 as, viewed from the perspective of MS2,
all supplies made are outside the scope of MS2’s VAT
system. It makes no difference in this situation whether
MS2 considers a wholesale package to be a multiple
supply or a single supply.
Using the same figures as above, the DMC incurs
costs in MS1 of €20,000 plus VAT of €2,200. As MS1
considers the supplies made by the DMC to fall within
the Special Scheme, no deduction of the input tax
should be allowed. No VAT is payable in MS2 and
therefore the DMC declares no VAT on the supplies
made and recovers no input tax. With a selling price of
€25,200, the DMC makes a net margin of €3,000. MS1
retains the benefit of the €2,200 VAT charged by the
principal suppliers. MS2 receives no revenue.
It should be noted that the same result is achieved in
these circumstances if the DMC is established in a
third country.
Scenario 3: A very different result of course is
achieved if the positions are reversed so that MS1 now
excludes wholesale supplies from the Special Scheme
whilst MS2 requires the use of the scheme. To
illustrate the effect, we will assume that MS1 considers
the multiple supply approach to be the correct
application of VAT to packages falling outside of the
scheme. MS1 would therefore consider the supplies
made by the DMC to be subject to VAT in MS1. The
rules in MS1 would therefore oblige the DMC to
register. The DMC would deduct the input tax of
€2,200 and declare output tax of €2,749 (as calculated
above in the multiple supply approach). In addition,
MS2 would require the payment of VAT under the
Special Scheme. If the standard rate in MS2 is 20%,
the DMC would pay VAT of €500 (assuming the
inclusion of VAT-inclusive costs in the calculation is
correct even though deduction of the VAT has been
achieved, although as noted elsewhere in this report,
this point is not free from doubt).
152
Case C-189/11 and associated cases, see section 3.4.9
MS1 would enjoy revenue of €2,749 and MS2 €500.
The DMC would see a net margin of €1,951.
The payment of VAT on the same supplies twice is
incorrect and in practice it is possible that the DMC
would assert its right under the CJEU decisions in
Kingdom of Spain et al
152
to pay VAT only in MS2. If
so, MS1’s revenue would be €2,200 and MS2 would
see €500.
If the DMC in the above example was established in a
third country, there would of course be no basis for the
payment of VAT under the Special Scheme. It is
possible that the DMC may register and pay VAT in
MS1 in accordance with the practice of that Member
State but, in our experience, such compliance is very
unusual. The most likely scenario is that the DMC
would not pay any VAT and MS1 would accrue just the
benefit of the €2,200 charged by the principal
suppliers.
Scenario 4: An interesting result arises if MS1
considers a wholesale package to be a single supply,
the place of supply of which is determined by Article 44
of the VAT Directive. If MS2 takes the multiple supply
approach, the DMC’s supply is outside the scope of
VAT in MS2 as the place of supply from MS2’s
perspective of each supply within the package is MS1.
No output tax is payable in MS2. In MS1, the place of
supply is determined by the place of establishment of
the client, in this case the US. No output tax is due in
MS1.
However, the DMC is considered by MS1 to make a
supply which would be taxable in MS1 if the place of
supply was MS1 and accordingly a right to deduct the
input tax incurred in MS1 exists.
153
On this basis, the
DMC can deduct the input tax of €2,200 but pays no
VAT on its supplies. The net margin is €5,200 and no
VAT revenue accrues to any Member State. This is the
same outcome as achieved by the Article 44 reverse
charge illustration where the DMC is in the same
Member State as the services are consumed.
We can conclude that the purpose of the Special
Scheme, as interpreted by the CJEU, is to collect VAT
in the Member State of consumption through the
DMC’s inability to deduct input tax on the costs of the
principal suppliers and on the margin achieved in the
DMC’s State of establishment. That approach
generates total tax revenue of €2,700 (either enjoyed
wholly by MS1 or shared between MS1 and MS2
depending on the place of establishment of the DMC).
The VAT revenue generated by the other approaches
varies between nil and €3,249 (although that last figure
would require the DMC to accept the double taxation of
his supplies).
In terms of an effective VAT rate, measured against
the wholesale supply value of €25,200, the outcomes
differ from 0% (the reverse charge approach) to 14.8%
(the double taxation model). The rate achieved in the
Special Scheme model is 12%. It is thought likely that
no VAT would be declared by the US tour operator on
the final selling price of €28,000.
Before leaving this subject, we should point out that the
reverse charge approach is not always beneficial for
153
Article 169(a) of the VAT Directive
70
the DMC. There are two situations in which the
approach can be detrimental. First, if a DMC supplies a
package to a client in the same Member State, the
supply would be treated as a single supply subject
wholly to the local standard rate, regardless of the
place in which the travel facilities themselves are
enjoyed.
154
This would often be a considerably larger
sum of VAT than if, for example, the Special Scheme
or the multiple supply approach applied. If the client
was in the Special Scheme, there would be no
deduction of the VAT due. Second, a travel agent
within the scheme may purchase a package from a
wholesale supplier outside that Member State – if that
travel agent is established in a Member State which
considers a wholesale package to be subject to the
reverse charge, the agent must pay reverse charge
VAT at the local standard rate regardless of the VAT
treatment applied to the supply by the wholesale
supplier in its own Member State. The reverse charge
cannot be deducted as it is a cost falling within the
Special Scheme.
5.5.7.7 Conclusion on wholesale supplies
It has not been possible to quantify these differences
with hard economic data. Nevertheless, our experience
is of widespread significant differences in the
application of VAT in this sector and this experience is
illustrated in section 5.5.7. The illustrations above also
demonstrate the considerable variation in revenue
collected and the profitability of DMCs in a range of
circumstances. On balance we consider this amounts
to a distortion of competition in the DMC sector.
Other B2B supplies
Practice by the Member States as regards services
supplied for a business client’s own use is more
consistent than that applied to wholesale supplies. The
compulsory use of the Special Scheme is much more
common in this sector.
Nevertheless, there are Member States which consider
services supplied to all taxable persons, no matter
what the use of the service, to be excluded from the
scheme. These Member States are Austria, Germany
and Slovakia.
When the Commission v Spain judgment is
implemented fully in these Member States, clearly
there will be substantial changes to the VAT
accounting procedures of the travel agents that are
affected. The sectors primarily concerned with this
issue are the TMC and MICE areas, which would no
longer benefit from input tax recovery. It is likely that
many of the travel agents affected would decide to
switch to a business model under which they acted
solely as an intermediary in order to permit the
recovery of input tax by their clients on the costs of
travel, accommodation etc. which the clients need for
the purposes of their economic activities.
As described above, the application of the Special
Scheme to supplies made to taxable persons means
the loss of input tax deduction by that taxable person
client as the travel agent cannot deduct the VAT
charged by its own suppliers and must pass on a gross
154
Albeit subject to possible relief under Article 59a(b) of the VAT
Directive where the travel facilities are consumed outside the EU
VAT-inclusive cost to the client. It also creates a VAT
cost for the travel agent on any margin achieved which
the client cannot recover (unless the Member State
involved allows for the stating of the VAT due on the
margin on the invoice).
Acting as an intermediary allows these difficulties to be
avoided and is already the norm in Member States
which apply the Special Scheme to B2B supplies in the
TMC and MICE sectors. However, intermediary status
imposes constraints on the taxable person involved,
notably a difficulty in setting their own price for the
service. It also can cause difficulties in ensuring that
the client receives the correct documentation to
support input tax deduction. This is a well understood
problem in the TMC and MICE sectors where we find
VAT impacting on how businesses must operate.
It follows that travel agents outside the Special
Scheme are placed at a competitive advantage when
supplying services to taxable persons when compared
to suppliers operating within the scheme. It also follows
that travel agents established in a Member State which
correctly applies the Special Scheme is placed at a
competitive disadvantage when compared to travel
agents established in a Member State which excludes
(or permits the exclusion) supplies to taxable persons
from the scheme. It should be noted of course, that
third-country suppliers e.g. in Norway have no EU VAT
constraints in respect of the fiscal implications that may
arise on their margins, regardless of how they operate.
Nevertheless, we note that some of the apparent
competitive disadvantages described above are off-set
to an extent by the benefit of simplification afforded by
the Special Scheme as previously discussed, although
the anecdotal feedback received by KPMG from
businesses in these sectors generally points to a
strong desire for the rules to be modified, as the
simplification savings are perceived to be less
beneficial than the potential for input tax recovery
under the normal VAT rules.
As mentioned at section 5.5.1, the blocked input tax on
B2B supplies has been indicatively estimated to be
worth circa €1.15bn annually across the EU. In
addition, irrecoverable Special Scheme output tax on
B2B supplies has been indicated to be worth circa
€0.29bn.
Meanwhile per section 5.5.2 no data is available to
indicate the extent to which businesses which are
currently structured as intermediaries would in fact act
as principals in the hypothetical absence of the Special
Scheme (or vice versa). For this reason, the impact of
the inclusion of B2B supplies in the Special Scheme
cannot be quantified, although the figures above give a
useful indication.
5.5.8.1 Application by Member States
When travel services are supplied to business
customers for consumption (i.e. for travel for a
business purpose, not for onward supply) twenty-three
Member States treat these services in the same
manner as a “business-to-consumer” supply for the
71
purposes of the Special Scheme and they are
therefore in conformity with the decisions of the CJEU.
By contrast, Slovakia, Germany and Austria do not
apply the Special Scheme in this circumstance (and
normal VAT rules apply). Spain and Sweden allow a
choice between application of the Special Scheme or
application of the normal VAT rules. Previous 2011
surveys undertaken by the Commission Services
indicated that Spain did not provide such a choice as
optionality was introduced with effect from 1 January
2015.
In Latvia, we understand that the definition of a
traveller for the purposes of the Special Scheme is not
formally defined, however in practice the scheme
applies to businesses for consumption.
AT BE BG HR CY CZ DK
EE FI FR DE EL HU IE
IT LV LT LU MT NL PL
PT RO SK SI ES SE UK
Conforms with legislation/case law
Not in conformity with legislation/case law
Optional to apply
Special Scheme (not in conformity)
There are significant differences in the approach to this
issue of fundamental importance to the functioning of
the Special Scheme which lead to important
differences in the way that travel agents operate.
The German rules put German businesses at an
advantage compared to businesses elsewhere in the
EU. Whilst this is distortive there is no evidence that
this has led to changes in behaviour such as
businesses outside of Germany seeking to procure
services from German travel agents to benefit from a
VAT advantage. On this basis, the value of VAT under-
collected as a result is considered to pertain to German
businesses only. The business questionnaire does not
enable quantification for Member States, although we
note that the German travel market is one of the
largest per the statistics at section 2.
Meaning of intermediary
Article 306 of the VAT Directive excludes from the
Special Scheme transactions where travel agents act
solely as "intermediaries". The interpretation of
“intermediary” differs subtly from Member State to
Member State. Subject to local variations in the
interpretation of “intermediary”, all Member States
other than Lithuania exclude bookings made as
intermediaries from the scope of the Special Scheme.
Meanwhile, if a “secret profit” is made, Romanian rules
would consider this indicative of sales made as
principal, and therefore would fall within the scope of
the Special Scheme.
It is common in some business sectors for a business
to supply a “package” of travel facilities to a traveller for
a single price, where the business acts as principal in
relation to one travel facility and intermediary in relation
to another. In this case in Lithuania, Cyprus, Belgium,
155
See in particular the Supreme Court decision in HMRC v Secret
Hotels 2 Ltd (2014) UKSC 16
Slovenia and Hungary the Special Scheme supply
would also “taint” the VAT treatment of the supply
made as intermediary, such that the whole package
falls to be within the scope of the Special Scheme.
Whilst it is understood that the Special Scheme would
not apply to the element supplied as intermediary in
the remaining 24 Member States, the issue is not as
clear in the Czech Republic, Latvia, Luxembourg and
Romania. These four Member States stated the lack of
available guidance on the matter as a reason for being
unclear as to the VAT treatment.
AT BE BG HR CY CZ DK
EE FI FR DE EL HU IE
IT LV LT LU MT NL PL
PT RO SK SI ES SE UK
Conforms with legislation/case law
Not in conformity with legislation/case law
Guidance not clear
The meaning of intermediary has received
considerable attention in recent years in the UK.
Various taxpayers have been involved in disputes over
their status in relation to the Special Scheme. Several
of the disputes have been heard in court
155
and the
decided position is that the taxable persons involved
have been held to have acted as intermediaries with
the effect that they do not fall within the Special
Scheme. It is considered unlikely that travel agents
acting in the same way in other Member States would
be treated in the same way given the propensity of the
Member States to interpret statutes more teleologically.
If so, the UK interpretation of the rules has created a
competitive advantage in favour of UK travel agents.
VAT recovery by businesses receiving
Special Scheme supplies
In section 5.5.5 we have considered invoicing of
Special Scheme supplies and note that this can be the
cause of commercial difficulties for travel agents.
In practice, although in general Special Scheme output
tax is not recoverable as input tax by a business
customer, five Member States, namely Belgium,
Finland, France, Hungary and Sweden, have indicated
that such VAT is recoverable as input tax subject to
normal rules.
In regards to Belgium, if a business receives an invoice
issued by a travel agency under the Special Scheme,
there will be a VAT amount shown on invoice, based
on a fixed margin percentage that Belgium applies.
This VAT can be deducted if incurred for business
purposes, as per guidance from the Travel Industry
Federation in Belgium.
Whilst this issue is a fundamental inconsistency in
application of the Special Scheme rules, the
consistency across 23 Member States ensures that the
distortive impact of this issue pertains only to the other
five Member States and therefore is likely to be small
in overall quantitative terms.
72
AT BE BG HR CY CZ DK
EE FI FR DE EL HU IE
IT LV LT LU MT NL PL
PT RO SK SI ES SE UK
Practice conforms with legislation/case law
Practice not in conformity with
legislation/case law
Scope of the Special Scheme
There is a lack of clarity of the scope of the Special
Scheme which derives both from differences in
Member States’ interpretation and application of the
rules, and from a lack of clarity at the level of the EU
VAT Directive, which does not precisely and
prescriptively define the scope of the scheme in a
granular way.
This issue leads to differences in treatment between
similar supplies in different Member States. However,
more significantly, the uncertainty over the scope of the
Special Scheme also fundamentally influences the
magnitude of the other issues and potential distortions
outlined in this section. For example, if the broadest
interpretation of the scope of the Special Scheme was
applied by all Member States (i.e. the fullest list of
services considered to be travel facilities), the
significance of other differences (such as treatment of
wholesale supplies, etc.) would be more pronounced.
Conversely if the narrowest interpretation of the scope
of the Special Scheme was applied by all Member
States (i.e. a narrow list of services considered to be
travel facilities), the significance of other differences
would be lessened.
Therefore, to have harmonised rules defining the
scope of the Special Scheme and addressing the
treatment of wholesale supplies is the minimum
requirement to address the two distortions of
competition outlined in this section. In practice,
harmonisation of rules is likely to require detailed
implementing regulations and guidance from the
Commission.
5.5.11.1 Single travel services
Some Member States consider that the Special
Scheme only applies to "packages" and a "package"
must by its very definition consist of more than one
item. Therefore, such Member States consider that the
sale of, say, just a hotel room without a flight cannot be
in the Special Scheme (the CJEU in Van Ginkel
156
and
Star Coaches
157
has given some guidance on this
point, but the application by Member States does not
appear to be consistent).
Based on the KPMG questionnaire, fourteen Member
States apply the Special Scheme to a single travel
service and so are in conformity with CJEU case law.
For completeness, Belgian rules apply a unique
concept of a “journey” and will apply the Special
Scheme to a single travel service if it comprises part of
a “journey”.
Meanwhile, eight Member States apply the Special
Scheme only where some additional “booking service”
is provided. In Van Ginkel, the CJEU ruled that the
application of the Special Scheme was not conditional
on these additional services being provided. As such,
the Special Scheme continues to apply to a supply of a
single service (e.g. hotel accommodation). A number of
Member States apply the ”information/booking”
condition in what may be a mis-application of the Van
Ginkel decision albeit one which is supported by the
Star Coaches judgment. Interestingly, for the Czech
Republic, Malta and Greece, the previous Commission
surveys in 2011, indicated that the Special Scheme
applies to a single supply without an additional booking
service – implying a recent change in application of the
rules in these Member States.
In Estonia, although in principle the Special Scheme
applies to a single travel service, in practice normal
VAT rules are regularly applied. Meanwhile, Romanian
rules provide an explicit “opt-out” of the Special
Scheme at the taxpayer’s discretion, whereby a single
supply (excluding passenger transport) can optionally
be taxed under normal rules. In Latvia, the legislation
does not specify how many items should be included in
a package for it to fall within the Special Scheme.
Meanwhile in Hungary and Slovenia, there is no clear
guidance from the tax authority.
In summary, there appears to be confusion across
Member States as to the treatment of a single supply
of, for example, hotel accommodation and the supply
of, for example, hotel accommodation with a booking
service.
158
Another area specifically relates to car hire
which in some Member States, when supplied on a
standalone basis is deemed to be outside of the
Special Scheme.
Differing treatment of single travel services creates
potential for meaningful distortions only in respect of
B2B supplies on which input tax might be recoverable
absent application of the Special Scheme. The supply
of single travel services will comprise a subsection of
the B2B sector, which also frequently involves flights
and accommodation sold together. A precise
calculation of the impact of this issue would require a
detailed breakdown of travel agent’s turnover at an
individual line-level, and this was not within the scope
of the business questionnaire. However we think this
issue would account for only a fraction of the
indicatively estimated circa €1.15bn input tax and circa
€0.29bn output tax indicated to pertain to B2B supplies
and hence it is not considered to be significant in its
own right on aggregate for the EU as a whole, but
needs to be considered in conjunction with the
meaning of travel facilities as discussed at 5.5.11.2
below.
156
Case C-163/91
157
Case C-220/11
158
See upcoming German CJEU proceedings in respect of single items
73
AT BE BG HR CY CZ DK
EE FI FR DE EL HU IE
IT LV LT LU MT NL PL
PT RO SK SI ES SE UK
Conforms with legislation / case law. i.e. supply of a single travel
service
Appears slightly different to legislation/case law
Can
opt-out of Special Scheme if there is a single supply
No guidance/guidance not clear
5.5.11.2 Differences in what constitutes travel
facilities
Based on the KPMG questionnaire, eleven Member
States apply the Special Scheme only to a prescribed
list of travel facilities. Meanwhile, in the remaining
seventeen Member States the liability of certain
services to the Special Scheme depends on whether
those services are packaged with other elements. For
example in many Member States restaurant meals,
catering, admission tickets, sports facilities etc. are not
subject to the Special Scheme unless packaged along
with a Special Scheme supply. Differences in the
scope of the Special Scheme are outlined in Annex 1.
We can use the example of car hire to illustrate the
effect of differences in approach.
In some Member States, the supply of car hire as a
single service is considered to be a travel facility and
accordingly, subject to the other conditions of the
scheme, the supply of car hire is subject to VAT on the
margin. However, other Member States consider that
car hire is not a travel facility and therefore falls outside
the Special Scheme with the effect that its supply is
subject to the normal VAT rules.
It is possible therefore that a supplier of car hire
services could establish his business in a Member
State which considers car hire to fall outside the
Special Scheme and pay VAT in that Member State
only on hires for which the car is put at the disposal of
the customer in that state.
159
It would follow that the supplier involved should have
no liability to pay VAT on hires in those Member States
which consider the Special Scheme to apply as those
states would expect VAT to be paid within the Special
Scheme in the Member State in which the supplier is
established.
The above points are illustrated by the following
examples.
Fig. 5k
159
Article 56.1 of the VAT Directive
Car rental
€100 + VAT of €20
Customer
€132
Car Rental
Company
Car Hire
Broker
74
The car rental company is established in MS1 and
owns the cars to be rented to customers. It does not
fall within the Special Scheme and the rental of cars in
this example is supplied in MS1 where the cars are put
at the disposal of the customer.
160
The illustrative rate
of VAT in MS1 on car hire is 20%.
The car hire broker is established in MS2 where the
standard rate is also 20%.
There are four scenarios to consider. In each, the
supply by the car rental company is made in MS1 and
the VAT rate applicable is 20%.
Scenario 1: Both MS1 and MS2 consider car hire to
fall within the Special Scheme. The car hire broker
accounts for VAT within the Special Scheme and
cannot deduct the input tax on the rental cost. The
gross margin is €12 and VAT payable is €2, leaving a
net margin of €10. The total VAT revenue generated is
€22, €20 of which accrues to MS1 and €2 to MS2. The
full value of the supply to the final consumer is subject
to VAT at 20%.
Scenario 2: MS1 considers car hire to be within the
Special Scheme but MS2 does not. In MS2, car hire in
all circumstances is deemed to be supplied in the
Member State in which the car is put at the disposal of
the customer. The car hire broker is not subject to VAT
on its supply of the car hire. In MS2, there is no
application of the Special Scheme and the broker has
no obligation of pay VAT in MS1 as that Member State
considers that VAT should be paid in MS2 under the
scheme. The broker is unable to deduct the input tax
incurred in MS1. The broker therefore retains its
margin of €12. Total VAT generated is €20 which all
remains with MS1. The value added by the broker, as
measured by its margin, is not subject to VAT.
Scenario 3: Neither of MS1 nor MS2 consider car hire
to be within the Special Scheme. Under the rules of
MS1, the broker now has an obligation to register and
pay VAT in MS1. The supplies made are again outside
the scope of VAT in MS2. Accordingly, the broker
registers in MS1, deducts the input tax of €20 and pays
output tax of €22. The net margin made is €10 and the
total VAT revenue is €22 which accrues wholly to MS1.
As in scenario 1, the full value of the hire is subject to
VAT at 20% but the broker has had to obtain a
registration in MS1 to achieve this outcome.
Scenario 4: MS1 does not include car hire within the
Special Scheme but MS2 does. The broker is now
expected to pay VAT in MS2 where it is established.
As in scenario 1, it therefore pays output tax of €2 in
MS2. However, MS1 also expects VAT to be paid. If
the broker registers in MS1, it would deduct the input
tax of €20 and pay output tax of €22. This creates
double taxation on the value added by the broker. The
net margin of the broker is €8 and total VAT revenue is
€24, €22 of which belongs to MS1 and €2 to MS2.
The net margin of the broker varies between €8 and
€12 depending on the combination of interpretations
160
Article 56 of the VAT Directive
161
Problems which can exist in a travel environment where there are
differing approaches to the place of supply were illustrated in RCI
Europe v Commissioners for Revenue and Customs (Case C-37/08) in
adopted by the two Member States involved. It is clear
that a lack of consistency creates a situation from
which a supplier may be able to benefit but also that a
supplier could be faced with a risk of double taxation.
The size of the distortion above would, however, be
limited by the existence of a clear rule on the place of
supply to be adopted whenever the Special Scheme is
not applied. Where there is no such clarity, the scope
for distortion is much greater.
161
One such area is
guiding services. Our experience is that some Member
States consider the services of a guide (sold as a
single service) to be a travel facility whilst many do not.
There is also inconsistency in the place of supply rule
to use when the scheme is not applied, some Member
States believing that the supply should fall within the
general place of supply rule
162
whilst others consider it
to be taxable where performed when supplied to a non-
taxable person.
163
Using the same model and figures as above, but
substituting guides’ services for car hire, we can see a
larger difference in possible outcomes. One scenario
could be the application of the Special Scheme in MS1
but non-use of the scheme in MS2 combined with a
place of supply determined by the supplier’s place of
establishment. The broker would then be required to
pay output tax in MS2 of €22 but MS1 could be
expected to refuse any claim for input tax deduction as
the Special Scheme is considered to apply. The broker
is left with a negative margin of €10.
In contrast, if neither Member State applied the Special
Scheme, but MS1 considered the place of supply to be
the supplier’s place of establishment whilst MS2
applied a place of supply determined by the place of
physical performance, the supply would be outside the
scope of VAT in both MS1 and MS2 and the broker
would be entitled, in principle, to deduct the input tax
incurred in MS1. The broker’s net margin is now €32.
The guides’ services example is extreme and is not
one we would expect to happen often in practice but
the car hire circumstances can be expected to exist
more regularly. What is clear is that the differing
approaches to the inclusion of services within the
scheme can result in significant variations in revenue
collected and in net margins made by travel agents.
It should be borne in mind that the major differences in
interpretation of scope per Annex 1 pertain to
“peripheral” elements of Special Scheme packages
(such as airport lounges and restaurant meals), with
widespread agreement on the treatment of core travel
elements such as accommodation and flights. For this
reason we think the impact of these inconsistencies
are quantitatively less important in total across the EU
than other issues identified in this section, on the basis
that the financial value of the disputed peripheral
services is relatively small (and the profit margin
attributable to these elements is even smaller).
However, the lack of a precise harmonised definition of
the scope of the Special Scheme (i.e. a precise list of
travel facilities) leads to many inconsistencies and
which the CJEU was asked to consider the place of supply to be
adopted by a supplier of timeshare exchange services
162
Article 44 or 45 of the VAT Directive depending on whether the
client is a taxable person
163
Article 54 of the VAT Directive
75
difficulties for taxable persons who operate in multiple
Member States. It also negates the simplification
purpose of the Special Scheme and can lead to no
taxation or double taxation in certain circumstances as
demonstrated in this section.
For these reasons we have concluded that the lack of
a harmonised approach to the meaning of travel
facilities in conjunction with the differing approach to
single travel facilities amounts to a distortion of
competition.
5.5.11.3 Duration
For twenty six of the Member States, the duration of
the travel services is irrelevant. However, in Finland
and Italy, day-trips of a duration less than 24 hours
(and without overnight accommodation) would be
taxed outside of the Special Scheme, subject to normal
rules.
5.5.11.4 Purchases from non-VAT registered
businesses
Whilst the majority of Member States treat travel
services as subject to the Special Scheme regardless
of the VAT registration status of the original supplier,
Greece and the Netherlands do not treat the re-supply
of travel services purchased from non-VAT registered
businesses (e.g. tour guides, guest houses or other
establishments with a turnover below the registration
threshold) as subject to the Special Scheme.
In Finland, the guidance on this matter is unclear.
Meanwhile in Hungary, there is no VAT registration
threshold and therefore all taxable persons will be VAT
registered. As such, all purchases will be subject to the
Special Scheme.
This variation in approach can lead to non-taxation or
double-taxation as follows:
Non-taxation
A Greek travel agent buying a B&B room from a non-
VAT registered UK supplier will pay no VAT on the
purchase but will follow normal place of supply rules
and account for no Greek VAT on the sale, while the
UK authorities will expect no UK VAT to be accounted
for on the understanding the Special Scheme applies
in Greece. Ultimately, no VAT will therefore be
accounted for by either the Greek travel agent or the
UK primary supplier and therefore these transactions
generate no VAT revenue.
Double taxation
A UK travel agent buying a B&B room from a non-VAT
registered Greek supplier would account for VAT under
the Special Scheme in the UK whilst the Greek
authorities will also expect the UK travel agent to
account for Greek VAT under the normal place of
supply rules. By definition any difference in treatment
between businesses beneath and above the VAT
registration thresholds are small in magnitude and
therefore not considered a significant distortion for the
purposes of this study on aggregate for the EU as a
whole.
AT
BE BG HR CY CZ DK
EE FI FR DE EL HU IE
IT LV LT LU MT NL PL
PT RO SK SI ES SE UK
Conforms with legislation/case law
Not in conformity with legislation/case law
Guidance not clear
5.5.11.5 Electronically supplied services
With the exception of Romania, all Member States
agree travel facilities bought online (in the
circumstances of the Special Scheme) should not be
treated as electronically supplied services. In Romania
it appears that some suppliers have been deemed to
be supplying electronically supplied services, though
this is on a “case-by-case” basis.
Mixed packages of in-house and
Special Scheme B2B supplies
The MyTravel case (see section 3.4.6) outlines that
that in-house services (when supplied together with
services bought from other taxable persons) must be
valued by reference to their market value whenever
this market value can be established. A travel agent
may only use an actual costs basis to identify the
market value where he can prove that that basis
accurately reflects the structure of the package
supplied or where it is simply not possible to establish
the market value. A typical alternative to the use of
market value is to base the apportionment of the total
price by reference to the cost of the in-house and
bought-in services.
5.5.12.1 Invoicing in-house supplies packaged
with Special Scheme supplies
In respect of a B2B supply of a package containing a
mixture of in-house and Special Scheme supplies, the
invoicing requirements outlined at section 5.5.5 apply.
5.5.12.2 In-house items itemised on an invoice
In respect of those twenty-five Member States that per
section 5.5.5 require an invoice to be issued, twenty-
one Member States confirmed that the invoice must
itemise the in-house and Special Scheme supplies
separately (Belgium, Bulgaria, Croatia, Denmark,
Estonia, Finland, France, Greece, Hungary, Ireland,
Latvia, Lithuania, Malta, Netherlands, Portugal, Poland,
Slovakia, Slovenia, Spain, Sweden and the UK). The
Czech Republic responded that the itemization is
optional, while Italy responded that separate invoices
must be issued for each element of the package.
Furthermore Denmark, Latvia, Lithuania, Poland,
Slovenia, Spain and the UK allow the option of issuing
either a single invoice or separate invoices for the
Special Scheme and in-house elements respectively.
76
5.5.12.3 Output tax itemised for each element of
the mixed package
In respect of those twenty-five Member States that
responded per section 5.5.5 that an invoice is required,
Belgium, Finland and Hungary responded that a
separate amount of output tax must be shown for each
element of the invoice.
Bulgaria, Croatia, the Czech Republic, Denmark,
Estonia, Latvia, Lithuania, Netherlands, Poland,
Portugal, Slovakia, Slovenia and the UK responded
that an amount of output tax may only be shown for the
in-house element of the invoice, while similarly Italy
indicated that output tax can only be shown on the
invoice issued for the in-house element of the package.
France responded that it is optional for the supplier to
state an amount of output tax is shown for each
element of the invoice.
In respect of “in-house” supplies this therefore results
in “trapped” VAT which is declared but cannot be
recovered in absence of a VAT invoice. This is a clear
inconsistency between Member States which will have
a financial impact on affected businesses in up to three
Member States. In aggregate the value of this trapped
VAT is considered unlikely to be significant across the
EU as whole, albeit harmonisation of these rules would
create a more level playing field.
No guidance could be obtained on this issue for
Luxembourg.
Malta and Ireland also stated that an amount of output
tax may only be shown for the in-house element of the
invoice. Although the Maltese and Irish legislation is
not clear on this point, in practice per section 5.5.5 the
Special Scheme VAT would not ordinarily be itemised
for Special Scheme supplies.
In Greece, Spain and Sweden, it is necessary to show
the VAT attributable to the in-house supply, however, it
is optional to display the VAT attributable to the Special
Scheme element of the supply.
AT BE BG HR CY CZ DK
EE FI FR DE EL HU IE
IT LV LT LU MT NL PL
PT RO SK SI ES SE UK
Output tax for each element must be shown
Output tax cannot be shown for
Special Scheme element
Optional whether to display output tax for the Special Scheme
element
Other / no specific guidance available
Full value of supply falls outside of the
Special Scheme
5.5.12.4 Valuation and Apportionment of a
mixed Special Scheme and in-house
B2B Supply
Concerning a package supplied to a business
customer for consumption/own use comprising a
mixture of Special Scheme and in-house services, in
twenty two Member States the package margin should
be apportioned between the Special Scheme and in-
house elements so that only a percentage of the
margin is accounted for under the Special Scheme,
with the in-house element accounted for under normal
VAT rules.
In Hungary, a package containing in-house and
Special Scheme supplies is considered a single
supply, all of which is subject to the Special Scheme.
This is an anomaly which may impact on the financial
position of affected business but on aggregate is not
considered likely to be significant from the perspective
of EU VAT revenue.
In Spain and Sweden, the application of the Special
Scheme is optional for B2B transactions, however if a
business opts to apply the Special Scheme, then the
margin should be apportioned.
There is no clear legislative guidance available on this
issue in Latvia, Luxembourg and Slovakia.
AT BE BG HR CY CZ DK
EE FI FR DE EL HU IE
IT LV LT LU MT NL PL
PT RO SK SI ES SE UK
Full value of supply falls within the
Special Scheme
Margin apportioned between in-house and Special Scheme
element
Full value of supply falls outside of the
Special Scheme
Optional whether the
Special Scheme applies
No guidance available
Of those Member States that require margin to be
apportioned for a B2B supply of a package containing
a mixture of in-house and Special Scheme supplies.
Croatia, Bulgaria, Ireland, Malta, Slovenia and United
Kingdom responded that either a market value or cost
based method could be used.
Denmark, Netherlands, Spain and Sweden responded
that the apportionment would be based on a “market
value” method, unless no such market value can be
found, a cost based method should be used. For
completeness, as noted above, it is optional to apply
the Special Scheme in Spain and Sweden.
Cyprus, Poland and Romania responded that the
apportionment should be calculated on a cost based
method. Similarly, although there is no guidance in
Lithuania in practice it is understood that the
apportionment should be calculated on a cost based
method. Therefore all of these countries would appear
not to apply the CJEU decision in MyTravel.
Belgium, the Czech Republic, Estonia, Finland,
Greece, Hungary, Italy, Latvia, Portugal and Slovakia
responded that no clear guidance was available,
though Finland did indicate that in practice the
apportionment would be based on a market value
method.
Differences between “cost-based” and “market-value-
based” methods are unlikely, in our view, to be
sufficiently significant in magnitude on aggregate for
the EU as a whole to create a distortion of competition.
77
For completeness, the French response indicated that
the margin is not required to be apportioned on the
basis that each element of the package is given a
“commercial price” such that the question of need to
apportion does not arise.
AT BE BG HR CY
CZ
DK
EE FI
FR
DE
EL HU IE
IT LV
LT
LU
MT
NL
PL
PT RO
SK
SI
ES
SE
UK
Apportionment based on cost
-based method
Apportionment based on market-value. If no market-
value can be ascertained, apportion based on cost
No apportionment required
Either
market value or cost based method applicable
No guidance available
5.5.12.5 Presentation on invoice of
apportionment of a mixed Special
Scheme and in-house B2B supply
Further to the above, Member States including
Belgium, Bulgaria, Croatia, the Czech Republic,
Denmark, Estonia, Finland, France, Ireland, Latvia,
Malta, Netherlands, Sweden and the UK indicated that
the apportionment would be shown on separate lines
of the invoice.
Meanwhile, Latvia, Lithuania, Poland and Spain
indicated that separate lines or a separate invoice is
possible and Greece, Portugal and Romania
responded that no clear guidance was available and
for Hungary no guidance could be obtained, while Italy
would require a separate invoice for each element of
the package.
This is merely an administrative issue and is not
considered to form a distortion of competition.
Mixed packages of bought-in and
intermediary supplies
When a package comprising a mixture of Special
Scheme supplies and elements arranged as
intermediary is provided to a B2B customer for
consumption/own use, invoicing requirements vary
across Member States.
In Cyprus, such a package would be treated as a
single transaction, outside the scope of the Special
Scheme and subject to normal rules.
In Bulgaria, the intermediary element would be
required to be invoiced directly by the principal, and
therefore an invoice for solely the bought-in element
will be sent to the customer with no VAT on the invoice
per section 5.5.5. Latvia and Slovenia responded that
the intermediary and Special Scheme elements should
be invoiced separately. Denmark, Finland, France
Ireland, Lithuania, Malta, Netherlands, Sweden and the
UK indicated that the supply should be apportioned
with each element itemised separately. The same goes
for Spain, albeit for a B2B supply it is possible to waive
the application of the Special Scheme.
However, Croatia, the Czech Republic, Estonia,
Hungary and Poland indicated that the full supply
would be subject to the Special Scheme with no
apportionment required. This difference of treatment
results in a higher VAT burden for suppliers of such
mixed packages based in these Member States. This
may incentivise suppliers to structure their
arrangements differently, in order to avoid packaging
supplies arranged as intermediary with supplies made
as principal. This is not considered to represent a
significant distortion of competition on aggregate for
the EU as a whole.
No guidance on this issue could be obtained in Italy,
Luxembourg, Portugal, Belgium, Greece, Romania or
Slovakia.
AT BE BG HR CY CZ DK
EE FI FR DE EL HU IE
IT LV LT LU MT NL PL
PT RO SK SI ES SE UK
Full value of supply falls within the
Special Scheme
Full value of supply falls outside the
Special Scheme
Value of supply apportioned or separated
Intermediary element invoiced
directly by intermediary
No guidance available/obtained
Mixed Packages including bought-in,
in-house and intermediary elements
The above sections dealt with mixed packages
including Special Scheme supplies alongside either
supplies made as intermediary or in-house supplies.
When a package comprising a mixture of all three
types of supply, i.e. Special Scheme, in-house and
intermediary elements are provided to a B2B customer
for consumption/own use, invoicing requirements vary
further across Member States. This is unsurprising
given the inconsistencies outlined at sections 5.5.12
and 5.5.13.
In the following Member States, the presence of an
agency supply in this mixed package effectively
overrides the “in-house” element and the treatment
outlined at section 5.5.13 prevails:
In Cyprus, this mixed package would be treated as
a single transaction, outside the scope of the
Special Scheme and subject to normal rules.
Conversely, the Czech Republic, Hungary and
Estonia responded that the whole package would
be treated subject to the Special Scheme with no
apportionment required.
In the following Member States, the treatment of mixed
“intermediary” packages per section 5.5.13 is
consistent with the treatment of mixed “in-house”
packages explained at section 5.5.12. The invoicing for
a package including Special Scheme elements and
both in-house and intermediary elements is therefore
treated similarly:
Denmark, Finland, France, Ireland, Malta,
Slovenia, Sweden and the UK responded that the
78
apportionment between all three elements would
need to be shown on separate lines on the
invoice. The same goes for Spain albeit for a B2B
supply it is possible to waive the application of the
Special Scheme. In France there is an option to
issue three separate invoices, one for each
element of the package.
Latvia and Slovenia responded that each element
should be invoiced separately. Meanwhile, Italy
also responded that each element should be
invoiced separately, although they were unable to
provide guidance per section 5.5.
Croatia responded that both the intermediary and
the Special Scheme element will be subject to the
Special Scheme with the apportionment for the in-
house element shown on a separate line.
In Bulgaria, the intermediary element will be invoiced
directly by the principal, and therefore an invoice for
solely the bought-in and in-house element will be sent
to the customer with the apportionment shown on
separate lines.
For Luxembourg, Netherlands Portugal, Greece,
Belgium, Romania and Slovakia no clear guidance
could be obtained on this issue.
AT BE BG HR CY CZ DK
EE FI FR DE EL HU IE
IT LV LT LU MT NL PL
PT RO SK SI ES SE UK
Full value of supply falls within the
Special Scheme
Full value of supply falls outside the
Special Scheme
Value of supply apportioned or separated
No guidance available/obtained
Special Scheme and intermediary element subject to Special
Scheme, in-house element is apportioned
Special Scheme
does not apply to B2B transactions
Optional to apply the
Special Scheme for a B2B supply
Mixed Packages – conferences and
events
There is inconsistency across Member States over the
treatment of a taxpayer that buys in several facilities
(venue, accommodation, travel, entertainment) for the
onward B2B provision of a conference or similar event.
Although one may assume that such a conference
equates to a mixed package comprising “in-house” and
Special Scheme elements, in practice the VAT
treatment varies. Whilst we are not aware of any
detailed specific guidance published in this respect of
the MICE sector in any Member States, the following
paragraphs outline established practice in respect of
conferences in particular, making a comparison to the
general treatment of in-house supplies.
Seven Member States (Croatia, the Czech Republic,
Finland, France, Italy, Greece, Netherlands) responded
that the full value of the conference falls within the
Special Scheme, though the French response
indicated that if the travel elements were viewed as
ancillary then the general place of supply rules would
apply. This contradicts the general treatment by these
Member States of in-house supplies, as outlined at
section 5.5.12.4 which ordinarily would require an
apportionment to be made between the in-house and
Special Scheme elements respectively.
Denmark, Hungary, Poland, Romania, Slovenia and
Spain responded that a conference would not be
subject to the Special Scheme. This contradicts the
general treatment of in-house supplies by these
Member States.
For completeness Spain noted that the Spanish Tax
Directorate does not disregard the possibility that such
a supply would be subject to the Special Scheme, but
for a B2B supply it is possible to opt-out of the
application of the Special Scheme such that the
general B2B rules would apply. The Swedish response
although stating that the full value would fall within the
Special Scheme noted that in the MICE sector, the
supplier usually treats the travel facility separately from
the remaining conference elements – and in Sweden
the travel agent may also apply the general rule for
B2B transactions.
The UK, Cyprus, Malta and Ireland responded that the
value of the conference would be apportioned so that
only the travel elements are accounted for within the
Special Scheme with the remainder of the package
accounted for under normal rules. This is consistent
with the general treatment by these Member States of
in-house supplies, as outlined at section 5.5.12.4. For
Belgium, Luxembourg, Bulgaria, Latvia, Lithuania,
Portugal, Sweden, Slovakia and Estonia no specific
guidance is available in respect of conferences and
therefore it is presumed that the rules on in-house
supplies per section 5.5.12.4 apply.
As noted above, in Germany and Austria, the Special
Scheme does not currently apply to B2B transactions.
However from 1 May 2019 such a B2B supply in
Austria would fall within the Special Scheme if it is for
the benefit of a “non-entrepreneurial” traveller.
AT BE BG HR CY CZ DK
EE FI FR DE EL HU IE
IT LV LT LU MT NL PL
PT RO SK SI ES SE UK
Value of conference apportioned
Full value of conference falls within the
Special Scheme
Full value of conference not subject to the
Special Scheme
No guidance available/obtained
Special Scheme does not apply to B2B supplies (not in conformity
with legislation / case law)
Margin calculation
The Special Scheme requires output tax to be declared
not on the sales value of the travel facilities, but on the
margin. This requires the margin to be calculated, and
each Member State has its own rules under which this
calculation is undertaken.
79
Whilst the terminology differs from one Member State
to another, margin calculation methodologies fall under
the following two broad categories:
An “overall” or “global” margin calculation that
allows losses made on one transaction to offset
profits made on another transaction in the same
period; or
A “transaction by transaction” margin calculation
that does not allow losses made on one
transaction to offset profits made on another
transaction in the same period.
The advantages of a calculation based on the
aggregation of sales and associated costs over a
period are simplicity and an ability to offset any
negative margins against positive margins on other
supplies.
Accordingly, a travel agent established in a Member
State which allows for a form of global calculation
enjoys lower administration costs and potentially a
lower VAT cost when compared to a travel agent
established in a Member State which requires a
separate VAT calculation for each supply made.
It should also be borne in mind that a sale by sale
calculation by its very nature identifies the actual
margin on each sale. A “global” calculation (albeit the
calculation methodology varies in each Member State)
makes assumptions about the level of mark up made
which could lead to some, albeit small, distortions /
differences between the two approaches.
Following the CJEU decision in Commission v Spain,
there is inconsistency across Member States on the
definition of a “transaction by transaction” basis
compared to a “global” margin calculation. As already
noted, for the purposes of this report the key
differentiator between these two calculation types is
considered to be the availability of “loss relief” by
offsetting profit made on one transaction against a loss
on another.
Based on the KPMG questionnaire, the VAT rules in
eleven Member States describe calculating the Special
Scheme VAT liability in a way that does not allow for
the offsetting of losses. As per Commission v Spain,
the offsetting of losses is not allowed as the margin
should be looked at on a transaction-by-transaction
basis.
AT BE BG HR CY CZ DK
EE FI FR DE EL HU IE
IT LV LT LU MT NL PL
PT RO SK SI ES SE UK
Conforms with legislation/case law
Not in conformity with legislation/case law
No guidance / guidance not clear
Meanwhile, fourteen Member States do allow losses to
be offset (i.e. not in conformity with CJEU case-law).
Sweden allows a choice of either the transaction basis
or a simplified procedure. Based on a strict
interpretation of Commission v Spain, we would expect
this not to be in conformity with the rules on calculating
the Special Scheme margin.
Ireland allows taxpayers to use simplified accounting
methods based on estimated margins, but they are
required to adjust any estimate to actual margin for
each transaction.
Estonia allows taxpayers to use the average margin of
the previous calendar year, upon written application to
the Estonian tax authority. However, the default
position is that loss offsetting is not allowed and the
calculation is done on a transactional basis.
There is no legislative guidance on the appropriate
method to use in Luxembourg
5.5.16.1 Practical implications
As described in section 4, the CJEU concluded in
Commission v Spain that there is nothing in the rules of
the Special Scheme to allow for a calculation of the
VAT payable on any basis other than by reference to
each single supply provided by the travel agent. The
practice of Spain in allowing travel agents to make an
overall determination of the taxable amount in
aggregate on all Special Scheme supplies made in a
period could not be permitted.
Our analysis has demonstrated that many Member
States allow for a form of simplified, aggregated
calculation. Such an approach is associated with two
main advantages:
A simplified basis of calculation which benefits
both travel agents and tax authorities as regards
their need to review the declarations of travel
agents; and
Automatic credit for any negative margins made
by the travel agent (as such negative sums are
deducted from the positive margins made on other
supplies in the same period of account) which
appears to be fiscally reasonable.
The main difficulty in applying the CJEU’s judgment is
the effect it has on calculating VAT due. The judgment
requires identification of the margin every time a
service is provided by the travel agent. This requires
identification of the taxable amount, i.e. the margin,
every time a supply is made. It is submitted that this
could mean calculating VAT payable numerous times
for just a single provision of travel facilities, i.e. for
example, the travel agent may receive a deposit, stage
payment and final balance each of which would
crystallise a supply and each would represent the
making of a supply. To comply with the judgment, a
travel agent would need to identify the margin inherent
in each payment. There is no clear way in which this
could be done other than through very significant
expenditure of IT systems and/or resources, to allow
such tracking. Even if this were possible, other factors
such as exchange rate fluctuations for example, have
an effect which would impact the margin.
Furthermore, the declaration of VAT due once full
payment is received could not be considered to be final
as there are numerous circumstances in which the final
cost is not known at that time:
80
Rebates or similar received subsequent to the
provision of the travel facility (based on, for
example, the level of business placed with the
supplier over a period) and which would have the
effect of reducing the cost of all supplies
purchased over a period;
The cost of in-house services supplied with bought
in services where the actual costs basis for the
valuation of the in-house services is used;
Difficulties in identifying cost where services have
been block booked and the cost for the services
per unit can only be known at a later date.
The travel agent’s cost of a single service may change
several times after the service has been performed
requiring the agent to adjust the VAT payable
potentially on several occasions.
The above indicates that at least fourteen Member
States do not comply currently with the full
requirements of the CJEU’s judgment. It is understood
that Member States have considered it to be
appropriate to require (or at least to allow) an
aggregated basis of calculation as it was recognised
that the alternative, (i.e. to calculate VAT in the way set
down by the CJEU), would be very difficult. In our
view, this is one area where the Special Scheme
causes a material issue for the industry with regard to
compliance requirements.
However, no other industry is allowed for VAT
purposes to offset losses (albeit under normal rules the
offsetting of input tax recovery against output tax may
provide a similar result).
The only possibility allowed for a simplified calculation
can be found in Article 318 of the VAT Directive
relating to the supply of goods under the margin
scheme for taxable dealers, but it is clear from the
provision that such a global calculation is only allowed
for simplification purposes rather than to offset losses.
In addition, Member States are required to consult the
VAT Committee before seeking to provide that, for
certain transactions or for certain categories of taxable
dealers, the taxable amount in respect of supplies of
goods subject to the margin scheme is to be
determined for each tax period for which the taxable
business submits VAT returns.
5.5.16.2 Retrospective Adjustments
Five Member States, namely Slovakia, Belgium, Italy,
Croatia and Romania do not allow retrospective
adjustments to be made where the final profit margin
differs from the “preliminary” or expected margin at the
time of the transaction.
Cyprus, Estonia and the UK calculate an estimate of
the Special Scheme VAT liability in each VAT
accounting period based on the prior year, with an
annual adjustment made once per year to correct
these estimates. (In Estonia there is an alternative
calculation method which does not require annual
adjustment). Ireland allows an estimate on either an
annual or periodic VAT return basis with a requirement
to make an annual adjustment. The remaining Member
States calculate the Special Scheme liability each VAT
period in accordance with periodic VAT return
frequency. The majority of Member States require
payment of the Special Scheme liability in accordance
with periodic VAT returns, while Lithuania and Estonia
require monthly liability settlements.
Of those Member States in which a retrospective
adjustment of the final profit margin is required,
Bulgaria, Denmark, Estonia, Ireland, Malta and
Slovenia responded that there was no corresponding
requirement to issue a corrected invoice.
In contrast, Member States including the Czech
Republic, France, Portugal, Poland and Spain
responded that there is a requirement to issue a
corrected invoice. Similarly in Sweden where the
option to display VAT on the margin per section 5.5.5.2
is taken up and a retrospective adjustment of the final
profit margin is required, a corrected invoice should be
issued.
Meanwhile the Lithuanian response was that a
correcting invoice is only required where the supply
contained a mixture of elements (such as in-house and
Special Scheme items). Where the supply only
contains Special Scheme items a correcting invoice is
not required.
5.5.16.3 Fixed profit %
The majority of Member States require an “actual”
calculation of profit and therefore do not allow a fixed
profit percentage to be used to calculate the VAT due.
However, in Sweden and Austria there is an option to
apply a fixed profit percentage, and in Belgium it is
compulsory to apply a fixed profit percentage (different
fixed rates are applicable dependent upon the
underlying nature of the supply).
5.5.16.4 Income subject to the Special Scheme
and allowable costs in margin
calculations
There is significant inconsistency between Member
States regarding which income streams are subject to
the Special Scheme and allowable costs in margin
calculations – see Annex 1 for a summary.
5.5.16.5 Margin calculated by reference to VAT
inclusive costs
A practical issue is whether a travel agent who has
achieved input tax deduction in a Member State which
considers the Special Scheme not to apply should
calculate the margin (in the travel agent’s Member
States of establishment) using the gross VAT inclusive
cost or the actual net cost. Article 308 of the VAT
Directive requires use of the actual cost and this may
be interpreted to mean that a travel agent who has
recovered input tax must use the net cost. However,
this is not necessarily how the Special Scheme was
implemented in practice. For example in the UK, local
legislation requires the use of the VAT inclusive value
in all cases. Where this is so, the travel agent is
effectively allowed a double credit for input tax. If the
implementation of the Special Scheme were to be
harmonised, such an effect would not exist.
81
5.6 Competitive advantages
enjoyed by travel agents
established outside the EU
The place of supply rule within the Special Scheme is
an origin based rule, i.e. the travel agent’s supply is
subject to VAT in the Member State in which the travel
agent has established his business or has a fixed
establishment from which the supply is made.
This is often interpreted to mean that a travel agent
without a place of establishment (or fixed
establishment) in the EU cannot be subject to EU
VAT.
164
The validity of this interpretation was
examined by the Commission Services in 2014.
165
A
number of different interpretations were identified by
them. Subsequently, the Member States in the VAT
Committee considered the proper treatment of third
country (non-EU) travel agents and a large majority
concluded that such agents should be considered to
fall outside of the Special Scheme. Based on the
analysis made, it presumably follows that the large
majority of Member States in question thereby
concluded, under the normal rules, that those third
country travel agents should be registered for VAT in
each Member State in which the travel services they
supply take place.
Our purpose here is not to comment on whether third
country travel agents have an obligation to register for
EU VAT. We merely note that the VAT Directive is
ambiguous on this point and that the CJEU has not
pronounced on the subject. Furthermore, regardless of
the rights and wrongs of the technical arguments in this
area, our experience is that few third country travel
agents seek registrations in the EU and that few
Member States attempt to enforce such registrations.
It might be concluded therefore that either:
The current scheme facilitates the non-taxation of
third country travel agents. This is the effect if the
VAT Directive is interpreted as applying to all
travel agents but only imposing a VAT charge on
agents if they have a place of establishment or
fixed establishment within the EU; or
The current scheme does not cover third country
travel agents with the effect that they should apply
the normal rules on place of supply, valuation,
liability and input tax deduction. Accordingly, they
should register in Member States in which they
supply services and be subject to the rules of the
Member State(s) involved.
There are also apparent inconsistencies across
Member States in the understanding of what
constitutes a sufficient footprint in the EU to create a
fixed establishment for VAT purposes. One of the
requirements of this study is that we consider how the
rules can best be reformed or harmonised for travel
agents established within the EU and those in third
countries aiming at creating a level playing field. These
points are considered in section 6.
It might be concluded that third country travel agents
currently enjoy competitive advantages over their EU
164
However, local VAT or sales taxes may of course arise
counterparts. However, this is not necessarily the case
and the position depends on the sector in which the
travel agents operate and the application of the current
rules in the Member State in which the travel agent
competing with a third country agent is established.
Tour operators
In the tour operating sector, where most customers are
not taxable persons and accordingly input tax
deduction does not feature, and where most travel
agents pay VAT on the gross margin achieved, it
seems realistic to conclude that third country travel
agents enjoy a competitive advantage. Neither EU nor
third country travel agents are able to deduct input tax
on the costs of services falling within the Special
Scheme but third country agents do not pay the output
tax which would be required of an EU agent (at least
when selling travel taking place within the EU).
For example, a travel agent based in Norway,
Switzerland or Turkey that makes supplies that are
used and enjoyed in the EU would not be required to
account for its local VAT equivalent in Norway,
Switzerland or Turkey. Further, the travel agent would
not be required to account for VAT under the Special
Scheme on the supplies used and enjoyed in the EU.
This leads to non-taxation on the margin.
DMC
The situation, however, is more nuanced in practice in
the DMC sector. If all Member States included
wholesale supplies in the Special Scheme, it would be
reasonable to conclude that the competitive position
would be same as that described for tour operators
above.
However, as we have established, there is a large
variation in the approach towards wholesale supplies
(particularly as regards the supply of packages) and
therefore a consideration of the current competitive
environment in the DMC sector requires us to take into
account the Member State in which the EU travel agent
is established and the Member State in which the
travel facilities themselves takes place. The
competitive position of the EU travel agent is a factor of
the applicability of the Special Scheme in the agent’s
own Member State, whether the scheme is used for
wholesale supplies in the Member State(s) in which the
travel occurs and where, (in both cases) the scheme is
not applicable, what version of “normal” VAT is
considered to be correct (where the supply consists of
a package).
5.6.2.1 FIT
For FIT and other instances of the supply of a single
item, the normal rules vary little between Member
States and apply to third country and EU travel agents
alike. Where the travel facility in question is supplied in
a Member State which does not apply the Special
Scheme, then we conclude that the legislation itself
does not create any difference in obligations between
EU and third country wholesale suppliers. In both
cases, the travel agent should register (subject to any
local rules on the point), pay VAT on supplies made in
accordance with the rules in that Member State and
165
Commission Working Paper 814 dated 31 July 2014
82
deduct input tax (again subject to the rules in that
state).
5.6.2.2 Packages
For packages, where the travel takes place in a
Member State which does not apply the Special
Scheme but does use any of the multiple supply, single
supply or predominant supply approaches, it can be
seen that the VAT regime also does not distinguish
between EU and third country travel agents as the
rules (i.e. those for place of supply, valuation, liability of
supply and input tax deduction) are the same for both
groups. Where the multiple or predominant supply
approach applies, the travel agent has an obligation to
register where each supply within a multiple supply or
the main supply under a predominant supply model is
supplied. This obligation applies equally whether the
travel agent is established within the EU or not. Where
the single supply approach applies, the place of supply
is the place of establishment of the client. Again, this
applies regardless of the place of establishment of the
supplier.
In each case, in principle, both for FIT and packages,
input tax incurred on the purchase of the travel
services to be supplied by the travel agent is
deductible. In the case of the multiple and predominant
supply models (for package supplies), this deduction is
likely to be achieved via a VAT registration but in the
case of the single supply model, recovery outside of
the Member State in which the travel is established is
likely to be achieved under the EU VAT refund
scheme
166
or the refund scheme for third country
businesses,
167
assuming in that latter case that the
travel agent is not established in a country to which
repayments are blocked under the reciprocity
condition.
168
Where the Special Scheme is not applied at the
moment, we can conclude therefore that the VAT
Directive does not itself lead to differential treatment
between EU and third country suppliers. Indeed, it
might be said that adoption of the CJEU’s decision
would introduce a degree of unequal treatment as
either third country agents would be excluded from the
scope of EU VAT (if the Special Scheme is interpreted
to apply to such suppliers but that they have no EU
place of supply) or they would be subject to a different
regime i.e. the normal rules on place of supply,
valuation, liability and input tax deduction, whilst EU
agents would be within the Special Scheme.
However, whilst the current exclusion of wholesale
supplies from the Special Scheme might be seen to
create a level playing field (in those Member States in
which the Special Scheme is not applied), in practice
the situation may be different. Many wholesale
suppliers specialise in travel facilities taking place in
their own Member State and it is to be expected that
such businesses are registered for VAT in the Member
State involved. This way, VAT is accounted for in the
way required by that Member State on a large part,
maybe the full value, of that travel agent’s wholesale
turnover. Where such a business makes supplies in
166
Directive 2008/9/EC
167
Directive 86/560/EEC
168
Article 2(2) of the VAT Directive
another Member State (which does not apply the
Special Scheme), then a liability to register and pay
VAT in that other state exists. In our experience, third
country wholesale suppliers commonly are not aware
of any obligation to register in any Member State. In
practice, EU travel agents operating in this sector are
very much more likely to be more compliant than
competitors operating outside the EU.
Accordingly, in practice, travel agents established in
the EU are likely to suffer a competitive disadvantage
whether or not the Special Scheme is applied in the
Member State in which they are established and/or in
the state in which the travel facilities take place. One
situation in which this is not the case is where the
travel agent supplies packages, is established in a
Member State which has adopted the single supply
approach and organises packages which take place in
his own Member State.
TMC
In the TMC sector, many travel agents have chosen to
operate as intermediaries with the effect that they fall
outside the Special Scheme. Fees and commissions
earned from taxable persons fall within the general
place of supply rule
169
and accordingly VAT is
chargeable on supplies made to a client in the same
Member State (subject to any local exemption or other
relief which might apply). Supplies made to clients
established elsewhere in the EU are subject to VAT in
the client’s Member State and it is the responsibility of
the client to pay the VAT
170
, subject to the rules
applied in that Member State.
Where a third country TMC acts as an intermediary,
the effect should be the same as described above. The
TMC would have no obligation to charge VAT but the
EU client would be liable to declare VAT
171
on services
received from such a TMC. The impact in terms of cost
for the client should be the same in both situations.
Where a TMC deals with customers in his own name
so that the Special Scheme applies, costs for the client
are likely to be increased as the VAT on the travel
facility itself is not recoverable and a sum of output tax
on the margin is created where the TMC is established
in the EU and in a Member State which applies the
scheme to B2B supplies. Here the EU TMC is faced
with a disadvantage as it is unlikely that the third
country competitor would pay any VAT. However, the
position is dependent on the interpretation placed on
the application of the Special Scheme to third country
travel agents. Two interpretations are possible: either
third country travel agents are covered by the scheme
but are not subject to VAT as they have no EU place of
establishment (or fixed establishment) or they fall
outside the scope of the scheme and accordingly are
subject to the normal rules on place of supply,
valuation and input tax deduction. If the former
interpretation applies, the third country competitor
would also be unable to deduct any input tax and could
not provide any means by which the client could
deduct any tax. In practice, therefore, the disadvantage
169
Article 44 of the VAT Directive
170
Article 196 of the VAT Directive
171
Again in accordance with Articles 44 and 196 of the VAT Directive
83
faced by a TMC established in the EU is likely to be
limited to the VAT paid on the margin.
However, if third country travel agents are considered
to be outside the Special Scheme and thereby subject
to the normal VAT rules, a third country TMC may
enjoy a competitive advantage over a TMC established
in a Member State which requires the use of the
Special Scheme. Whilst the EU TMC would be unable
to deduct input tax, could not raise a VAT invoice and
would have to pay VAT on its margin, a third country
competitor could register in the Member State in which
the travel facilities are consumed, deduct the local
input tax and provide a VAT invoice and thus provide
the business client with the means to recover input tax
denied to them when purchasing from many EU TMCs.
Where the TMC buys and re-sells travel facilities in a
Member State which does not apply the Special
Scheme to B2B supplies, the effect is that input tax
should be deductible, the TMC would charge VAT on
his selling price and provide an invoice to provide the
client with the means to deduct its own input tax. This
applies equally to EU and third country travel agents so
in theory no distortion exists. In practice, if an EU agent
is registered and compliant in such circumstances but
a third country agent is not, then the EU agent is in a
better situation as it can offer the client the means to
reduce the final cost via input tax deduction whereas
the third country agent cannot do so.
Travel agents
Travel agents act mainly as intermediaries and fall
outside of the Special Scheme when doing so.
Travel agents typically earn commissions from
principal suppliers such as tour operators, hotels,
airlines etc. and also often charge fees to their
customers. To assess any competitive advantages by
third country (non-EU) travel agents over their EU
counterparts (or vice versa) we need to consider the
rules (principally the place of supply rules) applicable
to the commissions and fees charged.
Commissions receivable from suppliers such as tour
operators, hotels and airlines are consideration for
intermediary services supplied to a taxable person and
accordingly fall within the general place of supply
rule.
172
The place of supply is the place where the
principal has established his business or has a fixed
establishment to which the service is provided. For the
reasons discussed above in relation to TMCs, it should
make no difference to the outcome whether the travel
agent is established in the EU or not. Where the travel
agent is established in a Member State and the
principal is in the same Member State, the travel agent
should charge VAT in accordance with the rules of that
Member State. Where the travel agent and principal
are located in different Member States, no VAT should
be charged and the principal should declare local VAT
using the reverse charge mechanism. If the principal is
within the EU but the travel agent is located in a third
172
Article 44 of the VAT Directive
173
Article 46 of the VAT Directive
174
Guidelines resulting from 107
th
meeting of 8 July 2016, document D
– taxud.c.1(2017)1402399 – 914 (1/2)
175
As the services require only minimal human intervention and are
largely automated
country, local VAT should be declared via the reverse
charge in each case.
Thus it can be seen that no differences in VAT payable
on commissions should exist and no potential
comparative (dis)advantage should arise in this
context. It is also worth noting that VAT payable
(whether to a travel agent in the same Member State
or under the reverse charge mechanism) is normally
deductible in full by the principal, so whether VAT is
declared or not typically makes no difference to VAT
revenue and does not affect the competitive status of
EU and third country travel agents.
The place of supply of intermediary services supplied
to a non-taxable person is the place where the
underlying transaction is supplied.
173
This rule applies
equally to EU and third country suppliers so again no
difference in outcome should exist. However,
application of this place of supply often results in travel
agents having obligations towards multiple Member
States to register and pay local VAT. We consider it
probable that an understanding of this requirement is
more likely amongst EU travel agents and that it is
more likely that EU travel agents will be compliant with
this requirement. This would mean that EU travel
agents would pay VAT in circumstances in which third
party agents would not but, if this is the case, it arises
from non-application of the rules rather than a
difference in application between EU and third country
travel agents.
5.6.4.1 Electronically supplied services
We should also consider the outcome if the services of
a travel agent are considered to be electronically
supplied services. The Commission Services recently
published guidelines
174
on the circumstances in which
online platforms and similar selling travel services
should be treated as supplying electronically supplied
services. The guidelines make it clear that the Member
States have agreed almost unanimously that in many
circumstances such a platform should be considered to
supply electronically supplied services
175
and not
intermediary services. Although according to Article
7(3)(t) and (u) of the VAT Implementing Regulation
travel facilities are not covered by the definition of
electronically supplied services,
176
it cannot be
excluded that some Member States would in the future
treat online travel agents as supplying electronically
supplied services.
The place of supply of electronic services supplied to a
taxable person is determined by the general place of
supply rule. This is the same test as applied to
intermediary services so we can immediately conclude
that the effect of categorising B2B services under the
electronic supply heading is the same as under the
intermediary heading. The positions of both EU and
third country established travel agents is the same
when supplying electronically supplied services as
when supplying intermediary services.
176
Point (t): tickets to cultural, artistic, sporting, scientific, educational,
entertainment or similar events booked online; and point (u):
accommodation, car-hire, restaurant services, passenger transport or
similar services booked online
84
However, the place of supply of electronic services
supplied to non-taxable persons is different, being the
place where the person is established, has his
permanent residence or usually resides.
177
As with the
intermediary rule, this test applies regardless of the
location of the supplier. Accordingly, no matter where
the travel agent is established, if the agent provides
services to a non-taxable person and those services
are considered to be electronically supplied (taxed at
the standard rate), the place of supply is the place
where the customer lives. Where that place of
residence is within the EU, the supplier should account
for VAT in the Member State in question at the rate
stipulated by that Member State. Again, no difference
in obligation exists between travel agents established
in the EU and those established elsewhere and we can
conclude, therefore, that in theory the rules do not
create any competitive differences between EU and
third country travel agents.
178
MICE
The position of MICE operators is complex. As
discussed elsewhere in this study, there are significant
variations in the approach of Member States to the
taxation of MICE. It is necessary in many Member
States, however, to apply the Special Scheme to at
least a part of many events. In those cases where EU
MICE operators use the Special Scheme, for the
reasons already given in this section, they are placed
at a potential disadvantage when compared to a third
country operator providing the same service. It should
be noted, however, that the disadvantage is limited to
payment of VAT on the margin: input tax on associated
costs is not deductible whether the supplier is
established in the EU or not.
In many circumstances, however, MICE services do
not fall within the Special Scheme. Depending on the
nature of the service and the interpretation placed on it
by the Member State(s) involved, in our experience
services often fall within any of the general rule,
179
the
rule for immovable property
180
and the rule for
admission.
181
We have considered the effect of the application of the
general place of supply rule for other sectors in the
section and the effect for MICE is considered to be the
same: no difference in outcome should arise for
supplies made by EU MICE operators when compared
to those made by third country suppliers.
The place of supply of services connected to
immovable property is the place where the property is
located. Again, this applies regardless of the location of
the supplier. Therefore, we should conclude that no
differences exist for MICE within and without the EU
when supplying services which are considered to be
connected with immovable property.
The place of supply of admission services is the place
where the event in question takes place. Once again,
there is no difference in principle in the applicability of
this rule between EU and third country suppliers. All
suppliers should comply with the rules of the Member
State in which the admission is supplied. This often
means registration in the Member State involved and
the payment of local VAT (and the deduction of
associated input tax). Again, therefore it can be seen
that no differences should exist between EU and third
country operators and accordingly the VAT rules
should not create any distortions of competition
between suppliers in the EU as a whole and those
outside the EU.
177
Article 58(c) of the VAT Directive
178
This assumes that the third country travel agent is in fact remitting
the VAT due in the EU
179
Article 44 of Directive 2006/112/EC
180
Article 47 of Directive 2006/112/EC
181
Article 53 of Directive 2006/112/EC
Identify, assess and
compare options for
reform
86
6 Identify, assess and compare options for reform both
under the current place of supply rules and under place
of supply rules based on the destination principle
6.1 Introduction
The aim of this section is to identify, assess and
compare options for reform.
This will involve a qualitative analysis of the costs,
benefits, opportunities and risks associated with each
of the options considered and a quantitative overview
of the effect of each option on Member States’
revenue.
Our purpose is not to reach definitive conclusions on
how the VAT system for travel agents should change.
Rather, our task is to consider the effect of the current
rules, to identify ways in which the rules may be
changed and to establish the effects of the possible
reforms identified.
We also consider what the effects would be if there
was no reform of the Special Scheme but all Member
States adopted the current rules as interpreted by the
CJEU.
The options discussed below represent several
approaches to the taxation of travel and tourism within
the EU. The Commission will, in the final analysis, be
the one to decide whether changes to existing
legislation are required and, if so, to present these to
Member States who will make the final decision.
6.2 Section Summary
We have concluded that reform of the Special Scheme
is desirable.
The analysis which follows sets out our views on the
likely effects of various ways in which the VAT regime
for travel might change.
A key conclusion from industry feedback is that there is
not a desire to abolish the Special Scheme entirely
although we note there are ways in which it might be
changed to alleviate issues associated with the
scheme as discussed in detail in section 5. In addition,
based on the reform objectives we have identified, we
do not believe the Special Scheme should be applied
compulsorily to B2B supplies and that accordingly its
use in the B2B sector should be optional.
Our analysis distinguishes between the five sectors
covered by this study, namely the tour operating, TMC,
travel agency, DMC and MICE sectors.
It is also important to consider how travel agents
established outside of the EU might be brought within
the scope of EU VAT and our following analysis
considers how this might be done.
182
Green Paper On the Future of VAT: Towards a simpler, more robust
and efficient VAT system, COM (2010) 695 final of 1 December 2010
183
Section 1 Introduction on page 1
184
Communication from The Commission to The European Parliament,
The Council and The European Economic and Social Committee on
Many of the options under consideration would involve
the payment of VAT in multiple Member States. We
believe that a form of the current MOSS arrangement
might be available to assist travel agents in their
compliance.
6.3 Background
As we have described elsewhere in this study, all
consideration of ways in which the application of VAT
to travel may be reformed needs to be addressed
against the wider VAT objectives of the Commission.
The VAT Green Paper
In 2010, the Commission published its VAT Green
Paper
182
to launch a consultation on the functioning of
the VAT system and how the system should be
reframed. The Commission stated
183
that it was time to
look at the VAT system to:
Strengthen its coherence with the single market;
Improve its economic efficiency and robustness to
strengthen its capacity to raise revenue;
Strengthen its contribution to other policies;
Reduce the costs of compliance and collection.
The 2011 conclusions to the Green
Paper consultation
The 2010 Green Paper referred to the origin and
destination principles as alternative bases for the
taxation of intra-EU transactions. In 2011, the
Commission presented its conclusions
184
from the
process began a year earlier in the Green Paper. One
of the conclusions was that the definitive VAT system
should be based on the destination principle.
The Commission also concluded that a lack of
harmonisation deters efficient intra-EU trade and
prevents citizens from reaping the benefits of a
genuine single market.
Lack of harmonisation creates a price in the form of
complexity, compliance and legal uncertainty. SMEs
often do not have the resources to deal with these
issues and therefore refrain from engaging in cross-
border trade. We have demonstrated that there is a
high degree of dis-harmonisation in the application of
VAT in the travel sector between Member States and it
is considered that the problems identified in the 2011
paper are prevalent in the travel industry. These
problems undermine the operation of a single market in
travel services.
the future of VAT: Towards a simpler, more robust and efficient VAT
system tailored to the single market, COM(2011) 851 final of 6
December 2011
87
The Green Paper notes
185
that two issues associated
with the destination principle need to be addressed: the
definition of the place of destination and the
mechanism by which the VAT is paid – either via the
reverse charge (for B2B supplies only) or via the
charging of VAT by the supplier. The Green Paper then
goes on to discuss the destination principle in relation
to B2B supplies. It had stated
186
that “the main feature
of taxation at destination is that VAT revenues accrue
directly to the Member State of consumption, according
to domestic rates and exemptions”.
In the context of travel services, therefore, we believe
that the destination principle should be considered to
mean the accrual of VAT to the Member State in which
the service in question is consumed and that the
payment of VAT in that Member State is based on the
rules in force there. Part of our work is to consider
what the destination principle means in relation to
travel services and how the Special Scheme rules can
be framed to observe the application of the destination
principle.
The VAT Action Plan
In its VAT Action Plan
187
of 2016, the Commission set
out the pathway to the creation of a single EU VAT
area based on the principle of taxation in the country of
destination.
188
The Commission stated that the EU VAT system now
urgently needs reform
189
and that it:
Needs to be simpler for businesses to use.
Compliance costs are significantly higher in single
market trade than in domestic trade, while
complexity is stifling business, especially small
and medium-sized businesses (SMEs);
Must combat the growing risk of fraud. The "VAT
gap" between expected revenue and revenue
actually collected is estimated at €170bn, while
cross-border fraud alone accounts for €50bn of
revenue loss each year;
Needs to be more efficient, in particular at
exploiting the opportunities of digital technology
and reducing the costs of revenue collection;
Must be based on greater trust: trust between
business and tax administrations, and between EU
tax administrations.
In the course of its recent Communication “A Fair and
Efficient Tax System in the European Union for the
Digital Single Market”
190
the Commission confirmed
that digital technologies are transforming the business
world and having an important impact on taxation
systems. New ways of delivering traditional services
are putting pressure on Europe's taxation system and
the travel industry is no exception.
In the field of taxation, policy makers are struggling to
find solutions that would ensure fair and effective
taxation as the digital transformation of the economy
185
Paragraph 5.4
186
Paragraph 4.2
187
Communication from the Commission to the European Parliament,
the Council and the European Economic and Social Committee on an
action plan for VAT, COM(2016) 148 final of 7 April 2016
188
In section 1 Introduction page 4
accelerates. The application of VAT to travel services
is one of these challenges where the objective is to
ensure tax neutrality between traditional and on-line
digital businesses and that revenues accrue to the
Member State of consumption.
6.4 Our approach to the
assessment and comparison
of reform options
Based on the above documents and technical
specifications of this study, we consider that all options
must be considered against the following objectives:
To promote simplicity for businesses and control
of compliance costs;
To assist in Member States’ control and
administration of the VAT system and reduce
collection costs;
To promote a harmonised application of VAT to
the activities of travel agents;
To combat fraud and to help reduce the “VAT
gap”;
To introduce the principle of taxation in the
Member State of destination;
To identify an appropriate way in which VAT in the
Member State of destination can be collected;
To approximate the obligations of EU and third
country travel agents so that equal competition is
promoted
To remove the distortions of competition and
material issues created by the current rules
themselves and by the differing applications of
those rules. In addition, it is clear that any new
rules must not introduce any new distortions of
competition.
6.5 Introduction to the options
for reform
We have assessed the operation of the current Special
Scheme and we will now look at possible ways in
which the rules might change. In doing so, we take into
account the Commission’s wider objectives.
We should recall that the purpose of the scheme is
two-fold:
To adapt the normal VAT rules to overcome the
practical difficulties which would otherwise exist for
many suppliers of travel services; and
To assist in a fair allocation of revenue between
the Member States.
We consider that the objectives of a reformed Special
Scheme should be consistent with the above.
189
In section 1 Introduction page 3
190
https://ec.europa.eu/taxation_customs/sites/taxation/files/communication_ta
xation_digital_single_market_en.pdf
88
Our task requires us to consider the merits in
continuing with a margin based scheme and a
comparison of such a scheme with the application of
the normal rules on place of supply, valuation and input
tax deduction and also the effects of the introduction of
a reduced rate or exemption from VAT for the activities
of a travel agent. We also consider various options in
the way in which a future scheme could be framed. Our
comments on the effects of the various reform options
fully take into account the circumstances and features
of the five business sectors adopted for this study.
Having considered what we believe to be the most
important concept in relation to a retained Special
Scheme, the application of normal VAT, we will assess
options:
Against the initial objectives of the Special
Scheme;
Against the destination principle;
In terms of alleviating the distortions of competition
we have identified and as discussed in section 6.8;
Against the current rules as adopted by the
Member States;
Against the current rules as interpreted by the
CJEU (as described in section 3);
In terms of the administrative burdens placed on
business, analysing the effect separately for small,
medium and large businesses;
In terms of their potential economic, social,
geographical and environmental impacts;
As regards their impact on the competitiveness of
EU travel agents;
Against current VAT priorities such as the
destination principle and the use of MOSS;
Against anticipated developments in the travel
market;
As regards their impact on Member States’ VAT
revenues.
191
We will furthermore consider the extent to which the
destination principle is already implemented by the
current rules and how a MOSS system (a single
electronic registration and payment mechanism) might
be incorporated and what the requirements of a MOSS
for travel agents might be.
6.6 The distortions of
competition and other
material issues we have
identified
A key part of the assessment of options for reform is
their effectiveness in alleviating the distortions of
competition which arise as a result of the varying
application of the current rules by the Member States.
By definition, if one assumes that the rules of the
Special Scheme could be applied consistently by all
191
It should be noted that a fundamental objective of VAT can be said
to be the generation of revenue. This aim is however too general to be
assessed by this targeted study and we limit our analysis to the
description of impacts on Member States’ VAT revenues.
Member States, there should not be any inherent
distortions of competition that are created. However, as
our analysis has shown, application of the rules by the
Member States differs in a number of ways and we
concluded in section 5 that such differences of
application have created two distortions of competition
arising from:
The varying treatments of wholesale supplies,
including the differences in the application of
“normal” VAT where the Special Scheme is
considered to be inapplicable; and
The varying definitions of “travel facilities”.
We have also concluded
192
that the rules of the Special
Scheme (as interpreted by the CJEU) create two
material issues, namely:
Differences in the taxation of travel agents
established in the EU and those in third countries;
and
The need to calculate the margin on a transaction
by transaction basis.
Our analysis of reform options sets out to remove the
above material issues.
In addition, we have concluded that the inability of a
travel agent to deduct input tax on costs is a significant
drawback of the scheme when providing services to a
business client. We have, therefore, also considered
how the rules might be framed so that the current
difficulties in this regard are alleviated.
Furthermore, there are numerous other aspects of the
current rules and their application which, whilst not
creating a distortion of competition or giving rise to a
material issue, do nevertheless create differences in
the VAT approach to the same transaction in different
circumstances and/or contribute to the uncertainty
faced by travel agents and we also consider how these
other smaller features might be alleviated.
We will consider what we believe to be important
concepts and considerations in the context of reform
under a number of headings.
6.7 Adoption of the current rules
as interpreted by the CJEU by
all Member States
If each Member State was required to adopt local
legislation and procedures as necessary to give full
effect to the CJEU’s interpretation
193
of the scheme,
this would require considerable change in many
Member States and much change for many travel
agents, many of whom would face increased VAT
liabilities and greater administrative complexity.
Application of the CJEU decisions should lead to
greater harmonisation amongst Member States and
therefore certain of the distortions of competition and
other problems we have identified would disappear.
For example, all travel agents throughout the EU would
have to treat B2B supplies (subject to the normal
192
Again see section 5
193
As summarised in section 3
89
scheme conditions) as within the Special Scheme. This
would be of great importance in the DMC, TMC and
MICE sectors. Whilst such an approach would at least
remove some of the uncertainties faced by many at the
moment, and help to equalise treatment in this area, it
would perpetuate the inability to deduct input tax on
business travel expenditure which, whilst an inherent
aspect of the Special Scheme, is the cause of many of
the current problems we have identified. It would also
make travel and tourism within the EU, for both EU and
third country citizens, more expensive. This is
illustrated by the examples set out in Annex 3 and
which we discuss in detail below.
The objective of a harmonised application of VAT to
travel agents would be partly achieved. Adoption of
CJEU judgments would mean far greater consistency
for travel agents established in the EU but there would
still be variable approaches on the meaning of “travel
facilities” and certain other aspects of the operation of
the scheme so the harmonisation objective could not
be said to be fully achieved by just enforcing
established case law.
Furthermore, there would be no greater equalisation of
the obligations of EU and third country travel agents
and there would be no progress towards the adoption
of the destination principle. Therefore, this measure
would reduce the distortion of competition in the B2B
sector amongst EU travel agents but would permit the
continuation of a different treatment of third country
travel agents competing with EU agents in the B2B
area. Even if third country travel agents were thought
to be taxable under current rules, they would be taxed
on a different basis to EU agents so there would be no
equality. From a practical perspective, we are not
aware of the payment of such VAT by third country
travel agents regularly taking place.
Finally, the enforcement of a sale by sale basis to the
calculation would perpetuate the existing material issue
we have identified in this area.
Therefore, we believe that continuation of the current
rules as interpreted by the CJEU would see the
continuation of many of the existing problems
associated with the scheme and a failure to satisfy the
objectives of reform. Furthermore, as this approach
would increase the application of VAT to the B2B
sectors in many Member States the drawback we
believe to arise from the non-deductibility of input tax
on business travel costs would be increased.
Accordingly, we do not believe that this option should
be pursued.
We have, however, considered the effect in the DMC
sector. This is perhaps the sector most affected. We
have established that some Member States require
wholesale suppliers of travel facilities to include the
supplies within the Special Scheme whilst other
Member States expect normal VAT to be applied. If the
Special Scheme was adopted by all Member States as
interpreted by the CJEU, all wholesale supplies made
by EU established travel agents would fall within the
scheme. Clearly, for those travel agents established in
a Member State which already requires the Special
Scheme to be used, there would be no change (in this
this aspect of the scheme) but travel agents
established in a Member State which does not require
the use of the scheme would need to change the basis
of VAT accounting and the quantum of VAT payable
would change. However, we do not believe that the
effect on VAT liabilities would be uniform and we
illustrate the possible effects in Annex 3.
These illustrations use two Member States to
demonstrate what we consider to be likely outcomes.
Data to perform precise calculations in this area is not
available so we have necessarily had to rely on our
experience of the sector. The basis of our model and
the assumptions we have made are set out in Annex 3.
The purpose of the illustrations is to show the effect of
the adoption of the Special Scheme on VAT revenue
generated. Our analysis aims to show possible effects
on the payments of VAT due from the suppliers of the
wholesale services and takes no account of the VAT
due from the primary suppliers (i.e. the hotels,
restaurants etc) or from any re-supplier of the travel
facilities (e.g. a B2C supplier such as a tour operator).
We have the used the UK and one other member State
(“MS2”) to illustrate the effects. MS2 is intended to
represent generally those Member States which do not
include wholesale supplies in the Special Scheme. The
UK, which also does not require the use of the Special
Scheme, is considered to be in a different situation to
many in terms of the revenue effects due to the high
use of the standard rate in the UK on travel and
tourism services when supplied under the normal rules.
The purpose of the illustrations is therefore to show
how the revenue effect of the application of the Special
Scheme by all Member States would not be uniform.
In the model we have adopted, application of the
Special Scheme in MS2 would see VAT payable by
DMCs on inbound travel to that Member State increase
by nearly 49%. In contrast, the same change in the UK
would see revenue fall by a little over 1%.
In many Member States (as represented by MS2 in the
illustrations), many of the services which are
purchased and supplied by a DMC are eligible for a
reduced rate. Where the Special Scheme applies, the
margin is taxed at the standard rate and therefore
taxation of the value added, or margin, is at a higher
rate under the Special Scheme than is due when
applying the normal rules. The Special Scheme also
allows a deduction in calculating the margin for costs
which are not subject to VAT, i.e. costs on which input
tax deduction is not possible under the normal rules. In
itself, this feature reduces the VAT payable under the
Special Scheme but in the MS2 model this effect is
outweighed by the rate differential and hence the
increase in revenue when the Special Scheme is
adopted.
In the UK, however, the same rate (20%) is applied to
the margin and the majority of the component parts of
the services provided and therefore the effect of the
application of the Special Scheme is less pronounced.
There is an increase in VAT payable on those services
subject to VAT at a rate lower than the standard rate
but this accounts for a relatively small part of the
services modelled. There is also the effect of the
inclusion of costs in calculating the margin on which no
input tax is incurred. The effect of this in the UK
illustration is largely to counter the effect of the
application of the standard rate to the full margin and
90
hence there is relatively little difference between the
revenue generated by the normal rules and that due
under the Special Scheme. Given the greater use of
the reduced rate for travel and tourism related services
generally in Member States other than the UK, we
believe it is likely that the adoption of the Special
Scheme by those Member States which currently do
not apply it to wholesale supplies would create an
increase in VAT revenue.
To allow for a comparison, both illustrations adopt the
multiple supply approach to calculate output tax
payable on the supply of packages. In reality, however,
the use of the single supply approach by some
Member States complicates further the identification of
the revenue effect of the adoption by all Member
States of the Special Scheme for wholesale supplies.
We should also consider the effect on revenue where
the wholesale supplies are made in relation to travel
consumed in a Member State which does adopt the
Special Scheme. If all wholesale supplies of travel in
such a Member State were made by a DMC
established in that State, the uniform adoption of the
Special Scheme for wholesale supplies would have no
effect. However, we do not think that this would be the
case. It is far more likely that a part of the services
involved would be supplied by DMCs established
elsewhere. To the extent that the services are supplied
by DMCs established in a Member State which does
not currently require the use of the Special Scheme,
adoption of the CJEU decision would generate
additional revenue.
6.8 The proper treatment of a
“package”
Where the conditions are satisfied for the application of
the Special Scheme, the treatment of a “package” is
clear. However, the analysis that follows considers the
effect of the application of “normal” VAT and therefore
we need to address the status of a package, i.e. a
combination of two or more services, particularly in the
context of single or multiple supply. As we describe in
section 5.5.7.6, the classification of a package as a
single or multiple supply has a significant bearing on
the VAT consequences of the supply where the
Special Scheme does not apply and is a significant
contributory factor in the creation of differing VAT
outcomes.
It is important that there is consensus on the
interpretation of a package if harmonisation and
equality of treatment are to be achieved (to the extent
the Special Scheme might not apply in future).
However, at present, we understand that Member
States apply one of three approaches in determining
the proper treatment of a package where the Special
Scheme is not applied. These are described at section
5.5.7.3 and outlined here for ease of reference.
1 The multiple supply approach, i.e. treat the
package as two or more separate supplies, identify
the supplies involved, attribute a value to each part
and tax each part accordingly.
194
Under Article 44 of the VAT Directive
2 The single supply approach, of which there are two
variants:
a. The predominant supply approach, i.e. identify
the main item within the package and the
treatment of the single supply then depends
wholly on the rules applicable to that main
item.
b. The “general rule” approach, i.e. subject to
certain tests, a package is a single supply
taxed where the client is established using the
reverse charge,
194
where the client is a
taxable person.
The CJEU has held
195
that the approach to take is as
follows:
“In this respect, taking into account,
first,…… that every supply of a service must
normally be regarded as distinct and
independent and second, that a supply
which comprises a single service from an
economic point of view should not be
artificially split, so as not to distort the
functioning of the VAT system, the essential
features of the transaction must be
ascertained in order to determine whether
the taxable person is supplying the
customer, being a typical customer, with
several distinct principal services or with a
single service.
There is a single supply in particular in
cases where one or more elements are to
be regarded as constituting the principal
service, whilst one or more elements are to
be regarded, by contrast, as ancillary
services which share the tax treatment of
the principal service. A service must be
regarded as ancillary to a principal service if
it does not constitute for customers an aim
in itself, but a means of better enjoying the
principal service supplied.”
It follows that a single supply exists where either the
combination of goods and services comprises a single
supply from an economic point of view which it would
be artificial to split or where there is a predominant
service to which other services are ancillary.
Where a single supply does exist, the circumstances of
the supply must be considered in order to identify its
predominant elements from the viewpoint of a typical
consumer. Both qualitative and quantitative
considerations should be taken into account when
doing so.
The CJEU has consistently held that where a single
supply exists, it takes its treatment from the
predominant element of that supply. It follows that the
place of supply and rate of VAT to be applied are
determined by the nature of the predominant element.
On this interpretation, a package of travel facilities
comprising, for example, accommodation, transfers
and catering would be subject to VAT as a supply of
accommodation if the circumstances demonstrated
that it should be treated as a single supply and
195
Card Protection Plan v C&E Commrs (Case C-349/96)
91
accommodation was the predominant element within
the package. A question exists, however, on how to
treat a package considered to be a single supply where
the package is consumed in two or more countries.
As described above, an alternative interpretation of a
single supply is what we have termed the “general rule
approach”. In the context of a travel package, this sees
the combination of various travel services to form a
single, indivisible supply from an economic point of
view that it would be artificial to split and in which no
one service type is predominant. The supply is then
considered to fall within the general place of supply
rule.
196
It is necessary to look at the circumstances of
individual transactions to determine which of the above
approaches should be adopted. Therefore we do not
make any judgment on which should be adopted and,
where appropriate, consider the effects of each in the
analysis that follows. We would note, however, that it
would assist greatly in the achievement of a
harmonised position if detailed guidance to be followed
by all Member States and taxable persons could be
made available.
6.9 Mini One Stop Shop (MOSS)
From 1 January 2015, the place of supply of
telecommunications, broadcasting and electronic
(“TBE”) services to non-taxable persons (i.e. B2C
supplies) changed from the place of establishment of
the supplier to the place where the customer is
established, has a permanent address or usually
resides. This change applied to both EU and third-
country suppliers.
Alongside the change in the place of supply rules, the
Mini One Stop Shop (“MOSS”) was introduced with
effect from 1 January 2015 as an optional scheme
which allows businesses that make B2C supplies of
TBE services in Member States in which they do not
have an establishment to account for the VAT due on
those supplies via an electronic web-portal in a chosen
single Member State. This is a simplification measure
to reduce the administrative burden and cost to
businesses making such supplies. Otherwise they
would be obliged to register for VAT, file returns and
make payments in each Member State where they
make such supplies.
The MOSS scheme’s legislative basis is in the VAT
Directive. In addition, Commission Implementing
Regulation (EU) No 815/2012 as well as Council
Regulation (EU) No 904/2010 and Council Regulation
(EU) No 967/2012 (amending the VAT Implementing
Regulation) deal with how the scheme should function
in practice. The Commission Services have also
released explanatory notes and guidance
197
which,
while they are not legally binding, provide practical and
informal guidance about how the provisions should be
applied.
Within MOSS, there are distinct Union and non-Union
schemes. The former is for taxable persons that have
an establishment within the EU but are making
supplies to Member States in which they are not
196
Article 44 of the VAT Directive for supplies to taxable persons and
Article 45 for supplies to non-taxable persons
established. The non-Union scheme is for taxable
persons that have no establishment within the EU. The
rules are almost identical for both schemes, the only
difference being the criteria used to determine where
the business can register for MOSS. In this regard,
where a supplier of TBE services has no establishment
in the EU and is not registered for VAT in any Member
State, the supplier can choose to register for MOSS in
any Member State through the non-Union scheme.
Once registered for MOSS, the supplier is required to
account quarterly for VAT due on all B2C supplies of
TBE services by electronically sending a VAT MOSS
return and payment to the tax authority where it has
chosen to register. These returns, along with the VAT
paid, are then transmitted by this tax authority to the
appropriate Member State(s) of consumption.
VAT MOSS registration is optional so businesses
supplying TBE services could alternatively choose to
register for and account for VAT in every Member
State in which they supply TBE services to non-taxable
customers.
It is not possible to reclaim input tax via the MOSS
scheme VAT return. Where a taxable person has an
entitlement to reclaim tax incurred in a Member State
in which it is not VAT registered, this should be done
by way of an Electronic VAT Refund (EVR) claim or a
13th Directive claim.
Certain records are required to be kept by the supplier
of TBE services under the MOSS scheme, as laid out
in Article 63c of the VAT Implementing Regulation.
These include general information such as the Member
State of consumption of the supply, the type of supply,
the date of the supply and the VAT payable, but also
more specific information, such as details of any
payments on account and information used to
determine the place where the customer is established,
has a permanent address or usually resides. The
records relating to MOSS returns must be retained for
a period of ten years from the end of the year in which
the supply was made.
The scheme is generally perceived as providing a
reasonable solution to the tax collection issues
associated with the growth of the digital economy,
particularly for B2C supplies from outside the
jurisdiction. Indeed it has been copied by non-EU tax
administrations (South Africa, Norway, etc.) who
address similar problems. It is clear that the
Commission has reasonable ambitions to make greater
use of the MOSS model. However, there are no plans
to extend the MOSS to cover B2B supplies and to
allow for the recovery of input tax.
6.10 The merits of a margin based
Special Scheme
Our starting point is an assessment of the extent to
which the current rules, as interpreted by the CJEU,
are consistent with the destination principle.
197
https://ec.europa.eu/taxation_customs/business/vat/commission-
guidelines_en
92
The destination principle requires that VAT accrues to
the Member State of consumption in accordance with
the rules in force in that Member State.
As discussed elsewhere in this study, the effect of the
current Special Scheme can be summarised as
follows:
VAT on services purchased by the travel agent
accrues to the Member State in which the supplier
has declared the VAT;
VAT payable on the margin accrues to the
Member State (if any) in which the travel agent is
established;
There is no VAT on the margin whenever the
destination of the travel is outside of the EU;
Any in-house supplies supplied by the travel agent
are taxed in accordance with the normal place of
supply rules.
The services purchased by the travel agent are taxed
in accordance with the rules of the Member State in
which the supplier believes the supply to be made, i.e.
often the Member State in which the travel takes place,
and VAT accrues to that Member State as the travel
agent is unable to deduct this input tax. Therefore, we
can conclude that the effect of the current Special
Scheme is in line with the destination principle to the
extent of the treatment of the bought-in services and
assuming that the place of supply rules applied by the
suppliers of those services are consistent with the
destination principle.
For the service of the travel agent himself, we need to
consider the nature of the travel agent’s service and
where that service is consumed. We consider that
there are two possibilities: Scenario A, where the travel
agent’s service could be seen as the creation of a
travel package (where applicable) and generally the
management of the provision of services to the
customer in return for the margin generated. In
Scenario B, the travel agent could be seen to supply
the travel facilities itself at a marked up price.
The Special Scheme applies to travel agents who deal
with customers in their own name.
198
It is clear from
the VAT Directive
199
that a person acting in his own
name who takes part in a supply of services shall be
deemed to have received and supplied those services
himself. This suggests that a travel agent dealing with
customers in his own name should similarly be
deemed to receive the supply of the travel facilities and
to supply those travel facilities to his client. However,
where the “transactions entrusted by the travel agent to
other taxable persons” are performed outside the EU,
the travel agent’s services shall be treated as an
intermediary activity exempted pursuant to Article
153.
200
Article 153 exempts (with credit for input tax)
intermediary services in relation to transactions carried
out outside the EU. As the travel agent within the
Special Scheme is considered to be an intermediary
when selling services performed outside the EU, it
198
Article 44 of the VAT Directive for supplies to taxable persons and
Article 45 for supplies to non-taxable persons
199
Article 28 of the VAT Directive
does not seem unreasonable that he is also an
intermediary when selling “EU services”.
As there is uncertainty about this point, we consider it
necessary to ask ourselves where the service in both
scenarios is consumed or enjoyed by the customer.
As above, the Special Scheme ensures that the margin
value is taxed in the Member State of the travel agent’s
establishment. In the first interpretation, namely that
the travel agent supplies its own separate service, we
consider that this is not a proper implementation of the
destination principle. Rather, it can be seen as
consistent with the origin principle.
We should also note that, although the current general
rule for the place of supply of services to a non-
business customer is the Member State in which the
supplier is established,
201
in practice nearly all of
these services are taxed in the Member State of
consumption and in travel services, like
accommodation, catering and the hire of a means of
transport.
It may be concluded that the service of the travel agent
should be subject to VAT in the Member State in which
the customer consumes service to be consistent with
the destination principle. What we need to address is
where the customer should be considered to consume
the service and we will return to this point below.
In the second interpretation, the travel agent is seen to
supply the travel facilities itself. As we discussed,
application of the destination principle would require
VAT on the travel facilities to accrue to the Member
State of consumption. The current taxation of the
margin in the Member State of establishment is
therefore not consistent with the destination principle.
As above, in-house supplies are not subject to VAT on
the margin only and are subject to the normal rules on
place of supply, valuation and input tax deduction. It
follows that the Special Scheme does not affect the
application of the normal VAT provisions in the case of
in-house supplies. The Special Scheme in this regard
is therefore consistent with the destination principle to
the extent that the normal place of supply rules
themselves properly identify the Member State of
consumption.
We can conclude, therefore, that the current Special
Scheme is partly compliant with the destination
principle. Given that in most circumstances the value of
bought-in services is likely to be considerably more
than the margin, it can be seen that most of the VAT
revenue generated within the scheme accrues to the
Member State of destination (due to the non-
deductibility of the VAT and again to the extent that the
normal place of supply rules are consistent with the
destination principle).
However we consider that the Special Scheme is not
fully compliant with the destination principle and that
the VAT generated by travel agents’ activities (i.e. the
VAT due on the margin) is consistent with the origin
principle which, as we have seen, is not the basis on
which the EU VAT system will develop. We need to
200
Article 308 of the VAT Directive
201
Article 45 of the VAT Directive
93
consider how the Special Scheme may be made fully
compliant with the destination principle and in the
section below on the operation of a future Special
Scheme we will consider two alternative ways in which
the travel agent’s service can be taxed and consider
the merits of such approaches in the context of the
destination principle and also the other objectives of
reform.
Nonetheless, it might be concluded that the addition of
extra complexity in the form of a need to allocate the
margin to the Member States in which customers are
resident, and declare VAT separately to multiple
Member States, would achieve little in terms of the
overall distribution of VAT revenue between the
Member States. However, as we cover later, the
continuation of the current place of supply rules would
not assist with the desire to achieve equality between
EU and third country travel agents, although this is not
necessarily an insurmountable obstacle.
6.11 What would happen if there
was no margin scheme?
We should also consider what the application of the
normal rules on place of supply, valuation and input tax
deduction would involve for travel agents.
There seems little doubt that application of a
destination principle would see the place of supply of
many, if not all, of the services typically provided by
travel agents as being in the Member State of
consumption. It is considered that this would be the
effect of the application of the current place of supply
rules for services such as accommodation, catering
and the hire of a means of transport. In the case of
passenger transport, it might be said that the current
rules are not compliant with the destination principle as
the passenger transport is taxed within each Member
State in which the transport takes place.
202
Our
experience is also, for example, that the services of a
guide or similar are often not subject to VAT in the
Member State in which the service is performed but
rather are subject to VAT where the supplier is
established (or where the client is established in the
case of B2B supplies).
Nevertheless, whilst there are certainly issues of
complexity to be resolved in terms of the application of
the existing place of supply rules, it is clear that the
destination principle would involve the payment of VAT
(if a Special Scheme ceased to exist) in the Member
State of consumption.
We need to consider what the normal rules on place of
supply, valuation and input tax deduction would mean
for travel agents. A first point to make is that the
application of normal VAT would, for many travel
agents, result in a lower payment of VAT. Clearly,
there are a number of variables which would need to
be taken into account to determine the position for any
one travel agent but the application of normal VAT
would mean that the rate of VAT payable by the travel
agent would often be a local reduced rate as opposed
to the standard rate due currently on the full value of
202
The Commission has undertaken a study on the effects of possible
changes to the place of supply of passenger transport but we
understand that further work on this has been deferred
the margin (to the extent that the margin is made on
travel facilities consumed within the EU). This reflects
the existence of reduced rates available in many
Member States on services such as accommodation,
transport and catering. A simple example helps to
illustrate this. A travel agent sells a holiday comprising
a flight, accommodation and car hire. The standard
rate in the Member State of the travel agent (MS1) is
20%. The flight is an international flight and is exempt
(with credit) whilst the VAT rates on the other services
in the Member State in which the holiday is enjoyed
(MS2) are 10% for the accommodation and 20% for
the car hire. The costs are:
Fig. 6a
(€)
Flight
500
Accommodation
700 + VAT of 70
Car Hire
200 + VAT of 40
Total
1,400 + VAT of 110
The holiday is sold for 1,700
Under the Special Scheme, the VAT due is €190 x 1/6
= €31.66. VAT revenue of €110 (the non-deductible
input tax) accrues to MS2 and €31.66 to MS1. The
total revenue is €141.66.
If normal VAT is applied, the travel agent would be
required to register in MS2 (subject to the treatment
adopted for the package). The input tax of €110 could
then be deducted and output tax due would be
€117.75.
203
On this basis, total revenue generated has
fallen. There has also been a reallocation of revenue:
MS2 sees a modest increase but MS1 loses all
revenue.
In order to account for VAT in such a regime, the travel
agent would require a full understanding of the rules
applied in each Member State involved. This would
require the travel agent to appreciate Member States’
varying interpretations of certain types of service, in
terms of the place of supply of that service, and to
identify the appropriate rate of VAT to be applied in the
Member State of supply to each supply made in that
State.
Furthermore, travel agents would need to understand,
in the case of packages supplied, whether the supply is
considered to be a single supply or a multiple supply
as determined by the Member State of supply.
204
Furthermore, as we have seen above, where a single
supply exists, it is possible to apply two differing
interpretations to the way in which the single supply
should be treated. Travel agents supplying identical
packaged services in a number of Member States
could, therefore, be faced with the need to implement
accounting systems which recognise the differing
203
Calculated using a multiple supply approach: (€1,700 x 5/14 x 0%) +
(€1,700 x 7/14 x 10/110) + (€1,700 x 2/14 x 20/120)
204
See section 5.5.7.3
94
treatments of the package as interpreted by the
Member States involved.
Given the varying interpretations applied by Member
States to packages, i.e. whether they are single or
multiple supplies and, where a single supply exists,
how it should be taxed, we foresee difficulties with
double or non-taxation in certain circumstances, unless
it is possible to reach agreement on a common
approach to the treatment of packages to ensure
harmonisation in this important area. The resultant
complexity and multiplicity of compliance obligations
are a good illustration of why the Special Scheme was
considered necessary.
Where a multiple supply exists, the travel agent would
need to identify the appropriate value to be applied to
each supply made and identify the appropriate rate of
VAT to be paid on each supply. This is the approach
illustrated above. Where the package takes place in
two or more different countries, there would be
considerable complexity in identifying the correct VAT
treatment.
Where it is considered that a package comprises a
single supply, the circumstances may dictate either a
predominant element approach or the application of
the general place of supply rule. Under the
predominant supply approach, the full value of the
supply would be taxed in accordance with the rules for
that predominant item. If it is considered that there is
no predominant element, then it seems appropriate to
see the supply as falling within Article 44 of the VAT
Directive (supplies to taxable persons) or Article 45
(supplies to non-taxable persons).
Where Article 44 applies, the travel agent would
charge VAT at the standard rate in force in the Member
State in which the travel agent is established if the
client is established in the same Member State. Where
the client is established elsewhere, no VAT would be
charged by the travel agent but the client would
declare local VAT using the reverse charge
mechanism if established in another Member State
(and assuming the rules in that Member State
identified the supply as falling within Article 44).
Where Article 45 applies, the place of supply would be
the travel agent’s Member State of establishment and
VAT at the standard rate would be due regardless of
the location of the holiday or of the client, unless a
relief was available under that Member State’s use and
enjoyment rules.
205
It is, of course, the case currently that travel agents are
unable to deduct input tax incurred on travel facilities to
be supplied within the Special Scheme. Were the
normal VAT rules to be applied, of course this block on
the deduction of input tax would not exist and travel
agents would need to be in a position to offset local
input tax against local output tax.
We should consider how the application of “normal”
VAT complies with the objectives we have identified,
as set out in section 6.4, in assessing the merits of
reform options.
205
Article 59a of the VAT Directive
206
Article 59a(b) of the VAT Directive
First, we believe that the need to introduce the
principle of taxation in the Member State of destination
would be satisfied, provided, of course, that the place
of supply rules currently in place for the travel facilities
provided by the travel agent are considered to be
consistent themselves with the destination principle.
Secondly, application of the normal VAT rules would
apply equally to EU and third country travel agents so
that we believe the desire for equality of treatment
would be satisfied in many circumstances if the normal
VAT rules were to replace the Special Scheme. One
situation in which equality may not be achieved is the
sale of a package considered to be a single supply to
which the Article 44/45 approach is correct. If a third
country travel agent was to sell a package falling within
Article 45, the place of supply would be the agent’s
place of establishment and no VAT would be due
unless the Member State in which the services were
consumed invoked its powers under the use and
enjoyment rules.
206
In addition, it is clear that the distortions of competition
and material issues described in this study
207
which
are created by the current rules themselves and by the
differing applications of the rules by Member States
would of course be removed if the Special Scheme
itself was abolished. Application of normal VAT should,
in principle, put a travel agent onto an equal footing
with suppliers of similar services who do not currently
fall within the scheme, for example the principal
suppliers themselves such as hotels, transport
providers and restaurants etc.
Another objective is to identify an appropriate way in
which VAT in the Member State of destination can be
collected. We will return to this point below.
However, we believe that the application of normal
VAT rules would fail a number of the objectives. First,
all reform options need to be assessed in terms of their
promotion of simplicity for business and the control of
compliance costs. Certainly in comparison to the
current operation of the Special Scheme, a move to
normal VAT rules would not promote simplicity for
business; on the contrary, we believe it is clear that it
would, for the large majority, greatly complicate their
VAT accounting. We also question whether normal
VAT rules in this sector would assist the Member
States in their control and administration of the VAT
system. One advantage for the Member States of the
Special Scheme is the automatic accrual of VAT on the
purchase of travel facilities, as the travel agent is
unable to deduct such VAT, and the payment of output
tax in just one Member State. Clearly, a move to the
application of normal VAT rules would require for many
travel agents the maintaining of multiple VAT
registrations and this would involve the Member States
themselves in greater administration.
The application of normal VAT would also introduce
the complexity of the varying approaches to the
taxation of packages, thereby increasing the scope for
further uncertainty, complexity and non-harmonisation
of approach.
207
See sections 5 and 6.7
95
We also need to consider whether the introduction of
normal VAT rules would help combat fraud and to
reduce the VAT gap. As far as the VAT gap is
concerned, obtaining the level of VAT receipts required
by the economic activity in the sector would require
many travel agents to register in multiple Member
States. If travel agents failed to do so, there would be a
resulting shortfall in VAT and therefore we believe that
a move to a complex system such as would be
required to administer normal VAT in a sector such as
the travel industry might be counter-productive in terms
of reducing the VAT gap. The application of reduced
rates by travel agents could be expected, as noted
above, to reduce the level of VAT due, thus potentially
reducing Member States’ VAT revenue. It also follows
that any travel agents with an intention to evade VAT
payments may find it easier to do so in a system
requiring multiple registrations as opposed to one
involving a single registration in the Member State of
establishment.
We have considered how travel agents could comply
with obligations towards VAT in multiple countries and
have discussed the point with travel agents themselves
and a number of representative bodies. The
overwhelming view expressed to us is that application
of normal VAT as described above would be very
difficult. This may be seen to be a powerful reason to
retain a margin based Special Scheme. The complexity
involved could discourage travel agents from selling
services in a large number of Member States and
could thereby form a barrier to the creation of a single
market in the travel sector.
As described above, one of the key objectives is that
the VAT system needs to be simpler for businesses to
use. Whilst adoption of methods such as MOSS would
assist in the compliance faced by travel agents, it is our
view that abolition of a margin based scheme and its
replacement by a system based on the application of
the normal rules on place of supply, valuation and input
tax deduction would increase considerably the
compliance burden placed on travel agents of all sizes
but it could be expected that the burden would fall
disproportionally on smaller agents who, in particular,
might see the compliance obligations as a barrier to
the sale of travel consumed in other Member States.
Such a system would also impose greater obligations
on the Member States and could increase instances of
avoidance and fraud.
Finally, we caveat this point to state that advances in
technology and the way in which more and more
taxpayer processes are becoming automated means
that perhaps in the future – say within the next 10-15
years – technological advances may well allow for a
solution of this type, however for the time being, such
tools are not yet fully developed nor available.
6.12 Exemption without credit
The derogation under Article 371 of the VAT Directive
which allowed some Member States (Denmark,
France, Ireland and the Netherlands) to continue to
exempt the services of travel agents has fallen into
disuse and is no longer used by any of the Member
208
We do not address the existing exemption for travel facilities in non-
EU destinations
States concerned. Once abandoned, the VAT Directive
does not allow for an exemption of this type to be
reactivated. We have therefore concluded that, even if
the extension of the exemption was in principle a
conceivable option, it is not realistic in practice. We
have not addressed the possibility of the introduction of
an exemption for EU suppliers of travel services (EU
destinations) in detail
208
.
In principle, exemption would remove many of the
problems associated with the current scheme.
However, whilst retaining the input tax block, it would
result in the loss of the estimated €1.9bn Special
Scheme output tax revenue.
It seems hard to justify exemption in this area and the
exemption can be said to negate an aim of raising
revenue (where blocked input tax on costs is
disregarded). In addition, the introduction of exemption
for travel agents runs the risk of creating new
distortions of competition between agents within the
exemption and suppliers (i.e. the primary suppliers –
hotels, airlines etc.) outside the exemption. We do not
think therefore that exemption should be explored
further.
6.13 The operation of a future
Special Scheme
Given the difficulties in the application of the normal
VAT rules to travel services and the effects of
exemption, we believe that there is a strong case for
the retention of a margin based simplification.
As we have seen, the Special Scheme is already
compliant with the destination principle in many
respects. The one area in which we believe change
may be needed is the place in which the margin VAT is
due.
We consider that there are three possible bases on
which the place of supply of the Special Scheme
supply might be determined:
1 The place of establishment of the travel agent;
2 The place of usual residence of the customer;
3 The Member State in which the travel services
provided are enjoyed.
The first of the above is of course the current rule and
is generally not difficult to administer in practice. We
have concluded that, to the extent of its place of supply
rule, the current scheme is not compatible with the
destination principle but that it may be treated as a
reasonable proxy for the place of the customer’s
residence. We consider, however, that it is possible to
argue that both of options 2 and 3 are compatible with
the destination principle.
If we consider the travel agent to supply a separate
service to the customer (i.e. as described in section
6.10), then it seems reasonable to conclude that the
place of consumption of that service is the place of
residence of the customer. On the other hand, if it is
considered that the travel agent is the supplier of the
underlying travel services (Scenario B), then the
96
Member State of destination should be the preferred
place of supply.
It should also be noted that options 2 and 3 above
assist in the equalisation in treatment of EU and third
country travel agents.
If the travel agent is considered to make a separate
supply, the place of supply of the travel agent’s service
would be the place in which the customer is resident if
a non-business person or is established (or has a fixed
establishment) if a taxable person. VAT would be due
in the customer’s Member State on the value of the
margin.
Supplies made to customers, resident in, or
established outside of the EU would not be subject to
EU VAT. We would also suggest that supplies to EU
persons of travel facilities consumed outside of the EU
should also be free of VAT. This can be justified by the
exemption with credit for intermediaries taking part in
transactions carried on outside the EU.
209
We believe that the same rules should apply to third
country travel agents. They would be subject to the
same place of supply rules as EU travel agents and, in
principle, therefore, would be liable to pay VAT when
selling travel facilities consumed within the EU to an
EU person.
In the name of simplicity, we suggest that a travel
agent should calculate a single margin made on all
supplies in a period (see section 6.14.3) and then
apportion the margin between the Member States
involved on the basis of the value of gross sales made
to customers in each Member State. This has the
benefit of facilitating the calculation in a relatively
straightforward way using objective, verifiable data to
assist with Member States’ auditing of the declarations
made.
We have also considered whether the declaration of
the VAT due on supplies to taxable persons might be
undertaken by the taxable person client using the
reverse charge. There are, however, two problems we
believe with this. First, travel agents would need to
disclose what is often commercially sensitive
information, namely the margin made, to the client.
Second, travel agents would need to know the final
margin at the time of supply and, within the terms of
the global calculation, the travel agent would not know
this at the time of supply. Even if a transaction by
transaction basis was used, there are circumstances in
which adjustments to the value would be required after
the time of supply which could, in theory, require the
reverse charge declarations to be adjusted several
times. We have concluded, therefore, that the reverse
charge mechanism would not be best placed in this
situation and that accordingly the responsibility to
declare the margin VAT should rest with the supplier in
all cases.
We appreciate, though, that this approach could create
new difficulties for certain travel agents. This would be
the case where, in a B2C scenario, a travel agent
supplies services to customers residing in different
jurisdictions. Examples include cruise operators selling
excursions (which often fall within the Special Scheme)
209
Article 153 of the VAT Directive
– the VAT treatment would depend on the place of
residence of the passenger buying the excursion – and
suppliers of services to tourists already in resort. An
example of the latter category could be a vendor of
sightseeing trips – again, such a supplier would need
to know the residence of each customer.
If the travel agent’s service is not a separate service
but rather the travel agent is regarded as supplying the
travel facilities itself, then, as described above,
application of the destination principle would see the
place of supply as the Member State in which the
travel facilities are consumed. The travel agent would
still be subject to VAT on the margin but the VAT would
be payable in each Member State in which travel
facilities are consumed. Once again, the VAT rate
would be determined by the Member State of supply.
This model would also see equality of treatment of EU
and third country travel agents. In both cases, VAT
would be due on the margin when selling travel
facilities consumed within the EU. However, whereas
the Member State of residence/ establishment model
would incorporate an exemption (with credit) when
selling to non-EU customers, it is difficult to see how
such a rule could be adopted in conjunction with the
Member State of destination/consumption test.
Therefore, EU and third country travel agents would be
liable to pay VAT when selling EU travel facilities
regardless of the location of the client.
For the reasons described above, we again do not
think that the reverse charge mechanism should be
used for supplies to taxable persons.
We need to consider the three place of supply tests set
out above in the context of the overall objectives as
summarised in section 6.4. The first objective is to
promote simplicity for businesses and control of
business compliance costs. We think that this
objective would best be served by option 1. Option 3
would in our opinion be the least compliant with this
objective. However, we believe that the increased
complexity and compliance associated with option 2
should be manageable for most but would require clear
guidance on identifying the place of
residence/consumption and could be justified when
looking at the wider issues arising but these points may
need to be considered in detail later.
Also, we believe that in many circumstances the
customer’s Member State of residence is the same as
the supplier’s State of establishment
210
and therefore a
switch to option 2 would in many circumstances mean
no change in the place of taxation and no resulting
change in compliance or administration, and no
significant change to the allocation of revenue to
Member States. In contrast, a change to the taxation of
the margin in the Member State of consumption of the
travel facilities would cause a significant redistribution
of VAT revenue from those Member States with a net
outflow of tourists to other Member States to those with
a net inflow.
Taking the above into account, we believe that the
retention of a Special Scheme in which the margin is
treated as consideration for a separate supply of
services by the travel agent taxable at the place of
210
See also section 6.10
97
residence of the customer is to be preferred to taxation
in the Member State in which the travel facilities
themselves are enjoyed.
As outlined above, we believe that the Special Scheme
on this revised basis could still promote simplicity for
businesses and would certainly be an easier regime to
implement than one based on the normal application of
the place of supply rules. We also believe that this
basis of a Special Scheme would assist the Member
States in their control and administration of VAT. We
do not consider this approach to be susceptible to
fraud but it would be necessary to enforce the VAT
Implementing Regulation on the identification of the
place in which a customer is resident. This measure in
itself would not do anything to reduce the VAT gap but
we believe that measures proposed elsewhere in this
report will ensure greater consistency in the application
of the Special Scheme and will assist in reducing the
VAT gap.
As discussed above we consider this approach will
introduce the destination principle to the taxation of
travel agents’ services. As regards the way in which
VAT on the margin should be paid, we return to this
point later in section 6.16 when we consider how the
MOSS could have a role to play in the compliance
arrangements to be adopted.
Importantly, and as mentioned briefly above, a switch
in place of supply to the customer’s Member State will
assist in the equality of treatment between the EU and
third country suppliers. The lack of equality at the
moment is created by the place of establishment place
of supply. Clearly, third country travel agents have no
EU place of establishment and accordingly there is no
place at which the margin VAT becomes payable.
Either of options 2 or 3 above would ensure that the
same rule applies to EU and third country travel
agents.
The above points can be seen in the following
example:
.
Fig. 6b
The above illustrates the creation and sale of a
package holiday by a travel agent established in MS1.
The travel agent purchases services from a hotel,
airline, car-hire company and transfer operator.
All services (except the flight) are consumed wholly
within MS2 where there is a standard rate of 20% and
a reduced rate of 10% which applies to the hotel and
the transfer. The cost of the flight is not subject to VAT.
The total purchase cost is €1,100 including VAT of
€85. The holiday is sold for €1,250 to customers in
both MS1 and MS3.
We can use the above to illustrate the points described
in the analysis above.
The travel agent is purchasing travel facilities from
other taxable persons, providing those facilities to
customers and dealing with those customers in his own
98
name. The Special Scheme therefore is applicable and
input VAT can therefore not be deducted.
As discussed above, there are three bases on which
the margin might be taxed: the current Member State
of establishment basis, the Member Sate in which the
customer is resident and the member State in which
the travel facilities are enjoyed.
The current Member State of establishment basis
would see the travel agent pay VAT on the margin
wholly in MS1. The margin on each holiday sold is
€150 and accordingly VAT of €25 would accrue to MS1
on each sale of a holiday. MS2 would enjoy revenue of
€85 (the input tax which the travel agent cannot
deduct) and MS1 has the €25 revenue.
The second basis is to tax the margin in the Member
State in which the customer resides. €25 therefore
would accrue to MS1 whenever a holiday is sold to a
customer living in MS1 and the same would be paid to
MS3 when a customer in that Member State purchases
the holiday. The travel agent would need to ensure that
it had the means to declare VAT payable to both MS1
and MS3. MOSS may be the solution for this
requirement.
MS2 still has the revenue of €85 on the non-deductible
input tax. The total revenue is still €110, the benefit of
the €25 payable on the margin being decided by the
place of residence of the customer.
The above approach may suggest that VAT should be
calculated separately for each transaction, i.e. adopting
the position of the CJEU in the Kingdom of Spain case.
However, as we discuss elsewhere in this report
211
we
believe that the total margin could be apportioned to
the Member States involved based on the gross value
of sales to customers living in the Member States
involved. Therefore, if in a period, the travel agent sold
holidays for a total price of €125,000 to customers in
MS1 and for €25,000 to customers in MS3, 83.33% of
the total margin would be allocated to MS1 and taxed
there whilst 16.67% would be taxed in MS3.
The third basis would see the margin as taxable in the
Member State in which the travel facilities are enjoyed.
If the margin is considered to be standard rated,
margin VAT of €25 would belong to MS2. All the
revenue of €110 would accrue to MS2.
However, as discussed in detail below,
212
the rate of
VAT due on the margin could also reflect the rates of
VAT due on the services involved outside of the
Special Scheme. If this approach was adopted, the
VAT due on the margin of €150 would be €11.58.
213
The revenue for MS2 would now be €96.58. The
margin of the travel agent would be increased
accordingly.
Finally, we need to consider the requirement to remove
distortions of competition and, as mentioned above, we
will consider measures elsewhere to address this point.
211
See section 6.13
212
See section 6.14.4
213
The input tax of €85 represents 7.72% of the VAT-inclusive
purchase cost. The VAT due can (in this situation) be calculated as the
margin of €150 x 7.72%. It should be noted that this approach would
6.14 The nature of the future
Special Scheme
We have concluded that there are good reasons to
retain a margin based scheme. Therefore, we need to
consider the circumstances in which it should apply.
The following points apply whichever place of supply is
adopted for the future scheme.
The current conditions for the application of the
scheme are the following:
1 The travel agent must deal with customers in his
own name and not solely as an intermediary;
2 There must be a provision of travel facilities; and
3 The travel agent must use supplies of goods or
services provided by other taxable persons.
We do not believe that any changes to the third
condition are needed although it should be pointed out
that there is no requirement that the supply to the
travel agent is made by a VAT registered person – an
unregistered person can be a taxable person and any
services acquired from such a person should be
eligible for the scheme.
We do believe that increased certainty and consistency
in how the scheme operates in practice (through the
use of the Implementing Regulations
214
reinforced by
Guidelines or Interpretative Notes from the
Commission Services) on the meaning of dealing with
customers in one’s own name and solely as an
intermediary could assist in promoting greater
consistency in the scope of the scheme.
Definition of travel facilities
We have identified that there is considerable variation
in the interpretation applied by Member States to the
meaning of “travel facilities”. This concept is
fundamental to the operation of the Special Scheme
and it can be seen that distortions of competition can
exist due to the differences in application.
We believe it is essential to define this term more
clearly if the current lack of harmonisation and scope
for distortions of competition are to be removed and we
would advocate a list of the services which it is
considered should be included in the Special Scheme.
Such a list could be included in the VAT Implementing
Regulation.
We highlighted the treatment of car hire in section
5.5.11.2. The same is true of the services of a guide
i.e. some Member States consider this to be a travel
facility, others do not and this causes uncertainty and
can create double taxation or non-taxation.
A wide interpretation of the meaning of travel facility
would promote both the simplification and allocation of
revenue objectives of the current scheme. We support
the finding of the CJEU in the Minerva Kulturreisen
case
215
that services which in themselves are not
travel facilities (in that case opera tickets) should be
not be correct if some of the supplies were of a taxable nature but no
VAT was charged by the supplier.
214
Council Implementing Regulation 282/2011
215
Case C-31/10
99
included in the Special Scheme when sold in
combination with one or more services which are
considered to be travel facilities, provided the second
service is of a nature that it could ordinarily be
expected to be used in such a way. Again here, it could
be achieved through regulation and soft law
instruments. A wide interpretation would also help with
the application of the destination principle and would
reduce administrative burdens for travel agents.
Scope of the Special Scheme
We believe the decision of the CJEU in the Van Ginkel
case
216
should be adopted throughout the EU. The
supply by a travel agent of a single travel facility should
(subject to the agreed conditions) always be within the
Special Scheme. We believe that the exclusion of
single travel facilities runs counter to that decision and
also negates the simplification of the Special
Scheme.
217
The benefits of the scheme would
therefore be promoted by the inclusion of single travel
facilities within the scheme.
We also believe that the duration of the service should
play no part in determining if the Special Scheme
applies.
We believe that these points are consistent with the
objectives of the current Special Scheme notably that
the inclusion of a single facility is consistent with the
simplicity objective and helps to reduce administrative
burdens. They are also consistent with the destination
principle.
Nature of the calculation of VAT due
Many Member States allow (or require) the calculation
of VAT due by reference to a single calculation
covering all sales and related costs made within a
period. The ability to do this is welcomed by many
taxpayers and it is thought the approach also assists
tax authorities in their control of the declarations made
by travel agents.
In the Kingdom of Spain case,
218
the CJEU held that all
travel agents should calculate VAT payable separately
for each supply within the scheme. We have
concluded
219
that this required basis of the calculation
is a material issue arising from the current scheme
rules and that there would be merits in amending the
VAT Directive to ensure that travel agents have the
ability to calculate VAT due globally over a period.
We are aware that the CJEU will consider certain
practical implications of the application of the Kingdom
of Spain judgment.
220
We have identified a number of practical difficulties
associated with the calculation of VAT due separately
on each transaction. Examples are set out below.
The final margin is often not known at the time the
service is provided. The final cost of services
purchased for re-sale is often not known until
much later once, for example, the values of
216
Case C-163/91
217
Although support for such an exclusion may be found in the Star
Coaches (Case C-220/11) which seems to contradict the Van Ginkel
decision but we believe the Van Ginkel decision is more consistent
with the aims of the Special Scheme
218
Case C-189/11
periodic rebates, override commissions etc. are
known. If the margin had to be estimated at the
time of sale, the VAT paid would later need to be
adjusted as information became available on
rebates etc.
Under normal tax point rules, it would also be
necessary to consider the VAT due on deposits
and stage payments. Given that VAT is payable
on the margin, and not on the full selling price, we
believe that it would be logical to estimate the
margin included within such a deposit or stage
payment (and then to make a final adjusting
payment when the actual margin is known).
221
Where in-house supplies are sold together with
services within the Special Scheme, it may be
necessary to identify the cost of the in-house
services so that the values of the margin and of
the in-house supplies can be identified (i.e. where
the market value of the in-house supplies cannot
be identified as per the MyTravel decision).
222
The cost of in-house supplies often depends on
the measurement of costs over a longer period
(e.g. depreciation, leasing costs etc.) making it
very difficult to identify values accurately at the
time services are provided.
In addition, if VAT was calculated on a supply by
supply basis, it would be difficult to allow a credit for
any negative margins made on individual supplies.
Where a global calculation is performed over a period,
any negative margins are typically taken into account
when calculating the margin and accordingly credit is
given. We believe it is appropriate that such a credit
should be allowed: if a travel agent were accounting
under normal VAT and a loss was made on an
individual supply, it could be expected that a credit
would be allowed in the form of the offsetting of a
larger sum of input tax than was paid by way of output
tax.
We believe it would be consistent with the
simplification aim of the Special Scheme that the
calculation should not be made difficult to administer.
Acceptance that the calculation should be performed to
cover all supplies and associated costs in a period
would assist with the Commission’s aim of promoting
greater simplicity for businesses. We believe that
subsidiarity requires that it should be left to the
discretion of Member States to decide what the period
of assessment should be, but would suggest that
anything between three and twelve months is
appropriate. Travel agents may also be granted the
possibility to carry out separate calculations for
different parts or divisions of the business or for
different holiday seasons.
The calculation of VAT payable on a global basis does
not affect the satisfaction of the destination principle.
Nor does it affect the allocation of revenue between
Member States. It is immaterial as regards the existing
distortions of competition and certainly does not create
219
See section 5.2
220
Skarpa Travel (Case C-422/17)
221
We understand that this is one of the issues to be considered by the
CJEU in the Skarpa Travel case
222
Case C-291/03
100
any new distortion. It affects EU and third country
travel agents equally.
In some circumstances, however, it is possible that
travel agents (for example in the MICE sector where
the number of transactions tends to be smaller) might
prefer a sale by sale analysis. Therefore, it may be
appropriate for Member States to allow a sale by sale
basis as an option of a simplified, global calculation.
Taxation of the margin at a reduced
rate
One of the effects of the Special Scheme we have
identified is the taxation of the margin at the standard
rate regardless of the rate applied to the individual
travel facilities when supplied outside of the scheme.
We have therefore considered whether it is appropriate
to tax the margin at a reduced rate, albeit this not being
currently allowed by the VAT Directive, to reflect the
reliefs available in many Member States for many
travel facilities.
If a travel agent is seen to supply the travel facilities
themselves (i.e. option 3 as described in section 6.14),
then we think there is a strong argument that the rate
applied to the margin allocated to each Member State
should reflect the rates applied in that Member State to
the services supplied. However, as described above,
this place of supply option is already complex without
the additional need to work out an apportionment of
each Member State’s margin and apply different rates
of VAT to parts of the margin. To simplify matters, it
may be possible to agree a general reduced rate to
apply to all Member States or perhaps a reduced rate
applicable to individual Member States to reflect the
mix of rates in that State. The availability of a reduced
rate would clearly reduce VAT liabilities of travel
agents but, even in its simplest form, the application of
a reduced rate, in the taxation in the Member State of
consumption of the travel facility itself, would introduce
considerable new complexity. It is difficult to reconcile
this measure with the need for simplicity and to avoid
undue administrative burdens.
Both of the other place of supply models, i.e.
continuation of the current basis or adoption of the
place of residence test, are based on the view that the
travel agent supplies its own separate services.
Accordingly, it is more difficult to support the use of
anything other than the standard rate for the margin,
except in the former case where the travel facility is
consumed outside of the EU or in the latter case where
the customer is resident outside the EU or the service
is consumed outside the EU.
Application of the Special Scheme to
supplies to taxable persons
A key consideration in the operation of the Special
Scheme is its applicability to the supply of services to a
business customer. We now consider how B2B
transactions may be dealt with within the scheme in
future.
223
Article 168 of the VAT Directive
224
Case C-189/11(see section 3.4)
225
See section 3.4.9
It is clear that one of the effects of the current Special
Scheme is the loss of input tax deduction. The travel
agent is unable to recover input tax on the costs of
goods and services supplied within the scheme and
therefore needs to pass on VAT inclusive costs to the
customer. Where the customer is a final consumer, this
helps to ensure that VAT is collected on the full value
paid by the final consumer. However, VAT is intended
to be neutral in so far as it applies to taxable persons
(except of course for specified circumstances in which
the legislation deviates from this broad principle).
The general rules of the VAT Directive establish the
right of a taxable person to deduct input tax incurred on
goods and services used for the purposes of his taxed
transactions.
223
One effect of the Special Scheme,
however, is that it prevents recovery of input tax by a
business (taxable person) client of a travel agent. We
have seen above the problems which in particular exist
in the TMC and MICE sectors where business clients
are unable to recover input tax when purchasing
services from suppliers falling within the Special
Scheme. Amongst the effects of this has been the
adoption of intermediary models by suppliers who
would otherwise not have traded as intermediaries.
In the Kingdom of Spain case,
224
the Advocate General
opined that supplies to business clients should be
included in the current Special Scheme but noted that
this was the scheme’s “most salient drawback”.
225
In the light of our experiences of the effects of the
scheme, we believe it is of great importance to
consider how the Special Scheme might work so as to
allow business clients a deduction of input tax and to
avoid the difficulties faced by travel agents selling to
business clients.
The combined effect of irrecoverable input tax and
irrecoverable Special Scheme output tax is indicatively
estimated at circa €1.44bn across the EU. Excluding all
B2B supplies from the scheme would remove this VAT
cost for businesses and would reduce EU VAT
revenues by a similar amount, recognising that
revenue would still be generated on travel purchased
by businesses in one of the exempt sectors.
It may be appropriate, however, to draw a distinction
between supplies of services made to a business client
where the final consumer is a business and those
where the final consumer is a private person. In the
TMC and MICE sectors, the final consumer typically is
a business and costs incurred are cost components of
the supplies made by that final business consumer. In
the DMC sector, however, the final purchaser is often a
non-business person and protecting the right to deduct
input tax in such circumstances might be seen as less
important. We will return to these points below.
We also need to consider the place of supply if the
Special Scheme is applied to supplies made to a
business client. We discussed above
226
the possibility
of either the customer’s place of residence or the place
of consumption of the travel facilities themselves as the
Special Scheme place of supply and we need to
226
See section 6.13
101
consider both approaches in the context of supplies to
taxable persons.
We have discussed
227
benefits of the use of the
customer’s usual place of residence as the Special
Scheme place of supply if the travel agent is
considered to supply a separate service to the
customer and that we believe this helps to identify the
place of consumption of the travel agent’s service
where the customer is a private person. The question
arises whether the same approach would work for
supplies to taxable persons? We know that the general
rule for the supply of services to a business client is to
tax the service at the place of establishment of the
client.
228
It would be consistent therefore with the
existing EU general rule to see a travel agent’s supply
(within the Special Scheme and where the travel agent
is considered to supply his own separate service, i.e.
option 2 in section 6.13) to a business client as taxable
in the country in which the client is located, but we
need to consider if this is an appropriate result for B2B
supplies of travel facilities (in terms of satisfying the
destination principle).
We have also considered the taxation of travel agents’
services in the Member State in which the travel
facilities are consumed and we also need to assess
how this option could work for supplies to taxable
persons.
A key consideration in this section is the proper
treatment of a package of travel facilities, i.e. is the
package a multiple supply or a single supply and, if the
latter, what is the proper position to adopt.
We will consider these points in the sections below in
which we separately consider the positions of travel
agents within the TMC, MICE and DMC sectors.
6.14.5.1 TMC sector
As covered above, the business of a TMC is to arrange
for the provision of travel services to a business client.
This can be done in the TMC’s own name or as an
intermediary. The TMC has a range of agreements
with hotels, airlines etc. and manages the procurement
of the required travel business on behalf of a corporate
client.
Our work has highlighted a number of issues as far as
TMCs and the Special Scheme are concerned:
There is no possibility of deducting input tax when
the TMC deals with customers in its own name.
This often makes the TMC uncompetitive, creating
irrecoverable input tax for the client on travel
services purchased for use in the course of his
business activities and it also creates
irrecoverable VAT on the travel agent’s margin.
This can encourage business clients to purchase
services direct from principal suppliers and not to
engage the services of the TMC.
TMCs have often adopted intermediary status as a
means to overcome the problems associated with
the Special Scheme.
227
See section 6.13
228
Article 44 of the VAT Directive
Providing clients with the documentation needed
to evidence their purchase of services from
primary suppliers such as hotels is often difficult.
This can lead to the introduction of concessions
such as that adopted in the UK
229
which allows a
TMC to raise the document which clients can use
in the place of invoices raised by the primary
suppliers to support deduction of input tax.
The differing approaches of Member States to the
application of the Special Scheme to the treatment
of supplies made to business clients lead to
differing treatments of TMCs.
TMCs in third countries would enjoy a competitive
advantage over TMCs established in many
Member States if the Special Scheme rules are
interpreted not to cover third country travel
agents.
230
We have considered three ways in which the business
of TMCs might fall within the VAT system:
1 Keep the Special Scheme. This would perpetuate
the current problems but a consistent application
of the rules would at least ensure that TMCs are
treated equally by all Member States. The TMC’s
place of supply within the Special Scheme could
be either the client’s place of establishment or the
place of consumption of the travel facilities,
depending on the interpretation adopted.
2 Exclude TMC services from the Special Scheme.
The TMC would be the supplier of the travel
services and the normal rules on place of supply,
valuation and input tax deduction would then be
applicable. In particular, the place of supply of the
services supplied by the TMC would be
determined by the place of supply rule for the
service in question. Accordingly, the TMC would
apply the place of supply rules for accommodation,
passenger transport, car hire and the other
services typically supplied by a TMC.
TMCs typically organise services consumed in
multiple jurisdictions. Therefore, it could be
expected that supplies would be made in many
Member States. This could be expected to create
greater complexity and administration for the
TMCs affected. The TMC would need to identify
the rate of VAT to be applied and would also be
responsible for the deduction of input tax charged
by the principal suppliers.
3 Include TMC services in the Special Scheme but
allow an option to exclude those services from the
scheme (or alternatively exclude a TMC from the
scheme but allow for an option to include services
in the scheme).
Option 1 above would satisfy the need for simplicity
and should also assist in the control and administration
of the VAT system. It could also assist in the
application of the destination principle in this area (if
the place of supply is changed as discussed).
Changing the place of supply would also put third
country TMCs in the same position as those
229
The “billback concession”, see HM Revenue & Customs Brief 21/10
230
See section 5.5.3
102
established in the EU. This is an important point for the
reasons discussed below. However, we have seen that
the Special Scheme causes difficulties now in terms
mainly of the lack of input tax deduction and therefore
we think we should be looking for a reform solution
which overcomes the current problems without
introducing undue complexity.
Option 2 would introduce considerable complexity for
many and it is questionable whether it would satisfy the
objectives we have identified in Section 6.4. Excluding
all B2B supplies from the Special Scheme would lead
to considerable compliance difficulties for both EU and
third country travel agents, whereas the distortions and
material issues created by non-deductibility of input
tax, the varying treatments of wholesale supplies, the
differing treatments of EU and third country travel
agents and the different interpretations of travel
facilities would all be removed for B2B supplies.
It is also important to note that a number of Member
States deny deduction of input tax on certain travel
costs. Accordingly, the exclusion compulsorily of the
services of a TMC from the Special Scheme would
require a TMC to register in certain Member States
when doing so would produce no tangible benefit for
the client in terms of input tax deduction.
Third country TMCs would in principle be subject to the
same rules as EU based TMCs and, in practice, might
be required to register (from a competitive point of
view) as doing so would be the only way they could
provide clients with the means to recover input tax.
This approach therefore achieves many of the
objectives but the complexity of VAT accounting and
compliance for many would be onerous and, for this
reason, we do not think that total exclusion of B2B
supplies from the scheme satisfies the reform
objectives.
For the above reasons, we believe consideration
needs to be given to allowing an option to use the
Special Scheme. This might be framed in such a way
that a TMC (dealing with customers in his own name)
is within the Special Scheme unless the TMC already
has a VAT registration in the Member State in which
the supply would ordinarily be made and opts to
exclude the supplies from the Special Scheme. Such
an approach would facilitate the ability of TMCs to
provide clients with the right to deduct input tax but
without requiring the TMC to register in all Member
States in which the travel they provide is consumed.
TMCs would need to decide which Member States they
should register in – this would largely be determined by
the rules of deduction in the Member States and the
expectations of the TMC's clients towards input tax
deduction.
Where an option is allowed, we prefer an option to
exclude B2B supplies from the Special Scheme rather
than an option to include such supplies in the scheme.
We acknowledge that there are differing views in
respect of the reform of the Special Scheme and the
attractiveness or otherwise of optionality. Where an
option is to be allowed, we explain our preference for
an “opt-out” option in section 6.14.6.
The place of supply of the TMC’s margin where a TMC
opts for a supply to remain within the Special Scheme
would be either the place of establishment of the client
or the place of consumption of the travel facilities
depending on the approach adopted more widely in
this respect.
The above can be illustrated by the following example.
Fig. 6c
103
The above illustrates the supply of hotel
accommodation in MS1, MS2 and MS3 by a TMC
established in MS1. For ease of illustration, the VAT
rate applicable to hotel accommodation in each of the
Member States is 10% and the standard rate in each is
20%. The purchase price of the accommodation is
€100 plus VAT. The TMC’s gross selling price in each
case is €121. The TMC sells the accommodation in its
own name.
The TMC has two clients, one in MS1 and the other in
MS4.
Following the suggested approach above, the TMC
must apply the Special Scheme unless there would be
an option to apply normal VAT. The place of supply of
the accommodation supplied by the TMC in any case
in which the Special Scheme is not applied is the
Member State in which the hotel is located.
As far as the supply of the hotel in MS1 to the client in
MS1 is concerned, the TMC agrees that it will sell the
services outside the Special Scheme. It is assumed
that the TMC already has a VAT registration in its
home Member State and therefore it is in a position to
exercise the option to dis-apply the Special Scheme.
Accordingly, the TMC deducts the input tax of €10 and
sells for €110 plus VAT of €11. The client deducts its
own input tax of €11 leaving a net cost of €110. The
client has achieved a VAT-free cost of the
accommodation and this is the appropriate outcome
given that the client is using the service in the course
of its taxable business.
Where the TMC sells accommodation in either MS2 or
MS3, its existing registration in MS1 does not facilitate
the exclusion of the supply from the Special Scheme.
Where the TMC wishes to apply the normal VAT rules
to the supply, it must obtain a registration in the other
Member State involved. If we assume that the client
normally makes a claim for input tax incurred in
MS2,
231
it is reasonable to think that the client would
require its TMC to supply it with the means to deduct
the VAT due in MS2. The TMC would obtain a
registration for MS2 (possibly via the MOSS system).
Given that the rate in MS2 is the same as in MS1, the
outcome is the same as illustrated for MS1.
However, MS3 does not allow deduction of input tax on
hotel costs and therefore there is no prospect of
deduction by the client. Accordingly, the TMC decides
there is no reason to exclude the supply from the
Special Scheme. The place of taxation of margin would
be determined by the approach considered to be
appropriate. Under the current Special Scheme, the
margin VAT would be payable in MS1 where the TMC
is established. If the preferred approach was to view a
travel agent as supplying its own separate service to
the client, the place of supply would also in this
example be MS1 as that is the place of establishment
of the client. However, if the travel agent was
considered to supply the travel facilities themselves,
the place of supply would be MS3, the location of the
hotel. The gross margin is €11 and the VAT due, i.e.
€1.83 is the same in both Member States given that
the standard rate is 20% in both.
231
Under 2008/9/EC
Let us assume that the client in MS4 is an exempt
business unable to deduct input tax. A likely scenario
then would be the application of the Special Scheme,
although it should be noted that the TMC may prefer to
apply the normal VAT rules for supplies of
accommodation in those Member States for which it
already has the means of paying local VAT in place. If
the Special Scheme is applied to all supplies to the
MS4 client, the margin made would be taxable in MS1
under the current model but would be taxable in MS4 if
the margin was considered to be the consideration for
a separate supply to the client. If the TMC was
considered to supply the accommodation itself, the
margin would be taxable in each of the Member States
in which the hotels are located.
The above approach would ensure in principle that the
same treatment applies to EU and third country TMCs
so the objective we have identified in section 6.4 of
equality of treatment would be satisfied. This is
important as the current interpretation of the Special
Scheme may introduce an important competition
distortion in favour of a third country TMC. As we
describe in section 5.5.3, if the current scheme is
interpreted to mean that third country travel agents are
not covered by the Special Scheme and that normal
VAT applies instead, it follows that a third country TMC
is entitled to register in each Member State in which
services are supplied, deduct input tax and provide his
business client with a VAT invoice. Such a procedure
gives the third country TMC an inherent advantage
over a TMC established in any Member State which
requires a TMC to adopt the Special Scheme.
However, if the place of supply within the scheme is
either the client’s place of establishment or the place
where the travel facilities are consumed, then the third
country TMC falls within the scheme (albeit potentially
with the same right to opt-out as any opt-out available
to an EU based TMC – see section 6.15) and the
potential competitive advantage is removed.
We should point out that nothing in the above would
affect a TMC's ability to organise its business so that it
provides the travel services as an intermediary with the
effect that the Special Scheme would not apply and
neither would there be an obligation to register in other
Member States where the Special Scheme is not
applicable.
In our experience, TMCs do not ordinarily create
packages for their clients. Rather, they sell individual
stand-alone services to clients. We have not, therefore,
in the TMC context considered the question of the
correct approach to take for the sale of a package
232
(where the Special Scheme does not exist) but this is
an important consideration for the MICE and DMC
sectors and we consider the point below. Our following
analysis can be considered to apply also to TMCs
where they do create a package of services.
6.14.5.2 MICE
The issues in the MICE sector in many respects are
similar to those for TMCs. Indeed, many TMCs also
operate in the MICE sector.
232
See section 5.5.3
104
Again, we have seen the input tax effects from the
application of the Special Scheme and that many MICE
operators have chosen to operate as intermediaries to
overcome the effects of the Special Scheme.
In addition, the interpretations of the Member States
again lead to differing treatments of MICE operators,
not just in the application of the scheme itself but also
in terms of the application of VAT where the Special
Scheme does not apply.
We believe that the options for reform are the same as
described above for the TMC sector but for MICE we
need to give greater consideration to what the rules
would be where the Special Scheme does not apply.
The situation is complicated by the fact that many
events contain services which cannot be described
ordinarily as travel facilities. A key consideration is
what happens where travel facilities (for example
accommodation, passenger transport) are provided but
other services not ordinarily considered to be travel are
provided as well. The Minerva Kulturreisen case
233
told
us that opera tickets sold alone are not travel facilities
but that they do fall within the Special Scheme when
sold with travel facilities. Therefore, to what extent do
event services which would not ordinarily be
considered to be travel facilities fall within the scheme
when supplied together with accommodation and/or
passenger transport? We have previously advocated a
broad approach to the question of which services
should be included in the Special Scheme and the
same therefore must be true in the MICE sector.
Accordingly, we believe that services such as
entertainment, the use of sports facilities and food and
drink, which are often included in a corporate event,
should be treated as falling within the Special Scheme,
assuming as per the Minerva Kulturreisen judgment
that the MICE organiser is also providing travel
facilities. Even so, the organiser often provides
facilities such as AV, meeting rooms, external
speakers and such services seem too far removed
from the concept of travel to fit comfortably within the
Special Scheme. This does highlight a difficulty,
however, where the normal approach on the
identification of a single or multiple supply suggests
that an event must be treated as a single supply:
where this is the case, is it consistent to include a part
of the event in the Special Scheme and the other part
as subject to normal VAT?
We should also consider whether and when travel
facilities supplied as part of an event might be
considered to be ancillary to the main purpose of the
event. It seems clear that in many circumstances any
travel facilities provided are not the main purpose of
the event but are supporting in nature. Following CJEU
case law, we might describe the travel facilities as a
means of better enjoying a principal service
234
so that
the Special Scheme should not apply. However, in
terms of the Madgett and Baldwin decision, these
potentially ancillary services are unlikely to form only a
small part of the package (event) value,
235
suggesting
that the Special Scheme is applicable.
233
Case C-31/10, see section 3.4.8
234
See for example Card Protection Plan (Case C-349/96) and section
6.8
Again as for TMCs, the compulsory inclusion of MICE
services in the Special Scheme would not allow input
tax deduction by business purchasers of the MICE
services. On the other hand, the mandatory exclusion
of such services from the Special Scheme may be
difficult in terms of compliance but this does depend on
the normal rules to be applied where the Special
Scheme is not used.
The VAT Directive states that the place of supply of the
services of organisers of activities such as
entertainment, education, fairs and exhibitions is the
place where the activities (i.e. the fair/exhibition etc.)
take place.
236
However, this is a rule only for B2C
supplies and therefore does not apply in most MICE
circumstances.
There is no specific rule for the B2B supply of the
organiser’s services and therefore we might conclude
that such services fall within the general rule
237
and are
supplied where the client is established. Our
experience is that this is how many Member States
apply the rules at the moment and third country travel
agents in the MICE sector may enjoy an advantage.
The MICE position therefore needs to be considered
against the following factors:
Should B2B supplies be within the Special
Scheme?
If yes, what is the scope of the Special Scheme?
Should it apply to the entire event? Or just to those
parts treated as travel facilities? Is the splitting of
an event between the Special Scheme and normal
VAT rules acceptable where the wider
circumstances would normally dictate that the
event must be treated as single supply?
If all or any part of an event falls outside of the
Special Scheme, what treatment should be
applied?
In line with that described above for the TMC sector,
the use of the Special Scheme being optional for
supplies to taxable persons would be the most
business friendly approach and also the one most
likely to ensure compliance. However, where a MICE
operator organises services for a non-taxable person,
we believe that the Special Scheme should apply, at
least to the extent that the services provided are travel
facilities (assuming that it is acceptable to split an
event between use of the scheme and normal VAT
when the event would ordinarily be considered a single
supply).
For supplies to taxable persons, we think consideration
should be given to framing the law so that the Special
Scheme applies and that the MICE operator is granted
a possibility to opt to exclude the supply from the
scheme. What that means in practice will be
determined by the interpretation placed on the supply
made by the MICE operator and we return to this point
below.
The extent to which services provided fall within the
Special Scheme (where the option to exclude is not
235
Joined Cases C-308/96 and C-94/97, see section 3.4.4
236
Article 54 of the VAT Directive
237
Article 44 of the VAT Directive
105
taken) will be determined by the approach described in
section 6.14.1 on the definition of travel facilities.
We envisage four possible treatments (where the client
is a taxable person) depending on the nature of the
event and the preference of the MICE operator:
The entire event falls in the Special Scheme – the
MICE operator chooses not to opt-out of the
scheme and the nature of the event is such that it
is seen to comprise only travel facilities. An
example could be the organisation of an incentive
for a corporate client comprising passenger
transport, accommodation, food and drink,
entertainment and the use of sports facilities.
The entire event falls outside of the Special
Scheme as the MICE operator would be allowed
to opt-out of the scheme
The entire event falls outside of the Special
Scheme as the event contains no travel facilities.
Split events – the MICE operator does not opt-out
of the Special Scheme and the event contains
travel facilities and non-travel facilities. An
example might be a conference comprising
accommodation, food and drink, evening
entertainment and the organisation, production of
the conference content itself and the provision of
conference facilities such as meeting rooms and
audio visual. This point is again subject to
resolution of the question as to whether an event
ordinarily considered to be a single supply could
be the subject of two forms of VAT accounting.
Where the Special Scheme does not apply because
either the supplier has opted out of the Special
Scheme or because the event organised does not
include travel facilities, the treatment of the services
will be determined by the normal rules on place of
supply, valuation and input tax deduction. It is
important to consider what these rules mean in the
context of MICE.
Where a MICE organiser supplies a standalone
service, for example accommodation or the hire of a
venue, then the organiser should be subject to VAT in
the Member State in which the service would ordinarily
be considered to be supplied, assuming that the
organiser has sold the services in his own name. In the
case of accommodation or venue hire, the place of
supply would be the Member State in which the
property involved is located.
238
The organiser would
need to register in that Member State if he opted for
the Special Scheme not to apply or the supply in
question is not considered to be a travel facility.
However, we understand that the business of a MICE
operator is not typically to sell such standalone
services. Rather, the role of such an organiser is to
create events to satisfy the requirements of a client
and comprising a broad range of services purchased
from third party suppliers and their own management
and organisational expertise. Each event needs to be
considered on its own merits but we believe that it can
often be appropriate to view the supply made in such
circumstances as a single supply.
239
There are though
238
Under Article 47 of the VAT Directive
239
As discussed in section 6.8
two approaches which might be taken to determine the
place of supply: as have discussed previously, the
supply might either be treated as supplied in the place
in which the predominant element of the supply is
considered to be supplied or it could be viewed as
taxable where the client is established.
240
Determining
which of these approaches should be preferred is, we
believe, crucial to the taxation of the MICE sector (and
also to the DMC sector as discussed below).
We need to consider both in the context of their
compatibility with the destination principle but also in
terms of the simplicity for taxpayers, ease of control by
the Member States, effect on the VAT gap and how
they affect EU and third country MICE operators.
Where a predominant element can be identified, the
non-Special Scheme taxation of an event will be as
follows: the event will be supplied in the place in which
the predominant item is considered to be supplied.
Regard must be had to the nature and purpose of the
event to determine what the predominant element is. In
some cases, the predominant element might be
considered to be a business meeting or similar to
which services such as accommodation and catering
are ancillary. In such a situation, it may be appropriate
the see the full value as falling within the place of
supply general rule
241
so that VAT is paid in the place
of establishment of the client (using the reverse charge
mechanism where applicable). It is worth noting that
such an interpretation would mean the non-application
of the Special Scheme in all circumstances (i.e. not
only where the supplier has opted out of the Special
Scheme) assuming that a “business meeting” is not
considered to be a travel facility.
In other cases, however, the predominant element may
be entertainment. Such a conclusion would also lead to
the conclusion that Article 44 applies. The same might
be said of an event the main feature of which was
advertising/business promotion/marketing. Such an
approach would often mean the payment of VAT in a
Member State other than that in which the event takes
place.
If, however, it was considered that admission to an
event was the predominant feature (which might be the
case for a corporate hospitality event, for example), the
place of supply would be the place in which the event
takes place.
We need to consider if this predominant supply
approach would have the effect of taxing the supply in
compliance with the destination principle. Where the
appropriate place of supply rule determines that the
supply should be taxed in the Member State in which
the event actually takes place, the result would
certainly seem compatible with the destination
principle. It would also be relatively straightforward in
that registration and payment of VAT would be
required in only one Member State. The same rules
would apply to EU and third country MICE operators so
equality of treatment, in principle, would be achieved.
Many events comprise numerous different services
and we believe it will sometimes not be possible to
identify a predominant element. Where this is so, and
240
Under Article 44 of the VAT Directive
241
Article 44 of the VAT Directive
106
assuming that the circumstances require the event to
be treated as a single supply, it would appear that the
correct approach is to treat the event as falling within
the Article 44 place of supply general rule.
We must also recognise that in certain circumstances,
an event might be considered to be a multiple supply.
In such a situation, it would be necessary to identify the
supplies, the place of supply of each supply and
account for VAT accordingly. A typical event might be
seen to consist of supplies of accommodation,
entertainment, catering, transport, meeting facilities,
AV and similar. Each would need to be assessed on its
own merits but it is likely that some at least of the
supplies would be taxable in the Member State in
which the event takes place. To this extent, this
approach is consistent with the destination principle.
However this approach would introduce greater
complexity than the single supply approach.
It can be seen that the MICE sector is complex and
that the considerations of a suitable future VAT regime
are similarly complex. We set out below an analysis of
how VAT might work in the light of the above
considerations and in the context of one event.
Fig. 6d
The above illustrates the organisation of an event by a
MICE operator established in MS1 for a business client
also established in MS1. The MICE operator
purchases services from various suppliers all
established in MS2 where the event is to take place.
The hotel, venue, restaurant and coach operator all
charge local VAT either at a reduced rate of 10% or at
the standard rate of 20%. The AV/production company
treats its services as falling within the general place of
supply rule
242
and therefore does not charge VAT but
expects the MICE operator to account for VAT in MS1
using the reverse charge.
The aggregate cost paid to the local suppliers is
€50,400 including VAT of €5,400 (both figures not
including the reverse charge VAT due on the
AV/production cost). In addition, the MICE operator is
to provide its own staff during the event to ensure the
242
Article 44 of the VAT Directive
smooth running of the event. The price agreed with the
client is €60,000.
In line with the analysis above, we believe
consideration should be given to allowing the MICE
operator a choice between the application of the
Special Scheme and the use of normal VAT. The
difficulties in this situation, which we believe is typical
of the MICE sector, are that, first, the event contains a
service, the AV/production, which we do not think
should be viewed as a travel facility and which
therefore should not fall within the Special Scheme and
a second, the venue, which might also be considered
to fall outside the scheme. In addition, the services to
be provided by the MICE operator in the form of its
own staff providing services during the event are not
capable of falling within the scheme. Second, it is not
107
immediately apparent what the result of the application
of normal VAT should be.
If the MICE operator chose not to opt-out of the Special
Scheme, given a wide scope to the meaning of “travel
facility” we believe that the hotel, restaurant and coach
services should be accounted for within the scheme.
The venue perhaps may qualify for inclusion,
depending on the nature of the event and the use to be
made of the venue but for the sake of this illustration
we will assume that the venue is not a travel facility. It
would be necessary therefore to calculate the margin
made on the hotel, restaurant and coach services and
to pay VAT on this margin in the appropriate Member
State. This would be MS1 under the current place of
supply test and also if the place of supply became the
client’s place of establishment. It would be MS2 if the
place of supply was the place where the travel facilities
are consumed. As the standard rate in this example is
20% in both Member States, it makes no difference to
the margin VAT payable by the MICE operator.
Following the MyTravel judgment of the CJEU,
243
the
valuation of those parts of the event not within the
Special Scheme should be made by reference to their
market value. It is common practice in the MICE sector
that prices for each individual part of an event are
agreed with the client and so we will take the prices so
agreed as the market value. If the prices agreed with
the client for those services are €13,000 for the venue,
€7,000 for the AV/production and €4,000 for the work
of the organiser’s staff (all values including any VAT
due), it can be seen that the selling price of the Special
Scheme services is €36,000. The cost of the same
services is €32,400 and accordingly the Special
Scheme margin is €3,600 and the VAT due is €600,
payable in MS1 or MS2 depending on the place of
supply approach adopted.
We then need to consider how to treat the €24,000
attributed to services falling outside of the Special
Scheme. It is likely we believe that the MICE operator
should be seen to make a single supply. For the
reasons given above, the predominant supply
approach is likely to require the application of the place
of supply general rule.
244
If the predominant supply
approach is not preferred, then the same place of
supply rule should be applied so either way MS1 is the
place of supply. The MICE operator should therefore
charge €24,000 plus VAT of €4,800 (assuming that the
contract allows for the addition of VAT). If the client is
using the event in the course of taxable business
activities it can deduct the €4,800 as its input tax.
The MICE operator should be entitled to deduct the
input tax on the venue and AV/production. A claim
could therefore be made to MS2 for recovery of the
€2,000 incurred on the venue cost. The VAT on the
AV/production cost was paid in MS1 under the reverse
charge so the MICE operator can offset the same
value of VAT as input tax in MS1.
This approach generates revenue in MS2 of €3,400 in
the form of irrecoverable input tax on the Special
Scheme costs. If the place of supply of the operator’s
margin is MS1, the margin VAT of €600 accrues to
MS1. If the client is able to deduct input tax in full,
243
Case C-291/03
there is no further revenue accruing to MS1. Total VAT
revenue generated is €4,000.
There are two problems with the above. First, it is
clearly very complex: in this situation, due to the typical
combination of travel facilities with non-travel services,
the current Special Scheme does not achieve its
objective of simplicity. Continued use of a Special
Scheme, albeit operating in a different way, would
perpetuate the difficulties in this sector. Second, the
application of the Special Scheme means the client
suffers an irrecoverable VAT cost on services used for
its taxable purposes.
If the MICE operator elects to dis-apply the Special
Scheme, it would need to consider what normal VAT
means. For the reasons described above, we believe it
likely that the event supplied should be considered to
be a single supply. The predominant nature of the
event may require use of Article 44 to determine the
place of supply. If a predominant nature cannot be
determined, we believe Article 44 should also apply.
The effect is the charging of VAT on the full €60,000
value. Again, if the client is fully taxable, this VAT can
be deducted. In this model, it also follows that the
MICE operator can recover all input tax incurred in
MS2. There is no revenue for either MS1 or MS2 but,
as the services have been used in the course of
taxable business activities, we submit that this can be
seen as the correct outcome.
6.14.5.3 DMC
We have identified earlier in this report there is
distortion of competition in the wholesale or DMC
market. Our analysis has identified that considerable
differences exist both in the application of the Special
Scheme to the sector and also in the nature of VAT to
be applied when the scheme is not applicable.
Identifying a suitable reform option for the DMC sector
is therefore critical to the smooth operation of VAT in
the travel sector.
However, the DMC sector covers many different
business activities, for example:
Wholesale tour operators who sell FIT services i.e.
typically services such as accommodation, coach
travel and other local services on a wholesale
standalone basis to other tour operators.
Wholesale tour operators and DMCs who create
travel packages and sell on a wholesale basis to
other tour operators and MICE operators.
Bed Banks who sell accommodation to tour
operators, travel agents, TMCs and MICE
operators. Bed banks can sell in their own name
or as an intermediary. Equally, the Bed Bank’s
client might sell in his own name or as an
intermediary.
Ideas for reform of the DMC/ wholesale sector
therefore need to take into account the differing
natures of operators within this sector.
We think it is reasonable, in line with earlier comments,
that input tax deduction should be possible where the
244
Article 44 of the VAT Directive
108
final consumer is a business. This might apply, for
example, where the DMC sells to a MICE operator who
in turn uses the service in question in providing an
event service to a business client. But as discussed
earlier, should the Special Scheme apply where the
final customer is not a business? Furthermore is it
realistic to think that intermediate suppliers will know
the identity and status of the final customer?
We consider that the main criteria to assess the validity
of reform options in this area are the following:
Input tax deduction where a final business client is
the purchaser should be possible
VAT should accrue to the Member State of
consumption
The system must not be onerous in terms of its
operation for businesses and tax authorities and
neither must there be a risk of VAT fraud
Equality of treatment should be achieved between
EU and third country DMCs
In addition, it is essential to consider how VAT should
be applied in all circumstances in which the Special
Scheme is considered not to apply.
The application of VAT in the DMC sector must, of
course, be consistent with the approach more widely
for B2B supplies, namely the approaches to be taken
in the TMC and MICE sectors. Accordingly, we believe
that there is merit in the approach in applying the
Special Scheme and that the DMC is granted the
possibility to opt for normal VAT. The way to treat a
package of travel facilities (where the Special Scheme
does not apply) is also very important in this sector.
We have considered the above approach in the context
of the three scenarios mentioned above, namely the
FIT supply of services by a DMC/wholesale tour
operator, the creation of a travel package to be sold on
a wholesale basis and the wholesale supply of
accommodation by a Bed Bank. The following
examples illustrate significantly different outcomes in
the level of VAT revenue generated. Member States
would need to determine whether their overriding
objective is to take VAT revenue from all tourism
enjoyed in the EU or to use the VAT system to
stimulate inbound tourism. This consideration is
important in determining the approach for the travel
sector as a whole but seems particularly important in
the DMC sector as a large part of it is concerned with
organisation of services to be consumed ultimately by
inbound tourists.
109
6.14.5.3.1 The supply of FIT services
Fig 6e
The above illustrates the purchase of hotel
accommodation located in MS1 and MS2 by a DMC
established in MS3. The accommodation is sold to a
tour operator client in MS4. The DMC’s purchase price
in both cases is €100 net. In MS1, the rate applicable
to hotel accommodation is 10% whilst in MS2 it is 20%.
The DMC supplies the accommodation in MS1 for
€120, including VAT, and that in MS2 for €130, again
including VAT. The standard rate in all the Member
States is 20%.
In this example, it is envisaged that the tour operator
client is making a B2C supply and therefore cannot
deduct input tax. Therefore we assume that the Special
Scheme would apply, even if the DMC could opt to
dis-apply the Special Scheme. In this case, the DMC
would have a margin of €20 on which the VAT due is
€3.33. Where this is payable depends on the place of
supply adopted. If the current place of supply is
retained, the full margin is taxable in MS3. However, if
the place of supply is the client’s place of
establishment, the €3.33 accrues to MS4 and the DMC
must have a means to of declaring the VAT to MS4. If
the place of supply is the place where the travel
facilities are consumed, the DMC makes a margin of
€10 in both MS1 and MS2 and must pay VAT of €1.67
to both Member States (although, as noted elsewhere,
in this model it may be thought appropriate to apply the
reduced rate of 10% to the margin in MS1, reducing
the VAT payable there to €0.91).
In case it would be open to the DMC to opt either or
both of the supplies out of the Special Scheme, this
would require to have the means of paying VAT in MS1
and/or MS2. In MS1, normal VAT would involve
deduction of input tax of €10 and payment of output tax
of €10.91. In MS2, the DMC would deduct input tax of
€20 and pay output tax of €21.67.
110
6.14.5.3.2 Creation of a travel package to be sold on a wholesale basis
Fig. 6f
The above illustrates the creation of a tour package for
a US tour operator client by a DMC/wholesale tour
operator established in MS3. The tour is to take place
partly in MS1 and partly in MS2. The DMC contracts
with hotels, coach operators, restaurants and
attractions in the two Member States. In MS1, a rate of
10% applies to accommodation and passenger
transport and 20% to the other services. In MS2, 10%
applies to passenger transport and restaurant services
and the other services attract 20%. The total cost
incurred is €36,000 plus VAT of €5,200. The price
agreed with the tour operator is €50,200.
The role of the DMC is that of a typical DMC/wholesale
tour operator, namely to design an itinerary to meet the
needs of the client, identify suitable third party
suppliers, contract on suitable terms with the chosen
suppliers, amend bookings if necessary and to be
available to resolve any unexpected problems during
the tour.
Once again, we assume that the DMC has a choice: to
apply the Special Scheme or not. If the scheme is
applied, the margin is €9,000. As the standard rate is
20% in each of the Member States involved, the VAT
due whichever is the place of supply is €1,500. If the
current place of supply continues to apply, the €1,500
is due in MS3. However, if the place of supply is the
place of establishment of the client, the place of supply
in this example is the US and no VAT is due on the
margin. If the place of supply is the where the travel
245
€18,000 of net cost in each Member State, assuming that the coach
cost is split equally between the two Member States
facilities are consumed, the margin will need to be
apportioned between MS1 and MS2.
A convenient way of doing this would be based on the
costs of services purchased in the two Member States.
An analysis of VAT-exclusive costs shows that 50% of
the cost was incurred in each of MS1 and MS2.
245
The
margin made in each Member State would therefore be
€4,500. As discussed before, it may be appropriate to
reflect the local rates applied to the services when
supplied outside of the scheme in this model.
Whatever place of supply is used, the DMC cannot
deduct the input tax of €2,200 in MS1 and €3,000 in
MS2. Total revenue generated therefore is €6,700 if
either the place of supply is the DMC’s place of
establishment or the places where the travel facilities
are consumed (assuming no application of the reduced
rate to the margin). If the place of supply is the client’s
place of establishment, the revenue is limited to the
€5,200 as the margin is not subject to VAT.
In this example, the final consumers are private
persons and no input tax deduction is possible. It is
likely that the DMC knows that the final customers are
not in business. It may be concluded that the Special
Scheme is the appropriate basis of VAT. However, as
we have stated elsewhere, we believe that
consideration should be given to the ability to exclude
travel facilities from the scheme so that the right of
taxable persons to deduct input tax can be preserved.
In practice, it is difficult to see how the legislation could
be framed so that B2B supplies in the TMC, MICE and
€10,000 + VAT
of €1,000
DMC MS3
US Tour
operator
€10,000 + VAT
of €2,000
€8,000 + VAT
of €800
€2,500 + VAT
of €500
€2,000 + VAT
of €200
€1,500 + VAT
of €300
€2,000 + VAT
of €400
US
Customers
Restaurant
MS1
Restaurant
MS2
Coach MS1
Hotel
MS1
Hotel
MS2
Attractions
MS1
Attractions
MS2
111
DMC sectors are eligible for exclusion (in the DMC
sector only where the final client is a business) but
DMC activities are compulsorily within the scheme
(when the final client is not a business) as it seems
inevitable that there will be situations in which a
wholesale supplier does not know the identity of the
client. Whilst that may not be the case in a situation
such as that illustrated here, it may well apply in the
next example involving Bed Banks.
Accordingly, where an option is introduced, the
legislation could be framed so that the DMC in this
example has the ability to use “normal” VAT. What that
would mean depends on the interpretation placed on
the package he has created. If it is seen as a multiple
supply, each component part of the package should be
seen as a supply made in the Member State in which it
takes place. The DMC would need to identify the
supplies made, attach a value to each and then
account for VAT in the Member State of supply at the
rate stipulated by that State. Input tax incurred could
then be deducted.
An appropriate way of doing the valuation may be an
apportionment based on costs. This would mean that
the VAT due in MS1 would be €2,704 whilst the
equivalent values in MS2 would be €3,549.
246
Input
tax of €2,200 would be deductible in MS1 and €3,000
in MS2.
Revenue generated for MS1 would be €2,704 and
€3,549 for MS2, giving a total of €6,253 compared to
€6,700 under the Special Scheme (with the place of
establishment or place of consumption of the travel
facilities basis) or €5,200 where the place of supply is
the client’s place of establishment.
The multiple supply approach creates less revenue
(except when compared to the use of the client’s
establishment as the place of supply within the Special
Scheme) as the multiple supply allows for the taxation
of the DMC’s “value added” at a rate less than the
standard rate on a large part of that value added.
The multiple supply approach is not the only one,
however, to be considered if normal rules are applied
to this DMC. In our opinion, a good case can be made
that the services provided should be seen to be a
single supply. If so, it may be taxable on the basis of its
predominant nature or under Article 44 (B2B) or Article
45 (B2C) of the VAT Directive. In this example, we are
concerned whether a predominant nature or element
can really be identified. Even if it could be, the tour
takes place in two locations and the predominant
supply would presumably need to be apportioned
across the two Member States.
The place of supply under Article 44 and Article 45
would be the US, where the customer or the supplier is
established. Accordingly, it would be outside the scope
of VAT. No VAT would be due on the selling price of
€50,200. In addition, the supply made to the DMC is
still taxable and thus depending on the Member State
input tax incurred in MS1 and MS2 could be
deductible. On this assumptions, the result would be
no VAT revenue generated for any Member State and
thus either an increased profit margin of the DMC or
lower prices offered by the DMC.
However, in order to prevent non-taxation, MS1 and
MS2 could in the latter scenario invoke Article 59b of
the VAT Directive and consider the place of supply of
any or all of the services as being situated within their
territory, because the effective use and enjoyment of
the services takes place within their territory.
The DMC would then need to identify again the
supplies made, attach a value to each and account for
VAT in the Member State of supply at the rate
stipulated by that State, while deducting input tax
incurred. This would lead to the same results as under
the multiple supply approach.
.
246
Based on apportionment of the total selling price to each component
of the package by reference to the VAT-exclusive costs and then
application of the 10% or 20% rate as appropriate.
112
6.14.5.3.3 Wholesale supply of accommodation by Bed Banks
Fig. 6g
In this example, we look at a supply chain of
accommodation located in MS1. We first have Bed
Bank 1 located in a third country and secondly Bed
Bank 2 located in MS2. That Bed Bank 2 sells the
accommodation to a MICE operator in MS3. For the
purpose of this illustration, it is assumed that the MICE
operator has elected not to apply the Special Scheme
and that the services provided to the client, also
established in MS3, are taxed in MS1. The
accommodation supplied to the client is just a part of a
wider range of services provided by the MICE operator
(and taxed as appropriate in MS1). As far as the
accommodation is concerned, the MICE operator
declares VAT at the rate appropriate in MS1 and
deducts any VAT charged to it in MS1 as its input tax.
Both of the Bed Banks have quoted gross prices of
respectively €115 and €120,
Under the current rules of the Special Scheme, it is
generally accepted that Bed Bank 1 falls outside the
scheme. It may have an obligation to register in MS1
but in reality is unlikely to have registered. Bed Bank 2
is making a wholesale supply of a single item: its
current position will be determined by the interpretation
of the Special Scheme in its Member State. Similarly,
current interpretations mean that the position of the
MICE operator is far from certain. Our purpose here is
not to illustrate the current uncertainties and difficulties
but to illustrate how the ideas set out in this section
may apply to this situation but it is clear that a supply
chain such as this faces difficulties.
Under a future regime, we assume that the third
country Bed Bank 1 would be able to consider its
position under the Special Scheme and whether
electing for application of the normal rules would be
preferable. Under the Special Scheme, if the current
place of supply rule was maintained, Bed Bank 1 would
not be subject to the scheme and the margin of €5
would be untaxed. Under a revised scheme, however,
the place of supply could be either the place of
establishment of the client (Bed Bank 2) or the place
where the accommodation is consumed. In the former
situation, Bed Bank 1 would need to pay margin VAT
of €0.83 (assuming a VAT rate of 20%) to MS2 whilst
in the latter situation, €0.83 (again assuming a
standard rate of 20%) would be due in MS1. In either
case, the net margin of Bed Bank 1 would be €4.17.
Alternatively, Bed Bank 1 could elect to apply the
normal rules which would require it to have a means of
paying VAT in MS1. It would then deduct the input tax
of €10 in MS1 and pay output tax there of €10.45. Its
net margin would be €4.55 and it would be in a position
to provide a VAT invoice to Bed Bank 2.
Bed Bank 2 would be subject to the Special Scheme in
MS2 unless it opted for the normal rules. Under the
scheme, it would have a margin of €5 and net margin
as above of €4.17. The VAT would be due in MS2,
MS3 or MS1 depending on the place of supply
adopted. Under normal VAT, Bed Bank 2 would need
113
pay VAT to MS1. It would deduct any input tax charged
to it and pay output tax on its price of €120 of €10.91.
Given that the MICE operator has elected to apply the
normal VAT rules, which may well be a term of its
contract with its client, it is quite possible that Bed
Bank 2 is obliged to provide a VAT invoice to the MICE
operator. Bed Bank 2 could find itself in a position of
being required to issue a VAT invoice for €109.09 plus
VAT of €10.91. If Bed Bank 1 has also opted for
normal VAT, that leaves Bed Bank 2 with a positive
margin but if Bed Bank 1 is either within the Special
Scheme or not VAT-registered in MS1, then Bed Bank
2 faces a loss on the transaction as the purchase price
is greater than the net selling price.
In such a supply chain it might therefore be expected
that commercial pressure would require third country
Bed Banks to elect for normal VAT and to comply with
the resulting obligations. It is accepted, however, that
such commercial pressures would probably be smaller
where a supply chain leads ultimately to a B2C supply.
The Special Scheme opt-out
We believe consideration should be given in respect of
B2B supplies in each of the TMC, MICE and DMC
sectors for the flexibility to adopt the Special Scheme
or normal rules on place of supply, valuation and input
tax deduction.
Such flexibility might be achieved by an option by
which travel agents can elect not to apply the Special
Scheme and instead to account for VAT under the
normal rules. If an option is to be allowed, we prefer
this opt-out approach to one in which all B2B supplies
are excluded from the Special Scheme and the travel
agent must elect to use the scheme.
Where an option is to be proceeded with, we believe
that this “opt-out” approach would give Member States
greater control over the process and greater assurance
that VAT is paid. If the default position is that the
Special Scheme applies, then VAT is due on the
margin unless the travel agent has elected to use the
normal rules and could demonstrate that he is in a
position to pay the VAT due under the normal rules in
the Member State of supply. If the means of declaring
the VAT due in other Member States is MOSS, the tax
authorities in the Member State of the travel agent’s
establishment would have the means to verify that the
VAT had been declared via the MOSS return. If there
was no MOSS declaration, then VAT due under the
Special Scheme could be enforced by the tax
authorities (assuming that the place of supply is the
Member State of establishment which would be so if
the current place of supply is retained and would
normally be the case if the place of supply became the
customer’s place of residence/establishment).
However, if the default position was taxation under the
normal rules, it could be more difficult for the tax
authorities in the travel agent’s home Member State to
enforce any liability where the travel agent had not
opted for the Special Scheme but had not declared any
VAT under the normal rules.
Where a travel agent exercises the option, this is
primarily a matter between the agent and the tax
administration of the country where they are identified.
Where the B2B customer is in another Member State,
some administrative arrangements may be required.
A consequence of exercising the opt-out is the right to
deduct input tax. In many cases, it is considered likely
that the travel agent would be required to pay output
tax in the Member State in which the input tax is
incurred and, in such circumstances, the recovery of
the input tax would be achieved by an offset against
the output tax. It should be recognised, however, that
there may be circumstances in which the travel agent
has no liability to pay output tax in the Member State in
which the input tax has been paid. In order for the right
to recover the input tax to remain, the option taken in
one Member State would need to be recognised by all
other Member States.
The detailed operation of any opt out, including the
ways in which the positions of Member States could be
protected and abuse of the provision avoided, would
need careful consideration.
6.15 Equality of treatment of EU
and third country travel
agents
Various options are considered above for the reform of
the Special Scheme and these are assessed in terms
of their compatibility with the need to promote
simplicity, with the destination principle and with the
other identified objectives as summarised in section
6.4. We have included some brief comments in the
foregoing analysis on the effect of the measures for
third country suppliers and we now consider these
points in more detail.
We have concluded that differences in the VAT
treatment of EU and third country travel agents are a
material issue (see section 6.6). Due to technological
advances, this is considered to be a considerably more
significant issue now than it was when the Special
Scheme rules were designed. As we discuss in
section 6.17, digital technology will evolve further and
become more influential in the distribution of travel. If
the current differences continue, it seems very likely
that the materiality of this issue will increase.
One of the factors against which each reform option
must be assessed is the desire to approximate the
obligations of EU and third country travel agents to
promote equality of competition. We interpret this to
mean that the obligations in terms of registering for
VAT and charging VAT need not necessarily be the
same as between EU established and third country
travel agents but that the effect in terms of total VAT
generated and the Member State(s) to which VAT
accrues should, in material terms, be the same
whether or not a third country travel agent is involved.
A non-taxable person or taxable person unable to
deduct all input tax should not be able to achieve a
better position as a result of purchasing services from
a third country travel agent.
We also believe it to be consistent with the nature of
VAT that internationally traded services and intangibles
should be taxed in the jurisdiction of consumption and
that the so-called “on the spot” services should be
taxed where the service is physically performed. It is
114
recognised that this rule might apply to B2B as well as
to B2C supplies.
The distribution of EU travel is a global business. Many
businesses involved in the distribution of travel are
established outside the EU. We have seen that some
of these have relocated from the EU for VAT reasons
(at least as a part of the decision-making process)
whilst others have always been established in a third
country, in which circumstances the non-payment of
EU VAT may have contributed to the growth of the
business and may have helped the business to
develop a position of competitive advantage when
compared to EU travel agents.
The non-taxation of third country travel agents also
contributes to the VAT gap.
Given the complexity of both travel distribution and the
VAT rules in this area, identifying ways in which
equality can be achieved is not easy but we believe
that the measures proposed in this study can give rise
to equality of treatment in the ways discussed below.
The place of supply within the current Special Scheme
is the Member State of establishment of the travel
agent or otherwise the Member State in which the
agent has a fixed establishment. This has led to a
situation in which third country travel agents are
considered not to be covered by the Special
Scheme.
247
It is a moot point whether that means that
third country travel agents are outside the scope of EU
VAT altogether but it is clear, even if the third country
travel agents are thought to be liable to EU VAT
outside of the Special Scheme, and as result of the
normal place of supply rules, that they are not taxed on
the same basis as EU travel agents and equality
therefore does not exist. Neither is the outcome the
same in terms of VAT revenue generated when
comparing an EU travel agent accounting for VAT
under the Special Scheme with a third country
competitor applying the normal rules on place of supply
valuation and input tax deduction.
If equality of treatment is to exist, a change must
therefore be made and indeed it seems that this was
the Commission’s intention in the 2002 Proposal. We
have identified that the current Special Scheme place
of supply rule promotes simplicity but is not consistent
with the destination principle. Nevertheless, if the
current rules were to be maintained, then we foresee
that a scheme for third country travel agents might be
introduced in which they choose a Member State of
registration and make a Special Scheme declaration in
that Member State. Naturally, the third country travel
agent would often choose the Member State with the
lowest standard rate of VAT (or otherwise the Member
State which permits the lowest overall VAT payment)
and therefore there would still be a competition
imbalance with travel agents in a Member State with a
higher rate.
We also foresee a requirement for the distribution of
the revenue arising to the other Member States. This
might be done by requiring detailed record-keeping by
the travel agent so that VAT revenue could be
247
See section 5.5
248
See section 6.12
249
See section 6.13
allocated accurately but that would impose serious
compliance on the travel agent and would not promote
compliance with the need to pay VAT. Alternatively, the
VAT might be allocated by reference to general EU
tourism statistics. Whichever way it is looked at,
however, this approach is not ideal.
We considered two options for the reform of the
taxation of the margin. If the travel agent is considered
to supply a separate supply then taxing the margin in
the customer’s Member State might be appropriate
whilst taxing the travel agents in the Member State of
consumption of the travel facilities themselves might be
the way forward if the travel agent is thought to supply
the travel facilities themselves.
Either can be said to create equality between EU travel
agents and their third country counterparts. In the
former case, all travel agents are supplying services in
the Member State in which customers, both business
and non-business, are established or resident as the
case may be. The obligation to register and pay VAT in
the Member State in which a client is
established/resident would apply regardless of the
location of the supplier. Furthermore, the rate of VAT is
that applied by the Member State of
establishment/residence and therefore the same rate
would apply to all travel agents. There would be no
need for any redistribution of VAT collected.
In the latter case, all travel agents would supply
services in the Member State in which the travel
facilities are consumed and again there would be no
distinction between EU and third country travel agents.
The rate(s) would again be those stipulated by the
Member State of supply.
The first approach (taxation in the Member State of the
client’s establishment/residence) would limit the
collection of VAT to supplies made to EU clients.
Supplies to non-EU persons would not be subject to
VAT (on the margin – the services of the principal
suppliers would still be subject to VAT) both when
supplied by EU and non-EU travel agents. As noted,
248
we believe an exemption can be justified when selling
non-EU travel to EU established/resident clients. The
effect is that the margin would only be subject to VAT
when selling EU travel to EU customers. This applies
equally to EU and third country travel agents. It may be
concluded that it is desirable to tax third country travel
agents only when they sell to EU customers. Those
third country travel agents selling only to non-EU
clients would remain outside the scope of the EU VAT
system.
In the second model, however – taxation in the
Member State of the consumption of the travel facilities
– there is, we believe,
249
difficulty in not taxing the
margin made on all travel consumed within a Member
State. Therefore, third country travel agents (as well as
those in the EU) would need to pay VAT in more
circumstances – i.e. sales to non-EU individuals and
businesses visiting the EU would be subject to VAT on
the margin. This would raise more revenue but may be
difficult to justify.
115
Next, we need to consider how the normal place of
supply, valuation and input tax deduction rules would
apply to third country travel agents if the Special
Scheme ceased to exist.
We have identified that the supply of stand-alone
services, outside of the Special Scheme, would take
place in the Member State of consumption.
250
Third
country travel agents would, therefore, in principle
have to register in each Member State in which they
supplied such services. This would be the same
requirement as faced by EU travel agents. In principle,
the same VAT should be collected regardless of the
location of the supplier.
Where a travel package is supplied, we again have the
issue of determining the proper treatment of the
package. If the package is considered to be either a
multiple supply or a single supply taxable on the basis
of its predominant element, the outcome should be the
same whether the supplier is an EU person or not as
the location of the supplier makes no difference to the
place of supply. However, if the general rule is
appropriate, when supplied to a non-taxable person the
place of supply would be the place of establishment of
the supplier.
251
Where the supplier is a non-EU
business, the supply would then, in principle, be
outside the scope of EU VAT (and it would appear that
the input tax, in principle, should be deductible). It is
likely that Member States may therefore invoke the use
and enjoyment rules to overcome this.
A question arises whether an opt-out from the Special
Scheme, would be given to third country travel agents.
If an opt-out was available for EU travel agents, it
would need to be considered whether this would be
made available also for third country suppliers to
ensure equality of treatment.
Reverse charge
We have considered how the reverse charge
mechanism may be used to simplify the requirements
of third country travel agents. Unfortunately, where the
Special Scheme applies we do not envisage a role for
the reverse charge as a means to declare the margin
VAT as it would involve disclosure of the margin value
to the client.
6.16 The use of MOSS for travel
services
We describe the existing Mini One Stop Shop
(“MOSS”) arrangements in section 6.9 and now
consider how the MOSS might assist in the compliance
obligations of travel agents under the reform options
considered in this section 6.
As have discussed, one of the aims of the Special
Scheme is simplification. This is achieved by the
taxation of the margin in the Member State in which the
travel agent is established. The travel agent therefore
only pays VAT on the margin in his home Member
State and a need to pay VAT in other Member States
does not arise within the Special Scheme itself. We
should recognise, however, that the wider rules for the
taxation of travel services do create obligations to pay
250
See section 6.11
VAT in other Member States. This can be the case
when a travel agent supplies in-house services, B2B
supplies which are interpreted by certain Member
States to fall outside the scheme and intermediary
services in the B2C sector. A form of MOSS or other
similar simplification may however only help travel
agents in the B2C sector to comply with existing
obligations.
As described in section 6.9, the MOSS used in the
TBE sector allows taxable persons to make a single
declaration of VAT due on B2C supplies of TBE
services as an alternative to registration in and the
separate payment of VAT to multiple Member States.
The same simplification could be used, again on an
optional basis, by travel agents whose activities require
payment of VAT in two or more Member States. This
could be the case whether the VAT is due under a
revised version of the Special Scheme or under the
normal rules. We suggest that consideration should be
given, as a means to assist Member States in their
control of VAT, to separate declarations of the VAT
due under the Special Scheme and that payable under
the normal rules.
A feature of the existing MOSS is that it only facilitates
the declaration of VAT payable; there is no means by
which input tax may be deducted. A supplier of TBE
services declaring VAT due via the MOSS which incurs
input tax in the Member State involved must make a
separate claim for recovery of that input tax. The same
approach is valid where the VAT due is payable under
the Special Scheme as it would remain a feature of the
Special Scheme as envisaged in this report that input
tax on the purchase of travel facilities would remain
non-deductible. Travel agents using the MOSS for the
declaration of Special Scheme output tax could submit
an Electronic VAT Refund claim (EU travel agents) or a
claim under the 13
th
Directive (third country travel
agents) for deduction of VAT incurred on overhead
costs.
However, a key feature of the application of normal
VAT to the activities of a travel agent would be
payment of VAT on the full value of supplies made and
the deduction of related input tax. This input tax would
normally be incurred in the same Member State as that
in which the output tax is payable. This distinguishes
the travel agent accounting under normal VAT
principles from one within the Special Scheme and
indeed from those operating within the TBE sector,
who, it is thought, typically incur little, if any, input tax in
the Member State(s) in which the output tax is due. If a
travel agent was required to pay output tax due but
then suffer a delay in the recovery of the associated
input tax this may impose cashflow costs. We believe
that a way should be found to allow for the deduction of
input tax on the MOSS declaration which does not
jeopardise Member States’ ability to control and audit
taxpayers’ declarations.
6.17 Future developments in the
travel sector
We now consider briefly how the travel market will
develop. In section 2.5 we summarised some of the
251
Article 45 of the VAT Directive
116
recent changes which have impacted upon the travel
sector. This section considers how the sector may
change further and assesses each of the options
against the anticipated changes.
Section 2.5 discusses recent technological
developments and describes their impact on travel.
Technology will continue to develop and will continue
to influence the distribution of travel. It seems
inevitable that digital technology will continue to
become even more influential. This will facilitate ever
easier targeting of EU consumers from third country
locations, thereby increasing the importance of
deciding how the sale of EU consumed travel made by
travel agents established outside the EU should be
achieved.
If left unaddressed, the current inequality in treatment
of EU and third country travel agents is likely to
become an even more significant issue.
Technology is also likely to assist in the continued
growth of DIY travel, i.e. the purchase of separate
travel components from a number of suppliers rather
than the purchase of a packaged product from a single
supplier. Effective taxation of such suppliers of single
components when selling services consumed within
the EU will thereby become even more important.
Technological developments have also led to greater
complexity in the wholesale distribution of travel with
the evolution of businesses such as Bed Banks who
depend on high volume low margin sales. Travel
businesses now depend on such intermediaries to a
much greater extent and sourcing services direct from
primary suppliers such as hotels and airlines is now
less common than it once was. Much of the value
earned from travel distribution is earned by such
intermediaries. If Member States are to derive revenue
from the full value of the distribution chain then a way
of taxing each party in the chain needs to be found.
The anticipated further growth of the DIY market is
likely to see even greater prominence of the sharing
economy. Finding a way to tax services distributed via
sharing economy intermediaries will become ever more
important if Member States are to receive VAT revenue
on the full value of travel services enjoyed in the EU.
We have seen recently how Italy intends to ensure
income tax is paid on income earned by persons
operating within the sharing economy.
252
Tourism is expected to grow significantly. As discussed
in section 2.5, international tourist arrivals in 2016 were
1.2bn; by 2030 this is forecast to reach 1.8bn.
253
Much
of this growth is expected to originate in Africa, the
Middle East and Asia-Pacific. As we also saw in
section 2.5, however, the anticipated growth of
European tourism is much lower than the global
forecast. The fastest growing destinations are
expected to be outside Europe and include India and
China. This all tells us that the EU is likely to represent
a smaller part of total global tourism, that Europeans
will spend a larger part of their travel budget to visit
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Italy adopted new legislation on the taxation of short-term rentals
which came into effect as from 1 June 2017. According to this
legislation, private individuals renting real estate for under 30 days
have to pay a flat 21% tax instead of the normal income tax that starts
at 23%. The legislation obliges all intermediaries supplying short-term
accommodation rentals in Italy, including on-line sites that collect
third countries and that a larger proportion of those
enjoying travel within Europe will be residents of third
countries. Reaching a conclusion on the desirability or
otherwise of taxing EU residents travelling to a third
country destination and third country residents visiting
the EU will become ever more important.
We will now look at the options considered above
against these anticipated developments.
The first point to make is that the continuation of the
current Special Scheme rules would not help in the
context of the likely developments. The current place of
supply rule would not assist in the taxation of travel
agents established in third countries. Also, given the
inconsistent approach in the treatment of wholesale
suppliers, much of the revenue which might be paid by
intermediate suppliers, both established within and
outside the EU, would not be collected. The margin on
travel sold to EU residents travelling to third country
destinations would not be subject to VAT and the
margin on EU travel sold to third country residents also
would not be subject to VAT, unless the supplier was
an EU established travel agent or the travel agent was
registered for VAT in the Member State(s) in which the
travel was consumed.
A switch to a place of supply test based either on the
consumer’s place of establishment/residence or the
place of consumption of the travel facilities would bring
travel sold by third country agents within the scope of
EU VAT and would therefore help to protect revenue if
third country agents take a larger share of the EU
travel market. Also, as discussed in section 6.14, the
model based on the customer’s place of
establishment/residence could incorporate taxation
when the customer buys travel to a third country
(although as discussed we believe that exemption of
such services can continue to be justified).
Wide use of the Special Scheme appears to be an
appropriate way in many circumstances to ensure all
participants in a supply chain are subject to VAT,
particularly when combined with a change in the place
of supply. However, for the reasons discussed in this
study, we believe that there should be an option to
exclude travel facilities from the Special Scheme when
supplied on a B2B basis and particularly where the
final customer is a business. Where a travel agent opts
to apply the normal rules, VAT will be paid in the
Member State of destination (assuming that the
appropriate place of supply rule is consistent with the
destination principle) and uniform application of the
rules would ensure that travel facilities supplied within
the EU at all stages of the supply chain would be
taxed, but we appreciate that achieving such a level of
compliance may be a daunting task.
6.18 Findings
In Section 5, we identified two distortions of
competition arising from:
payment from the guest, to withhold the 21% from the property owners
and pay it directly to the tax authorities on behalf of the
accommodation provider
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World Economic Forum: The Travel & Tourism Competitiveness
Report 2017
117
The application of VAT to wholesale supplies; and
The differing interpretations placed on the term
“travel facilities”.
We also identified two material issues arising from the
Special Scheme rules and their application, namely;
The application of VAT to EU third country travel
agents; and
The need for a transaction by transaction
calculation of VAT due.
We also highlighted a significant drawback inherent in
the scheme in the form of the inability to deduct input
tax on costs to be supplied to a business client. These
are all summarised in section 5.2. In addition, there are
numerous other aspects of the current Scheme
(described throughout section 5) which, whilst not
considered to be material overall, do nevertheless
represent problems for many travel agents and
contribute to the lack of harmonisation in the VAT
obligations of travel agents.
A key objective of our analysis of options for reform
has been to assess how the options considered would
address the distortions of competition, material issues,
the drawback in respect of input tax non-deductibility
and the other problems we have identified.
In addition, all options have been considered against
the identified objectives set out in section 6.4.
Abolition of the Special Scheme
Our analysis includes an assessment of the
implications of the abolition of the scheme and the
introduction of a regime incorporating the normal rules
on place of supply, valuation and input tax deduction.
Our main findings in this regard are a likely fall in total
VAT revenue from the EU travel sector, a re-allocation
of revenue between Member States and a large
increase in the compliance burden for travel agents.
As far as revenue is concerned, abolition of the current
Special Scheme would remove the input tax block.
Travel agents would be entitled in principle to a
deduction of the input tax incurred on the cost
components of supplies to be taxed under the normal
rules. The estimated circa €5.6bn currently
irrecoverable input tax (across all Member States)
would no longer be irrecoverable. In addition, the VAT
due under the scheme on the margin achieved,
estimated as circa €1.9bn would also no longer be due.
The aggregate of these two amounts is €7.5bn. This is
the estimated existing revenue generated by the
Special Scheme for the Member States.
These amounts would be replaced by output tax on the
full value of supplies made in the Member State of
supply and at the rate(s) stipulated by that Member
State. In aggregate, the revenue arising from B2C
supplies under normal rules would be likely to be less
than that generated by the current scheme, i.e. the
aggregate of blocked input tax and margin output tax
as the value added (i.e. the margin) would often be
taxed at the reduced rate. There would also be a re-
allocation of revenue between Member States, as
illustrated below.
Under normal rules, on the assumption that the output
tax revenue for B2B supplies to taxable businesses
would be negligible, the indicatively estimated circa
€1.15bn irrecoverable input tax on direct costs of B2B
supplies and €0.29bn irrecoverable Special Scheme
output tax declared on B2B supplies would be
significantly reduced.
From a quantitative perspective, there is insufficient
data available to break down the circa €5.6bn Special
Scheme irrecoverable VAT estimate by Member State
of destination, and a much more extensive exercise
would therefore be required to fully quantify the impact
of the potential revenue shift impact of removing the
input tax block.
As an indication, per the illustrative calculation outlined
at Annex 3, the VAT generated for Spain in 2015 from
the inability of UK travel agents to recover input tax can
be estimated at circa €102m. By a similar method
revenue collected in the UK on these supplies could be
estimated at between circa €34m and €56m.
Broadly equivalent figures for travel from Germany to
Greece would indicate the VAT generated for Greece
in 2015 from the inability of German travel agents to
recover input tax can be estimated at circa €33m whilst
revenue collected in Germany on these supplies could
be estimated at circa €12m.
The following paragraphs focus on the UK to Spain
example, as an illustration of a pairing of Member
States with a significant magnitude of intra-EU travel
and therefore a significant potential for shift in VAT
revenue.
Abolition of the Special Scheme would see the UK lose
the e.g. circa €34m – €56m scheme VAT and Spain
would no longer benefit from the circa €102m
irrecoverable input tax. However, Spain would gain
output tax on the full value of the Spanish services. As
the rate to be paid (at least following the multiple
supply approach) by the travel agent would (normally)
mirror that charged by the suppliers of services to the
agent, and because the agent would normally enjoy a
mark up on the services, it could be expected that the
output tax collected in Spain would be greater than the
currently irrecoverable input tax. Spain would gain from
such a change.
The UK of course would enjoy no output tax on travel
facilities enjoyed in Spain and therefore a change to
the normal rules would see the UK lose the estimated
circa €34m-€56m currently collected on the margin of
UK travel agents selling travel to Spain.
We do not have data for how much inbound intra-EU
travel to the UK comprised Spanish citizens visiting the
UK, so we cannot look at the respective effects on
Spanish and UK revenue of Spanish travel to the UK
under the normal rules. However, it seems clear that
the UK would gain less new revenue if the Special
Scheme was abolished than it would lose. Spain on the
other hand, as noted above, would gain. This is to be
expected. Net exporters of intra-EU travel services, for
example Spain, should gain (all else being equal) from
the introduction of the normal VAT rules whilst net
importers, such as the UK, could be expected to lose.
Our example in section 6.11 shows a similar outcome.
118
We should also point out that application of the normal
VAT rules would result in the loss of much of the
indicatively estimated €1.15bn irrecoverable input tax
on direct costs of B2B supplies and €0.29bn
irrecoverable Special Scheme output tax declared on
B2B supplies.
Our conclusion on the probable overall loss of VAT
revenue if the normal VAT rules were to replace the
Special Scheme is based on a comparison of VAT
payable now and under the normal rules by EU
established suppliers. As discussed elsewhere,
application of the normal rules would also involve, in
principle, an obligation on travel agents in third
countries to pay EU VAT on travel consumed within the
EU and this would generate considerable extra
revenue which may outweigh the loss suffered overall
by the Member States on revenue generated by the
activities of EU travel agents. As discussed elsewhere,
however, we perceive difficulties in justifying to third
country agents a need to pay EU VAT on their own
services supplied to residents of their own country.
Mainly due to the considerable extra complexity and
the effects on third country agents, we do not think that
the compulsory application of normal VAT rules is
desirable, but we have recognised that the optional use
of the normal rules might be introduced in the B2B
sector in order to allow for input tax deduction.
The operation of a future Special
Scheme
We have then considered the merits of a scheme
based on taxation of the margin as a means to simplify
the obligations of travel agents and to achieve an
agreed allocation of revenue. We have concluded that
there are good grounds to retain such a scheme.
However, it is appropriate to consider how the Special
Scheme may be reformed. Our analysis takes as its
base line the current scheme as interpreted by the
CJEU. One aspect of the current scheme is the need
to calculate the margin and VAT due on a transaction
by transaction basis. We have concluded that such a
basis of the calculation is unduly complex and places a
heavy burden on travel agents. It also increases the
difficulties faced by Member States in their review of
travel agents’ declared liabilities. A change so that the
margin and VAT due are calculated on all supplies
within the scheme made over a period (the length of
which can be left to the discretion of Member States)
has merit and furthermore should not have a material
impact on total Member State revenues.
We believe that this one change to the current Scheme
should be made, even if other reform measures are not
pursued.
We have considered the options available for the place
of taxation of the margin. We believe there are three
key options:
1 Continue with the current approach, i.e. taxation in
the Member State in which the travel agent is
established;
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This is an indicative figure only, notably relying on the assumption
that all Member States involved are equivalent to the “average”
2 Change the place of taxation to the place of
residence of the customer;
3 Change the place of taxation to the place at which
the travel facility provided is consumed.
We have considered all three in the context of the
objectives of the Special Scheme and the need to
respect the destination principle and the wider aims of
the EU VAT system.
We believe that all of these options are consistent with
the destination principle in terms of the non-
deductibility of input tax on costs. We have considered
their compatibility with this principle as regards the
taxation of the margin and the wider requirements of
the reform objectives.
As far as taxation of the margin is concerned, we
believe option 3 is consistent with the destination
principle but would introduce undue complexity to the
VAT accounting of travel agents. Under this approach,
it could be seen as consistent to adopt a rate of VAT
on the margin equal to the rate applied to the
equivalent services when supplied outside of the
scheme. Whilst this would remove a complaint often
made by travel agents, it would introduce considerable
further complexity and undermine one of the objectives
of the scheme, namely simplification for taxpayers. The
quantitative impact of a rate change would require a
detailed breakdown of Special Scheme package
income between component elements, which would
require a more detailed exercise beyond the
questionnaire outlined at Annex 3.
Option 3 would also create a re-distribution of revenue
from those Member States with a net tourism outflow to
other Member States to those with a net inflow.
From a quantitative perspective, there is insufficient
data available to break down the circa €1.9bn Special
Scheme margin VAT estimate by Member State of
customer residence or of consumption, and a much
more extensive exercise would be required to fully
quantify the impact of these options. The place of
residence of the customer in many cases is considered
likely also to be the place of establishment of the travel
agent, such that a shift to option 2 is unlikely to have
as quantitatively significant an impact as a shift to
option 3.
Regarding option 3, as an indication, per the illustrative
calculation outlined in Annex 3, the net decrease to UK
Special Scheme income under option 3 could be
estimated to be in the order of circa €0.14bn.
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Other
Member States would stand to benefit from this shift,
whilst many other Member States would suffer a
proportionally similar decrease in revenues. Data was
not available to allow this impact to be quantified more
widely. It can be expected though that those Member
States which are net exporters of intra-EU travel would
benefit from the change whilst net importers would lose
revenue. We draw attention to the expectation that an
implication of a place of supply approach based on the
location of consumption of travel facilities supplied,
Member State covered by the questionnaire respondent, and ignoring
variations in local VAT rates.
119
would be the re-allocation of revenues which would
need to be agreed between Member States.
Option 2, i.e. treating the customer’s place of
establishment or residence as the place of supply, can
also be interpreted, we believe, as being consistent
with the destination principle. This is dependent on a
view that a travel agent supplies its own service
separate to the provision of the travel facilities
themselves. We have considered this point further
above. We believe that in respect of Option 2, it is
appropriate to view the travel agent as supplying such
a separate service and that the place where this
service is consumed (i.e. the place of destination) is
the place where the customer normally resides or,
where the customer is a taxable person, where the
customer is established (or has a fixed establishment
to which the supply is made). We believe that option 2,
therefore, is also compatible with the destination
principle and that it is more faithful to the objective of
simplification than Option 3. It is recognised, however,
that there are circumstances in which travel agents
would find Option 2 difficult to administer and that it
would be appropriate to identify a set of criteria to be
applied in determining the place of supply which would
be compatible with the destination principle and also
with the need to avoid complexity (see section 6.13).
It is thought that most travel agents make the large
majority of their sales to customers (certainly in the
B2C sector) resident in the same Member State. In
many cases, therefore, option 2 would give the same
result as option 1 and accordingly there would not, we
believe, be a significant re-allocation of revenue
between Member States.
Option 1 is not, we have concluded, compatible with
the destination principle in terms of the taxation of the
margin but, in common with the other options, is
compatible as regards the non-recovery of input tax.
As the larger part (estimated at circa €5.6bn) of VAT
revenue generated by the scheme arises from the non-
deduction of input tax and because it is thought most
customers are located in the Member State in which
the travel agent is established, it can be concluded that
option 1 broadly achieves a result in line with that
required with the destination principle.
Given the simplicity associated with Option 1, it might
be concluded that it is appropriate to continue with this
model.
A drawback with option 1 is the difficulty of its
application to third country travel agents. Both of
options 2 and 3 have the effect of achieving equality of
treatment, at least in principle, between EU and third
country travel agents. Option 1 would perpetuate the
current exclusion of third country travel agents from the
scheme and an alternative means would be needed to
achieve the equality desired. This is looked at in
section 6.15.
We have also considered other ways in which the rules
of the Special Scheme might be changed to ensure
greater certainty, harmonisation and achievement of
the objectives of the scheme. These include a
definition of the travel facilities covered by the scheme
and clarification that the supply of a single travel
service falls within the scheme.
The treatment of supplies to business clients is a key
consideration. One of the main disadvantages of the
current Scheme is the inability of travel agents to
deduct input tax on costs within the scheme, requiring
them to pass on VAT-inclusive costs to business
clients. An indicatively estimated €1.15bn of the €5.6bn
estimated irrecoverable Special Scheme VAT pertains
to B2B supplies. This limits the ability of a business
client to deduct VAT on costs used in the course of its
taxable activities. The VAT paid on the margin is
normally also non-deductible. This is estimated at
€0.29bn in respect of B2B supplies and would be
greater if it were not for the intermediary structures
adopted by many in the B2B sectors. In many
circumstances, the travel agent is placed at a
competitive disadvantage – the combined effect of
irrecoverable input tax and irrecoverable Special
Scheme output tax is indicatively estimated at circa
€1.44bn across the EU.
We have concluded that a significant drawback of the
Special Scheme is the travel agent’s inability to reclaim
input tax on costs and therefore, it would be desirable
from the travel agent’s perspective to have a means by
which the right to deduct input tax can be protected.
This could be achieved by the use of the “normal” VAT
rules. However, we have also concluded the Special
Scheme offers certain simplification benefits. We
believe detailed consideration should be given to the
introduction of an option. This could be done by
making the normal rules the default position but with an
“opt-in” into the Special Scheme or by making the
Special Scheme the default position but with an “opt-
out”. Where an option is introduced, we explain our
preference for an “opt-out” (which we consider
preferable to the exclusion of B2B supplies from the
scheme (in 6.14.6).
We believe the “opt-out” approach would facilitate the
business of operators within the TMC and MICE
sectors.
The position in the DMC/wholesale sector is however
more nuanced. A difficulty particularly in this sector is
the status of a package of services when the Special
Scheme is not applied. We believe there is little
consistency on this point at the moment and that an
agreed approach is needed if harmonisation is to be
achieved. To identify the best approach, we believe it
is first necessary to agree on the policy to be applied to
the taxation in this sector. Whilst insufficient data is
available to reliably estimate the impact on this specific
sector, we have illustrated effects of varying
approaches in this area in section 6.14.5.3, which can
have a significant impact on certain affected
businesses.
Annex 1
Questionnaire 1
121
Annex 1 Questionnaire 1 (current Special Scheme rules as
applied by Member States)
i Are the following income streams included in your Member State's Special Scheme margin calculation?
Income received from
charges/fees made for
payment by credit card
Income received relating
to supplies made as
"disclosed agent" when
packaged with
Special
Scheme
supplies for
which the commission is
not readily identifiable
Income rece
ived for Air
Passenger Duty (APD)
payable by the customer
Income (or cost
reductions) in the form
of discounts, "overrides"
or commissions
received from suppliers,
(including such receipts
received retrospectively)
Income received from
the traveller in res
pect
of insurance/travel
cover/other guarantees
or other protection
Income that is received
from a traveller and paid
to a specific (e.g.
government) fund (e.g.
special fund for
damages occurring
during traveling)
DK Yes No Yes Yes No Yes
SK No No No No No No
LT No No Yes Yes No No
PT No No No No No No
LU Yes No Yes Yes Yes Yes
BG Yes No Yes Yes Yes Yes
CY Yes Yes Yes Yes Yes No
ES Yes No Yes No No No
BE Yes Yes Yes Yes Yes Yes
SI No No No No No No
EL Yes Yes Yes Yes Yes No
LV No No No No No No
PL No No No No No No
EE No Yes No Yes No No
IT No No No No No No
IE Yes No Yes Yes Yes No
HR Yes Yes Yes Yes Yes Yes
SE Yes No Yes Yes No No
CZ Yes Yes Yes Yes No No
RO Yes No Yes Yes Yes No
AT Yes No Yes Yes No No
MT No No Yes Yes No No
NL Yes No No Yes No Yes
FR Yes No Yes Yes Yes No
FI Yes Yes No Yes No No
DE Yes Yes Yes Yes No Yes
HU Yes Yes Yes Yes No Yes
UK Yes Yes Yes Yes Yes No
Total yes
19 10 19 21 10 8
Total no
9 18 9 7 18 20
122
ii Are the following expenditure streams included in your Member State's Special Scheme margin
calculation as cost of sales?
Costs of refunds paid to
travellers/customers for unsatisfactory
service
Costs of discounts given to
travellers/customer and funded by the
taxpayer
Costs of bad debts suffered in respect of
the supply of travel facilities
Costs of brochures
Costs of advertising
Costs of inspection trips made to research
resorts, facilities etc.
Costs of office expenses (telephone, IT
equipment, office stationery, rent etc.)
Costs of professional advisory services
(e.g. accountancy, legal and other
similar
fees)
Costs of
the hiring or employing
representatives at airports or resorts,
financial services (including bank, credit
card transaction fees and foreign
exchange charges)
Costs of HP, leasing and finance charges
for the purchase of assets (including those
used in making in
-house supplies)
Costs of market research
Costs of commission p
aid to selling agents
Cost of in
-
house supplies "packaged" with
travel facilities subject to the
Special
Scheme
Costs of insurance relating to
Special
Scheme
packages
DK Yes Yes No No No No No No No No No No No No
SK No No No No No No No No No No No No No No
LT Yes Yes No No No No No No No No No No No No
PT No No No No No No No No No No No No No No
LU Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
BG Yes No No No No No No No No No No No No Yes
CY No Yes Yes No No No No No No No No No Yes Yes
ES No No No No No No No No No No No No No No
BE No No No No No No No No No No No No No No
SI Yes Yes Yes No No No No No No No No No No Yes
EL Yes Yes Yes No No No No No No No No No No Yes
LV No No No Yes Yes No Yes Yes No Yes Yes Yes Yes Yes
PL No No No No No No No No No No No No No No
EE Yes Yes No Yes No No No No No No No No No Yes
IT No No No No No No No No No No No No No No
IE Yes Yes No No No No No No No No No No No Yes
HR No No No No No No No No No No No No No No
SE Yes Yes No No No No No No No No No No No No
CZ Yes Yes No No No No No No No No No No No No
RO Yes Yes Yes No No No No No No No No Yes Yes Yes
AT Yes Yes Yes No No No No No No No No No Yes Yes
MT Yes Yes No No No No No No No No No Yes No No
NL Yes Yes No No No No No No Yes No No No No Yes
FR Yes Yes Yes No No No No No No No No Yes No Yes
FI Yes Yes Yes No No No No No No No No No No No
DE Yes Yes Yes No No No No No Yes No No No No No
HU No Yes No No No No No No No No No Yes Yes Yes
UK Yes Yes Yes No No No No No No No No No Yes Yes
Total yes 18 19 10 3 2 2 2 2 3 2 2 6 7 14
Total no 10 9 18 25 26 26 26 26 25 26 26 22 21 14
123
iii Article 306 of the Principal Directive applies a special VAT scheme to transactions undertaken by travel
agents as principal to customers / travellers in the provision of "travel facilities". We would like to
understand what your Member State accepts as "travel facilities". In your Member State, please confirm
which services are considered to be the provision of "travel facilities" within the scope of the Special
Scheme as a margin scheme supply. In particular, when bought in and re-sold as principal, are the
following supplies subject to the Special Scheme:
Accommodation (hotel, guest
house or other overnight
accommodation)?
Accommodation (meeting
room, function room or other
event space)?
Passenger transport?
Hire of a means of transport?
Organised sightseeing trips,
visits or excursions?
Services of tour guides?
Use of special lounges at
airports?
Restaurant meals?
Catering?
Admission tickets (including
sports and theatre tickets
etc.)?
Sport facilities?
DK Yes No Yes No No No No No No No No
SK Yes Yes Yes Yes Yes Yes No Yes Yes Yes Yes
LT Yes No Yes No Yes Yes Yes No No No No
PT Yes Yes Yes No Yes No No No No No No
LU Yes Yes Yes No Yes Yes Yes Yes Yes Yes Yes
BG Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
CY Yes No Yes Yes Yes Yes Yes No No No No
ES Yes Yes Yes No No No No No No No No
BE Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
SI Yes No Yes Yes Yes Yes Yes Yes Yes Yes No
EL Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
LV Yes No Yes Yes Yes Yes No Yes Yes No No
PL Yes No Yes Yes Yes Yes Yes No No Yes No
EE Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
IT No No No No No No No No No No No
IE Yes No Yes Yes Yes Yes Yes No No No No
HR Yes No Yes No No No No No No No No
SE Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
CZ Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
RO Yes No Yes No Yes Yes Yes Yes Yes Yes Yes
AT Yes No Yes No Yes Yes Yes No No No No
MT Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
NL Yes No Yes No Yes No No No No No No
FR Yes No Yes Yes No No No No No No No
FI Yes No Yes No Yes No No No No No No
DE Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
HU Yes No Yes Yes Yes Yes Yes Yes Yes Yes Yes
UK Yes No Yes Yes Yes Yes Yes No No No No
Total Yes 27 12 27 17 23 20 18 14 14 14 12
Total No 1 16 1 11 5 8 10 14 14 14 16
124
Annex 2
Questionnaire 2
125
Annex 2 Questionnaire 2 (Business Questionnaire)
2.1 EU businesses
126
127
128
2.2 Non-EU businesses
129
130
Annex 3
Quantitative Analysis
131
Annex 3 Quantitative analysis
Section 1 of this Annex explains the analysis used to compile macroeconomic data in the form of indicative European
turnover figures pertaining to the Special Scheme, as per section 6 of this report.
Section 2 of this Annex explains how these macroeconomic figures were augmented by the business questionnaire
sent to travel businesses within each of the business models identified in section 4 to make indicative calculations of
VAT figures.
3.1 Section 1: Turnover – Europe
The source data for Europe has been obtained from EUROSTAT. A review of NACE codes identified four categories of
detailed statistics for services which captured data for the five business areas as follows:
http://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=sbs_na_1a_se_r2&lang=en
N79 – Travel Agencies
http://appsso.eurostat.ec.europa.eu/nui/submitViewTableAction.do
This class includes activities of agencies primarily engaged in selling travel, tour, transportation and accommodation
services to the general public and commercial clients.
N79.1.2 – Tour operators
http://appsso.eurostat.ec.europa.eu/nui/submitViewTableAction.do
This class includes arranging and assembling tours that are sold through travel agencies or directly by tour operators.
The tours may include transportation, accommodation, food, and/or visits to museums, historical or cultural sites,
theatrical, musical or sporting events.
N79.9.9 - Other
http://appsso.eurostat.ec.europa.eu/nui/submitViewTableAction.do
This class includes:
Provision of other travel-related reservation services
Reservations for transportation, hotels, restaurants, car rentals, entertainment and sport etc.
Provision of time-share exchange services
Ticket sales activities for theatrical, sports and other amusement and entertainment events
Provision of visitor assistance services:
Provision of travel information to visitors
Activities of tourist guides
Tourism promotion activities.
This class excludes:
Activities of travel agencies and tour operators (see 7911, 7912)
Organisation and management of events such as meetings, conventions and conferences, (see 8230).
N82.3.0 – Organisation of conventions and trade shows
http://appsso.eurostat.ec.europa.eu/nui/submitViewTableAction.do
This class includes organisation, promotion and/or management of events, such as business and trade shows,
conventions, conferences and meetings, whether or not including the management and provision of the staff to operate
the facilities in which these events take place.
https://unstats.un.org/unsd/cr/registry/regcs.asp?Cl=27&Lg=1&Co=8230
https://unstats.un.org/unsd/cr/registry/regcs.as
p?Cl=27&Lg=1&Co=8230
The data could also be obtained for N79 Travel agency, tour operator, reservation service and related activities
http://appsso.eurostat.ec.europa.eu/nui/submitViewTableAction.do
. This provided the total data for N79.1.1, N79.1.2
and N79.9.9 detailed above. It is duplicate data but has proved useful for filling in data gaps within individual NACE
code information as detailed below.
132
3.2 Turnover - North America
The source data for the US has been obtained from the US Census Bureau
(https://www.census.gov/services/index.html
Table 2: Estimated Revenue by Tax Status for Employer Firms: 2007
through 2015).
The source data for Canada has been obtained from Statistics Canada (http://www5.statcan.gc.ca/cansim/pick-
choisir?lang=eng&p2=33&id=1800003)
Both of these data sources use NAICS codes. A review of NAICS codes identified 4 categories of detailed statistics for
services which captured data for the five business areas as follows:
561510 Travel Agencies
This industry comprises establishments primarily engaged in acting as agents in selling travel, tour, and
accommodation services to the general public and commercial clients.
561520 Tour Operators
This industry comprises establishments primarily engaged in arranging and assembling tours. The tours are sold
through travel agencies or tour operators. Travel or wholesale tour operators are included in this industry.
561591 Convention and Visitors Bureaus
This US industry comprises establishments primarily engaged in marketing and promoting communities and facilities to
businesses and leisure travellers through a range of activities, such as assisting organisations in locating meeting and
convention sites; providing travel information on area attractions, lodging accommodations, restaurants; providing
maps; and organizing group tours of local historical, recreational, and cultural attractions.
561599 All Other Travel Arrangement and Reservation Services
This US industry comprises establishments (except travel agencies, tour operators, and convention and visitors
bureaus) primarily engaged in providing travel arrangement and reservation services.
Illustrative Examples:
Condominium time-share exchange services
Ticket (e.g. airline, bus, cruise ship, sports, theatrical) offices
Road and travel services automobile clubs
Reservation (e.g. airline, car rental, hotel, restaurant) services
Ticket (e.g. amusement, sports, theatrical) agencies
WTTC – Economic Impact Analysis
Information about the splits between business and leisure GDP and between foreign and domestic spend on travel and
tourism in each country has been obtained from page 6 of the Economic Analysis Reports published by the World
Travel and Tourism Council.
https://www.wttc.org/research/economic-research/economic-impact-analysis/country-reports/
3.3 Methodology – Europe
The Economic Indicator of “Turnover or gross premiums written” was selected in turn for each of the five NACE codes
detailed above and the raw data was downloaded. The figures are in € ‘000,000s.
133
N79 – All – Travel agency, tour operation reservation services and related activities
No data was available for Luxembourg.
For all other countries, 2015 source data was used if available.
For Ireland, the 2014 source data was multiplied by the average growth rate from 2014 to 2015.
For the Netherlands, the 2013 source data was multiplied by the average growth rate from 2013 to 2015.
For Turkey, the 2009 source data was multiplied by the average growth rate from 2009 to 2015.
.
GEO/TIME 2006
2007 2008
2009 2010 2011 2012 2013 2014 2015
Estimated
2015
Austria
4,051.30 4,098.50 4,383.90 4,077.40 4,060.70 4,667.50 4,861.30 4,876.60 4,979.00 4,918.70
Belgium 5,847.00 5,358.20 5,979.90 5,366.60 6,046.50 5,090.00 5,601.40 5,512.10 5,485.70 5,564.00
Bulgaria 217.80 301.50 325.70 322.50 369.30 407.10 419.10 461.70 495.00 513.60
Croatia 527.50 461.50 498.90 507.60 513.90 550.90 575.50 620.80
Cyprus 110.20 116.40 124.00 93.20 99.00 89.60 88.90 68.40 69.40 74.80
Czech Republic 1,435.50 1,651.50 2,024.00 1,690.70 1,811.70 1,845.80 1,950.00 1,830.40 1,963.50
Denmark 3,033.30 3,274.80 3,302.80 2,722.70 2,718.50 2,864.60 3,095.00 2,915.30 2,728.80 2,831.40
Estonia 147.00 177.80 184.20 129.90 157.80 171.80 187.80 188.30 222.80 232.10
Finland 1,394.50 1,536.10 1,664.00 1,518.10 1,494.20 1,652.40 1,655.00 1,616.90 1,548.60 1,471.30
France 12,791.70 13,234.40 15,384.40 13,766.50 13,512.00 13,950.50 13,713.40 13,673.10 13,155.80 13,128.50
Germany 20,397.40 20,348.80 21,965.60 21,200.50 23,034.00 24,993.70 26,446.20 27,932.10 28,338.90 28,586.50
Greece 1,586.00 1,613.10 1,849.20 2,074.10 1,895.70 1,656.30 1,452.40 1,592.90 1,910.50 1,782.10
Hungary 811.30 889.00 1,072.90 759.90 774.70 821.10 799.70 781.70 832.00 882.70
Ireland 1,999.20 1,848.40
1,907.50 1,564.50 1,340.90 1,338.80 1,426.80 2,294.30 2,354.26
Italy 10,713.60 13,774.10 12,797.70 11,874.40 12,572.80 12,279.90 11,431.20 10,588.40 11,089.60 11,427.40
Latvia 234.40 255.10 304.70 180.50 196.20 212.90 268.00 296.60 301.60 288.60
Lithuania 185.20 254.60 295.10 198.00 196.00 224.20 244.20 286.30 304.00 327.00
Luxembourg
Malta 199.60 188.20 301.90 254.30 186.20 320.60 291.80 313.10
Netherlands 5,716.90 6,287.40 6,614.70 6,563.30 7,239.10 7,859.70 8,305.10 8,264.00 8,807.23
Norway 3,594.10 3,880.00 4,107.10 3,637.00 4,192.40 4,535.80 5,252.90 5,193.80 4,834.50 4,436.10
Poland 1,452.20 2,064.90 2,554.30 1,792.00 2,095.50 2,227.40 2,270.80 2,189.10 2,645.10 2,910.00
Portugal 2,229.60 2,370.40 2,439.20 2,023.90 2,107.10 1,988.40 1,888.30 1,928.90 2,058.90 2,095.40
Romania 487.30 681.70 880.90 594.90 606.10 696.40 791.80 813.40 868.20 946.60
Slovakia 298.30 488.60 351.80 333.50 460.20 482.20 471.50 568.50 594.80 488.80
Slovenia 332.80 416.40 467.90 410.10 417.00 416.80 404.50 401.00 408.60 416.70
Spain 17,859.60 18,827.90 19,995.80 17,868.20 17,573.20 17,692.80 18,057.20 16,840.50 17,284.80 18,493.10
Sweden 6,680.20 6,853.70 5,842.50 4,975.60 5,821.80
6,515.40 6,993.80 7,077.60 6,718.10 6,549.00
Switzerland 4,141.40 4,943.70 6,016.90 6,561.60 6,078.20 5,899.10 5,695.30
Turkey 4,386.40 5,397.88
United Kingdom 52,230.20 53,315.00 44,481.10 38,209.40 38,521.20 39,870.60 44,892.20 47,543.00 53,035.70 55,446.40
Total 155,836.60 163,918.30 162,028.00 153,124.90 153,246.40 161,418.50 170,234.50 170,626.10 170,922.30 173,034.90 16,559.37
134
N79.1.1 – Travel agencies
No data was available for the Czech Republic, Ireland and Switzerland.
For all other countries, 2014 source data was used if available and multiplied by the growth rate of N79 in each
country from 2014 to 2015 to get estimated 2015 figures.
For Estonia and the Netherlands, the 2013 source data was multiplied by the average growth rate of N79 for
Estonia and the Netherlands respectively from 2013 to 2015.
For Malta, the 2010 source data was multiplied by the average growth rate of N79 for Malta from 2010 to 2015.
For Turkey, the 2009 source data was multiplied by the average growth rate of N79 for Turkey from 2009 to 2015.
GEO/TIME 2006 2007 2008 2009 2010 2011 2012 2013 2014
2015 -
estimated
Austria : : 3,425.30 3,120.60 3,147.20 3,584.90 3,731.80 3,736.30 3,815.00 3,768.80
Belgium : : : 3,682.20 4,517.50 3,546.20 3,425.20 3,285.90 3,477.60 3,527.24
Bulgaria : : 38.60 54.30 58.20 61.30 48.50 50.90 63.30 65.68
Croatia : : 508.60 416.50 443.10 444.90 440.70 419.60 437.80 472.26
Cyprus : : 119.70 89.20 90.70 83.30 84.10 63.80 64.40 69.41
Czech Republic : : : : : : : : : :
Denmark : : 1,060.40 885.90 954.60 849.10 1,108.60 1,127.00 1,044.20 1,083.46
Estonia : : 110.30 : : 88.20 : 53.00 : 65.33
Finland : : 553.60 478.80 506.30 585.40 587.00 544.00 429.10 407.68
France : : : 6,124.00 6,424.40 7,052.00 3,004.00 3,698.40 4,715.40 4,705.61
Germany : : 4,003.70 3,502.30 4,402.00 4,564.00 4,354.20 4,486.60 4,563.00 4,602.87
Greece : : 1,340.80 1,463.10 1,377.70 1,146.30 1,054.30 1,030.90 1,393.30 1,299.66
Hungary : : 144.30 96.60 88.00 80.00 86.80 84.50 100.60 106.73
Ireland : : : : : : : : : :
Italy : : 4,949.70 3,357.70 3,912.60 3,325.20 3,681.10 3,242.20 3,324.20 3,425.46
Latvia : : 161.80 101.70 121.00 118.80 151.00 165.80 173.20 165.73
Lithuania : : 276.10 184.10 180.80
159.40 165.20 197.50 192.20 206.74
Luxembourg : : : : 227.10 147.10 189.80 191.70 189.50 201.96
Malta : : 147.80 122.90 232.10 : : : : 240.71
Netherlands : : 2,107.70 2,392.60 2,809.00 3,349.70 3,918.90 4,536.90 : 4,835.13
Norway : : 2,549.30 2,212.70 2,630.50 2,780.70 3,284.70 3,188.10 3,012.80 2,764.52
Poland : : 375.00 302.30 352.60 448.20 385.80 390.10 482.20 530.49
Portugal : : 2,120.30 1,778.90 1,824.90 1,726.00 1,649.60 1,640.80 1,744.70 1,775.63
Romania : : 614.70 336.20 331.70 339.50 358.10 351.40 375.20 409.08
Slovakia : : 60.20 68.10 115.00 163.80 106.70 130.00 148.40 121.95
Slovenia : : 174.10 140.00 142.10 144.10 142.80 136.70 136.30 139.00
Spain : : 14,556.40 13,566.70 13,304.90 13,487.20 14,225.10 13,504.20 13,544.50 14,491.33
Sweden : : 2,225.60 1,798.20 2,067.50 2,210.20 2,373.20 2,352.90 2,312.30 2,254.10
Switzerland : : : : : : : : : :
Turkey : : : 4,051.10 : : : : : 4,985.27
United Kingdom : : 30,471.80 24,597.30 25,783.60 28,539.70 31,592.80 30,919.30 35,275.70 36,879.13
135
N79.1.2 – Tour operators
No data was available for the Czech Republic, Ireland and Switzerland.
For all other countries, 2014 source data was used if available and multiplied by the growth rate of N79 in each
country from 2014 to 2015 to get estimated 2015 figures.
For Estonia, the 2008 source data was multiplied by the growth rate of N79 for Estonia from 2008 to 2015.
For Malta, the 2010 source data was multiplied by the growth rate of N79 for Malta from 2010 to 2015.
For Slovakia, the 2013 source data was multiplied by the growth rate of N79 for Slovakia from 2013 to 2015.
For Turkey, the 2009 source data was multiplied by the growth rate of N79 for Turkey from 2009 to 2015.
GEO/TIME 2006 2007 2008 2009
2010 2011
2012
2013 2014
2015 -
estimated
Austria : : 816.80 819.70 790.70 918.70 960.80 960.60 958.20 946.60
Belgium : : : : 1,297.40 : 2,002.60 2,034.50 1,772.00 1,797.29
Bulgaria : : 277.90 258.80 300.80 331.90 357.70 395.00 415.20 430.80
Croatia : : 16.40 36.00 46.20 50.60 58.20 110.60 101.90 109.92
Cyprus : : 2.50 2.20 6.40 4.40 3.20 3.10 3.50 3.77
Czech Republic : : : : : : : : : :
Denmark : : 1,969.70 1,637.20 1,568.20 1,819.00 1,709.80 1,526.30 1,464.00 1,519.04
Estonia : : 66.70 : : : : : : 84.04
Finland : : 787.60 775.30 715.50 774.70 759.50 767.10 826.10 784.86
France : : : 5,352.70 5,084.80 4,846.80 8,691.50 8,102.00 6,872.80 6,858.54
Germany : : 17,037.50 16,900.30 17,885.30 19,390.10 20,810.30 21,972.80 22,263.70 22,458.22
Greece : : 507.70 606.90 518.00 502.40 379.80 547.40 502.30 468.54
Hungary : : 865.80 618.50 627.60 676.90 644.00 633.20 644.50 683.77
Ireland : : : : : : : : : :
Italy : : 7,451.70 8,098.10 7,937.40 8,473.20 7,320.70 6,917.50 7,167.10 7,385.42
Latvia : : 85.30 70.60 66.20 73.60 98.20 102.90 102.10 97.70
Lithuania : : 10.50 8.20 8.90 55.90 65.80 73.80 83.70 90.03
Luxembourg : : : : 7.90 8.10 7.80 9.50 11.40 12.15
Malta : : 45.80 46.90 53.00 : : : : 54.97
Netherlands : : 3,931.80 3,743.30 3,899.90 4,162.30 4,103.90 3,388.70 3,223.30 3,611.45
Norway : : 1,347.10 1,229.70 1,325.50 1,474.50 1,643.10 1,680.40 1,476.00 1,354.37
Poland : : 1,463.60 979.20 1,269.10 1,403.00 1,451.60 1,426.30 1,714.10 1,885.76
Portugal : : 246.60 180.30 219.90 200.30 173.10 217.50 231.80 235.91
Romania : : 254.60 241.10 260.00 333.30 410.00 433.40 465.40 507.43
Slovakia : : 279.80 252.60 332.30 301.50 350.60 398.80 : 342.89
Slovenia : : 259.70 236.50 242.50 242.10 238.70 239.20 245.20 250.06
Spain : : 5,295.70 4,119.50 3,930.60 3,848.50 3,489.60 2,871.70 2,968.80 3,176.34
Sweden : : 3,460.90 3,043.60 3,603.70 4,119.20 4,389.30 4,478.20 4,171.60 4,066.60
Switzerland : : : : : : : : : :
Turkey : : : 256.80 : : : : : 316.02
United Kingdom : : 12,698.70 12,509.40 11,572.50 10,220.60 12,007.40 15,658.20 16,166.30 16,901.13
136
N79.9.9 – Other reservation
No data was available for Luxembourg and the Netherlands.
For all other countries, 2015 source data was used if available.
For Ireland, the 2014 source data was multiplied by the growth rate of N79 for Ireland from 2014 to 2015.
For Turkey, the 2009 source data was multiplied by the growth rate of N79 for Turkey from 2009 to 2015.
GEO/TIME 2006 2007
2008 2009 2010 2011 2012 2013 2014
2015
Estimated
2015
Austria
:
: 141.80
137.10
122.80
163.90
168.70
179.70
205.70
198.00
Belgium
:
:
: :
231.60
:
173.50
191.70
236.00
220.50
Bulgaria
:
:
9.20
9.50
10.30
13.80
12.90
15.80
16.50
38.00
Croatia
:
: 2.60 9.00 9.60 12.00 15.00 20.70
35.70
41.40
Cyprus
: :
1.80
1.80
1.90
2.00
1.60
1.50
1.50
1.50
Czech Republic : : 55.40 37.90 : 74.50 62.90 57.60 59.90 134.50
Denmark :
: 272.80 199.70 195.60 196.40 276.50 262.00 220.60
214.20
Estonia
:
: 7.20 9.20 8.00 :
18.40
25.00
33.30
42.50
Finland
:
:
322.80
264.10
272.40
292.20
308.50
305.80
293.30
283.20
France :
:
1,879.30 2,289.80 2,002.90 2,021.90 2,017.90 1,872.80 1,567.60 1,394.80
Germany
: :
924.40 797.80 746.80 1,039.60 1,281.70 1,472.70 1,512.10
1,695.80
Greece
: :
0.70 4.20 - 7.60
18.40
14.50
14.80
14.80
Hungary :
: 62.80
44.80
59.10
64.10
68.90
63.90
86.80
89.00
Ireland : :
128.30 159.40 174.40 218.70 210.10 : 1,063.60 1,091.40
Italy
:
:
396.20
418.50
722.80
481.50
429.40
428.70
598.30
629.20
Latvia
:
:
57.50
8.20
9.10
20.50
18.80
27.90
26.30
30.00
Lithuania
: : 8.50
5.70
6.30
8.90
13.20
15.00
28.10
39.20
Luxembourg
:
: : : : : : :
: :
Malta
: :
6.00 18.40 16.80 :
: :
: 21.40
Netherlands
:
: :
: :
:
: :
: :
Norway :
: 210.70 194.50 236.50 280.60 325.20 325.30 345.70 342.50
Poland :
: 715.60 510.40 473.90 376.20 433.40 372.70
448.90
517.80
Portugal
: : 72.20 64.70
62.40
62.10
65.60
70.60
82.40
90.40
Romania : : 11.70 17.60 14.40 23.70 23.80 28.60 27.60
27.20
Slovakia
: : 11.70
12.80
12.90 16.90 14.10
39.70
: 31.30
Slovenia
: : 34.00
33.60
32.40
30.70
23.00
25.00
27.10
31.80
Spain : :
143.60 181.90
337.70
357.10
342.50
464.60 771.50
790.80
Sweden
: : 156.00
133.80
150.60
186.00
231.40
246.60
234.10
238.10
Switzerland : :
: : 394.30
400.80 444.20
602.80
561.30
606.30
Turkey : : :
78.50 : : :
: : 96.60
United Kingdom :
: 1,310.60
1,102.80 1,165.20
1,110.30
1,291.90
965.50
1,593.70 2,343.20
137
N82.3.0 – Organisation of conventions and tradeshows
No data was available for Luxembourg, Malta, Netherlands and Switzerland.
For all other countries, 2014 source data was used if available and multiplied by the growth rate of N79 in each
country from 2014 to 2015 to get estimated 2015 figures.
For Turkey, the 2009 source data was multiplied by the growth rate of N79 for Turkey from 2009 to 2015.
GEO/TIME 2006 2007 2008 2009 2010 2011 2012 2013 2014
2015 -
estimated
Austria : : 331.80 318.50 294.80 312.00 329.30 350.50 356.80 352.48
Belgium : : : 809.80 769.80 860.30 793.80 767.80 811.00 822.58
Bulgaria : : 24.90 17.80 12.20 16.10 16.00 17.50 17.60 18.26
Croatia : : : 6.90 11.40 17.30 13.00 13.00 18.70 20.17
Cyprus : : 19.80 10.00 10.00 16.50 16.90 8.60 10.20 10.99
Czech Republic : : : : : : : : 205.90 220.87
Denmark : : 232.60 251.30 208.30 218.00 231.40 240.90 252.70 262.20
Estonia : : 26.90 12.40 8.00 15.70 12.90 16.00 17.90 18.65
Finland : : 285.80 166.20 161.20 168.00 181.30 178.00 179.70 170.73
France : : 2,927.80 2,673.10 2,990.00 3,124.10 3,298.50 3,530.10 3,818.80 3,810.88
Germany : : 5,917.30 4,805.20 5,360.90 5,575.50 6,092.60 6,246.10 6,731.80 6,790.62
Greece : : 422.40 413.80 339.30 269.10 237.30 223.60 205.30 191.50
Hungary : : 235.00 153.90 150.70 164.10 160.30 187.10 209.60 222.37
Ireland : : : 89.60 127.40 105.60 87.60 : 138.80 142.43
Italy : : 4,271.20 2,718.10 3,299.90 2,905.40 2,886.80 2,602.20 2,299.80 2,369.85
Latvia : : 15.00 9.70 11.10 7.60 8.50 12.60 12.00 11.48
Lithuania : : 26.70 13.30 15.30
18.20 21.50 27.50 23.70 25.49
Luxembourg : : : : : : : : : :
Malta : : : : : : : : : :
Netherlands : : : : : : : : : :
Norway : : 242.40 217.90 249.70 290.50 302.80 284.80 323.60 296.93
Poland : : 263.10 172.50 177.00 225.10 208.40 209.30 216.70 238.40
Portugal : : 187.40 176.40 170.20 166.60 158.50 189.30 221.60 225.53
Romania : : 45.70 37.90 36.80 46.70 50.30 53.50 63.50 69.23
Slovakia : : 91.20 111.60 121.80 138.90 79.20 58.00 68.20 56.05
Slovenia : : 37.50 33.40 43.80 42.50 43.50 37.90 37.80 38.55
Spain : : 2,054.50 1,662.90 1,472.00 1,483.60 1,233.90 1,366.40 1,382.60 1,479.25
Sweden : : 587.30 479.10 583.20 667.00 684.50 612.60 606.60 591.33
Switzerland : : : : : : : : : :
Turkey : : : 612.40 : : : : : 753.62
United Kingdom : : 2,431.30 2,331.60 2,649.00 2,904.30 3,093.20 2,627.70 3,862.60 4,038.17
138
Summary of 2015 data
The first table here provides summary data for the separate sources N79.1.1, N79.1.2, N79.9.0 and N82.3.0.
The second table provides the sum of N79 and N82.3.
The two totals should be the same.
The missing data has been estimated by using the average split of the business sectors as a proportion of the
total.
Travel Agency
Tour Operator Other reservation
Conventions
and shows
Total
Total N79
+N82.3
Austria 3,768.80
946.60
198.00
352.48
5,265.87
5,271.18
Belgium 3,527.24
1,797.29 220.50 822.58 6,367.61 6,386.58
Bulgaria 65.68 430.80 38.00 18.26 552.74 531.86
Croatia 472.26 109.92 41.40 20.17 643.75 640.97
Cyprus 69.41 3.77 1.50 10.99 85.68 85.79
Czech Republic 134.50 220.87 2,184.37
Denmark 1,083.46 1,519.04 214.20 262.20 3,078.91 3,093.60
Estonia 65.33 84.04 42.50 18.65 210.52 250.75
Finland 407.68 784.86 283.20 170.73 1,646.48 1,642.03
France 4,705.61 6,858.54 1,394.80 3,810.88 16,769.83 16,939.38
Germany 4,602.87 22,458.22 1,695.80 6,790.62 35,547.50 35,377.12
Greece 1,299.66 468.54 14.80 191.50 1,974.50 1,973.60
Hungary 106.73 683.77 89.00 222.37 1,101.88 1,105.07
Ireland 1,091.40 142.43 2,496.69
Italy 3,425.46 7,385.42 629.20 2,369.85 13,809.93 13,797.25
Latvia 165.73 97.70 30.00 11.48 304.92 300.08
Lithuania 206.74 90.03 39.20 25.49 361.47 352.49
Luxembourg 201.96 12.15 214.11
Malta 240.71 54.97 21.40 317.08 313.10
Netherlands 4,835.13 3,611.45 8,446.59 9,878.43
Norway 2,764.52 1,354.37 342.50 296.93 4,758.32 4,733.03
France 4,705.61 6,858.54 1,394.80 3,810.88 16,769.83 16,939.38
Poland 530.49 1,885.76 517.80 238.40 3,172.46 3,148.40
Portugal 1,775.63 235.91 90.40 225.53 2,327.47 2,320.93
Romania 409.08 507.43 27.20 69.23 1,012.94 1,015.83
Slovakia 121.95 342.89 31.30 56.05 552.19 544.85
Slovenia 139.00 250.06 31.80 38.55 459.41 455.25
Spain 14,491.33 3,176.34 790.80 1,479.25 19,937.72 19,972.35
Sweden 2,254.10 4,066.60 238.10 591.33 7,150.13 7,140.33
Switzerland 606.30 5,695.30
Turkey 4,985.27 316.02 96.60 753.62 6,151.50 6,151.50
United Kingdom 36,879.13 16,901.13 2,343.20 4,038.17 60,161.63 59,484.57
EU Total 85,851.18 74,763.24 10,250.00 22,198.07 191,473.29 196,702.86
139
For the Czech Republic, Luxembourg and Netherlands, the average rates were used to extrapolate the total across
the business sectors.
For Ireland, Malta and Switzerland, the figures known about some business sectors were used to influence the
split.
Travel
Agency
Tour
Operator
Other
reservation
Conventions
and shows
Austria 72% 18%
4%
7%
Belgium 55% 28% 3% 13%
Bulgaria 12% 78% 7% 3%
Croatia 73% 17% 6% 3%
Cyprus 81% 4% 2% 13%
Czech Republic 43% 37% 7% 10%
Denmark 35% 49% 7% 9%
Estonia 31% 40% 20% 9%
Finland 25% 48% 17% 10%
France 28% 41% 8% 23%
Germany 13% 63% 5% 19%
Greece 66% 24% 1% 10%
Hungary 10% 62% 8% 20%
Ireland 27% 23% 44% 6%
Italy 25% 53% 5% 17%
Latvia 54% 32% 10% 4%
Lithuania 57% 25% 11% 7%
Luxembourg 43% 37% 7% 10%
Malta 43% 37% 7% 10%
Netherlands 43% 37% 7% 10%
Norway 58% 28% 7% 6%
Poland 17% 59% 16% 8%
Portugal 76% 10% 4% 10%
Romania 40% 50% 3% 7%
Slovakia 22% 62% 6% 10%
Slovenia 30% 54% 7% 8%
Spain 73% 16% 4% 7%
Sweden 32% 57% 3% 8%
Switzerland 13% 63% 5% 19%
Turkey 81% 5% 2% 12%
United Kingdom 61% 28% 4% 7%
Average 43% 38% 8% 10%
Ratio Split of market
140
Extrapolations with the figures available produced the following estimated NACE code turnover figures (shown in red).
Travel Agency Tour Operator
Other
reservation
Conventions
and shows
Total
Austria 3,768.80 946.60 198.00 352.48 5,265.87
Belgium 3,527.24 1,797.29 220.50 822.58 6,367.61
Bulgaria 65.68 430.80 38.00 18.26 552.74
Croatia 472.26 109.92 41.40 20.17 643.75
Cyprus 69.41 3.77 1.50 10.99 85.68
Czech Republic 947.23 801.11 134.50 220.87 2,103.71
Denmark 1,083.46 1,519.04 214.20 262.20 3,078.91
Estonia 65.33 84.04 42.50 18.65 210.52
Finland 407.68 784.86 283.20 170.73 1,646.48
France 4,705.61 6,858.54 1,394.80 3,810.88 16,769.83
Germany 4,602.87 22,458.22 1,695.80 6,790.62 35,547.50
Greece 1,299.66 468.54 14.80 191.50 1,974.50
Hungary 106.73 683.77 89.00 222.37 1,101.88
Ireland 684.21 578.66 1,091.40 142.43 2,496.69
Italy 3,425.46 7,385.42 629.20 2,369.85 13,809.93
Latvia 165.73 97.70 30.00 11.48 304.92
Lithuania 206.74 90.03 39.20 25.49 361.47
Luxembourg 201.96 12.15 30.31 44.74 289.16
Malta 240.71 54.97 21.40 46.77 363.84
Netherlands 4,835.13 3,611.45 642.93 1,071.20 10,160.72
Poland 530.49 1,885.76 517.80 238.40 3,172.46
Portugal 1,775.63 235.91 90.40 225.53 2,327.47
Romania 409.08 507.43 27.20 69.23 1,012.94
Slovakia 121.95 342.89 31.30 56.05 552.19
Slovenia 139.00 250.06 31.80 38.55 459.41
Spain 14,491.33 3,176.34 790.80 1,479.25 19,937.72
Sweden 2,254.10 4,066.60 238.10 591.33 7,150.13
United Kingdom 36,879.13 16,901.13 2,343.20 4,038.17 60,161.63
EU Total 87,482.62 76,143.00 10,923.24 23,360.78 197,909.64
Norway 2,764.52 1,354.37 342.50 296.93 4,758.32
Switzerland 1,051.83 5,132.05 606.30 2,427.85 9,218.03
Turkey 4,985.27 316.02 96.60 753.62 6,151.50
Non-EU Total 8,801.61 6,802.43 1,045.40 3,478.40 20,127.85
Grand Total 96,284.23 82,945.44 11,968.64 26,839.18 218,037.49
141
The definitions of the five business models were then cross referenced with the definitions of the NACE Codes:
3.4 Business Models Definitions:
Tour Operator
These businesses range from large international tour operators to small independent niche operators (mainly B2C).
Tour operators organise and provide package holidays, contracting with hoteliers, airlines and ground transport
companies, and advertising the holidays that they have assembled online or in printed brochures.
Tour operators often operate on an international scale. Examples include companies that mainly focus on intra-
European and outbound tourism. Within the industry, large integrated groups offering a wide range of products are
found alongside tour operators that focus on very specific niche markets. The niche players typically operate on a much
smaller scale. Most tour operators focus on leisure tourism.
Travel Management Companies (TMC)
These businesses mainly focus on business travel arranged as intermediaries, and serve primarily corporate customers
(B2B). TMCs are able to compare different itineraries and costs in real-time, allowing users to access fares for air
tickets, hotel rooms and rental cars simultaneously and to prepare bespoke travel plans for clients.
Travel agents
These businesses operate mainly in the leisure (i.e. B2C) market as intermediaries. Travel agents can operate as “brick
& mortar” enterprises or as “online” agents or both (mainly B2C), whereas the TMCs as referred to above focus on
business travel.
Travel agents may provide customers with travel advice, then sell and administer bookings acting for a number of tour
operators and other suppliers such as airlines, hoteliers, car rental companies.
Large travel agencies are often part of an international integrated group that also organises packaged tours and owns
accommodation, etc. We are aware that a number of independent travel agents have joined forces in consortia or
networks. These networks combine the capacity of their members on the purchase side as well as in providing services
to the members of the consortium (HR management, taxation consultancy, etc.).
Destination Management Companies (DMC)/Wholesale Tour Operators
These businesses operate mainly in the inbound segment. DMCs differ from tour operators in that DMCs usually do not
deal directly with end-clients, but trade through agents (mostly tour operators).
DMCs focus on inbound tourism. They cater services for both tour operators focusing on leisure tourism and TMCs.
These services can include transportation, hotel accommodation, activities, excursions, conference venues, themed
events, etc. DMCs/wholesale tour operators organise and sell packages but also sell individual components e.g. “room
only”. The package business is often referred to as the groups business whilst, as already outlined in this study, the
sale of single components is often called Fully Independent Traveller (“FIT”).
MICE organisers, i.e. Meeting, Incentives, Conferences and Events organisers
These businesses operate mainly in the corporate segment (B2B).
Another segment of the industry focusses on MICE (Meeting, Incentives, Conferences and Events). MICE organisers
are often specialised in that specific segment, although TMCs have their own in-house MICE department as well.
These operators combine features of travel agents, DMC and TMC businesses, generally focused around a specific
event or collection of events catering to a particular purpose or special interest group.
3.5 NACE Definitions
Travel Agent
Activities of agencies primarily engaged in selling travel, tour, transportation and accommodation services to the
general public and commercial clients.
Tour Operator
Arranging and assembling tours that are sold through travel agencies or directly by tour operators. The tours may
include any or all of the following:
Transportation
Accommodation
Food
Visits to museums, historical or cultural sites, theatrical, musical or sporting events
142
Other
Provision of other travel-related reservation services:
Reservations for transportation, hotels, restaurants, car rentals, entertainment and sport etc.
Provision of time-share exchange services
Ticket sales activities for theatrical, sports and other amusement and entertainment events
Provision of visitor assistance services:
Provision of travel information to visitors
Activities of tourist guides
Tourism promotion activities
Conventions and Shows
Organisation, promotion and/or management of events, such as business and trade shows, conventions, conferences
and meetings, whether or not including the management and provision of the staff to operate the facilities in which
these events take place.
Treatment of the data
An assumption has been made that the turnover in the Other category is not generated by businesses in our five
models. Therefore, this turnover has been excluded from the calculations.
The Conventions and Shows category looks to be a good match to the definition of the MICE business model, so
this data has been directly attributed to this sector.
It has been assumed that the NACE Definition of Tour Operators includes both the tour operator business model
and the DMC business model. DMC revenue is mainly generated from inbound tourism. The Economic Impact
reports from the WTTC provide a breakdown between expenditure from foreign visitors and domestic visitors for
each country. It has been assumed that it is reasonable to apportion the EUROSTAT tour operator turnover
figures on the same basis as this to determine the split of NACE Code 79.1.2 between the DMC and tour operator
business models respectively. This ratio has been applied.
It has been assumed that the NACE Definition of Travel Agents includes both the travel agents business model
and the TMC business model. TMC revenue is mainly generated from B2B sales. The Economic Impact reports
from the WTTC provide a breakdown between business and leisure expenditure for each country. It has been
assumed that it is reasonable to apportion the EUROSTAT travel agent turnover figures on the same basis as this
to determine the split of NACE Code 79.1.1 between the TMC and travel agent business models respectively. This
ratio has been applied.
3.6 Methodology – North America
For the US, the turnover data in US$ for 2015 was directly available for all of the NAICS codes listed above in source
data. These amounts were converted from US$ to €, using an average exchange rate for 2015 found on
https://www.ofx.com/en-gb/forex-news/historical-exchange-rates/yearly-average-rates/
For Canada, only the turnover in CAD for NAICS 56 was available for 2015. Turnovers for the 4 NAICS codes required
was derived from this figure by applying the same ratio split found in the US NAICS 56 between codes 561510,
561520, 561591 and 561599. These amounts were converted from CAD to €, using an average exchange rate for 2015
found on https://www.ofx.com/en-gb/forex-news/historical-exchange-rates/yearly-average-rates/
Travel Agencies Tour Operators
All Other Travel
Arrangement and
Reservation Services
Convention and
Visitors Bureaus
Total
USA in US$ 15,052.00USD
6,084.00USD 17,640.00
USD 2,010.00USD
Canada in CAD 1,616.22CAD 653.28CAD 1,894.11CAD 215.83CAD
USA in Euros 13,572.37€ 5,485.94€ 15,905.97€ 1,812.41€ 36,776.70€
Canada in Euros 1,140.61€ 461.03€ 1,336.72€ 152.31€ 3,090.68€
14,712.98€ 5,946.97€ 17,242.69€ 1,964.73€
fx US$1 = 0.90€
fx CAD1= 0.71€
143
As with Europe, the definitions of the business models were compared to the NAICS code definitions.
Business Models Definitions:
Tour Operator
These businesses range from large international tour operators to small independent niche operators (mainly B2C).
Tour operators organise and provide package holidays, contracting with hoteliers, airlines and ground transport
companies, and advertising the holidays that they have assembled online or in printed brochures.
Tour operators often operate on an international scale. Examples include companies that mainly focus on intra-
European and outbound tourism. Within the industry, large integrated groups offering a wide range of products are
found alongside tour operators that focus on very specific niche markets. The niche players typically operate on a much
smaller scale. Most tour operators focus on leisure tourism.
Travel Management Companies (TMC)
These businesses mainly focus on business travel arranged as intermediaries, and serve primarily corporate customers
(B2B). TMCs are able to compare different itineraries and costs in real-time, allowing users to access fares for air
tickets, hotel rooms and rental cars simultaneously and to prepare bespoke travel plans for clients.
Travel agents
These businesses operate mainly in the leisure (i.e. B2C) market as intermediaries. Travel agents can operate as “brick
& mortar” enterprises or as “online” agents or both (mainly B2C), whereas the TMCs as referred to above focus on
business travel.
Travel agents may provide customers with travel advice, then sell and administer bookings acting for a number of tour
operators and other suppliers such as airlines, hoteliers, car rental companies.
Large travel agencies are often part of an international integrated group that also organises packaged tours and owns
accommodation, etc. We are aware that a number of independent travel agents have joined forces in consortia or
networks. These networks combine the capacity of their members on the purchase side as well as in providing services
to the members of the consortium (HR management, taxation consultancy, etc.)
Destination Management Companies (DMC)/Wholesale Tour Operators
These businesses operate mainly in the inbound segment. DMCs differ from tour operators in that DMCs usually do not
deal directly with end-clients, but trade through agents (mostly tour operators).
DMCs focus on inbound tourism. They cater services for both tour operators focusing on leisure tourism and TMCs.
These services can include transportation, hotel accommodation, activities, excursions, conference venues, themed
events, etc. DMCs/wholesale tour operators organise and sell packages but also sell individual components e.g. “room
only”. The package business is often (at least in the UK) referred to as the groups business whilst the sale of single
components is often called Fully Independent Traveller (“FIT”).
MICE organisers, i.e. Meeting, Incentives, Conferences and Events organisers - mainly in the
corporate segment (B2B).
Another segment of the industry focusses on MICE (Meeting, Incentives, Conferences and Events). MICE organisers
are often specialised in that specific segment, although TMCs have their own in-house MICE department as well.
These operators combine features of travel agents, DMC and TMC businesses, generally focused around a specific
event or collection of events catering to a particular purpose or special interest group.
3.7 NAICS Definitions
561510 Travel Agencies
This industry comprises establishments primarily engaged in acting as agents in selling travel, tour, and
accommodation services to the general public and commercial clients.
561520 Tour Operators
This industry comprises establishments primarily engaged in arranging and assembling tours. The tours are sold
through travel agencies or tour operators. Travel or wholesale tour operators are included in this industry.
561591 Convention and Visitors Bureaus
This US industry comprises establishments primarily engaged in marketing and promoting communities and facilities to
businesses and leisure travellers through a range of activities, such as assisting organisations in locating meeting and
convention sites; providing travel information on area attractions, lodging accommodations, restaurants; providing
maps; and organizing group tours of local historical, recreational, and cultural attractions.
144
561599 All Other Travel Arrangement and Reservation Services
This US industry comprises establishments (except travel agencies, tour operators, and convention and visitors
bureaus) primarily engaged in providing travel arrangement and reservation services. Illustrative examples are:
Condominium time-share exchange services
Ticket (e.g. airline, bus, cruise ship, sports, theatrical) offices
Road and travel services automobile clubs
Reservation (e.g. airline, car rental, hotel, restaurant) services
Ticket (e.g. amusement, sports, theatrical) agencies
3.8 Treatment of the data
An assumption has been made that the turnover in the Other Travel Arrangement and Reservation Services
category is not generated by businesses in our five models. Therefore, this turnover has been excluded from the
calculations.
The Conventions and Visitors Bureaus category looks to be a good match to the definition of the MICE business
model, so this data has been directly attributed to this sector.
It has been assumed that the NAICS Definition of Tour Operators includes both the tour operator business model
and the DMC business model. DMC revenue is mainly generated from inbound tourism. The Economic Impact
reports from the WTTC provide a breakdown between expenditure from foreign visitors and domestic visitors for
each country. It has been assumed that it is reasonable to apportion the tour operator turnover figures on the
same basis as this to determine the split of NAICS Code 561520 between the DMC and tour operator business
models respectively. This ratio has been applied.
It has been assumed that the NAICS Definition of Travel Agencies includes both the Travel Agents business model
and the TMC business model. TMC revenue is mainly generated from B2B sales. The Economic Impact reports
from the WTTC provide a breakdown between business and leisure expenditure for each country. It has been
assumed that it is reasonable to apportion the travel agencies turnover figures on the same basis as this to
determine the split of NAICS Code 561510 between the TMC and Travel Agent business models respectively. This
ratio has been applied.
145
3.9 VAT extrapolations
VAT throughput
The business questionnaire yielded responses from 105 businesses in 18 Member States, spanning all five business
models. Of these responses, information from 98 respondents was utilised in the indicative calculations, according with
the adequacy of the information provided. The total turnover of these businesses represents approximately 10% of the
estimated EU market (€19bn). No responses were received from non-EU businesses. Meanwhile by turnover, 94% of
the utilised respondent businesses were based in only five Member States.
The responses notably included: business turnover; percentage of turnover received form business customers; value of
Special Scheme output tax; value of irrecoverable input tax pertaining to Special Scheme supplies; and the value of
output tax declared under “normal rules”.
The utilised responses of the 98 businesses were converted to € currency and aggregated together to provide a total
for the sample as a whole. This was a straightforward aggregation in that it did not involve weighting for differing VAT
rates (it is not known how the VAT figures provided breakdown between different standard and reduced VAT rates).
Similarly whilst respondents provided figures for their latest accounting period end, no adjustments have been made to
align time periods – the aggregate may be taken as indicative of a 2016 accounting period.
The aggregate values for the sample as a whole were benchmarked against the total turnover for businesses in the
sample, and this ratio was then applied to total EU turnover to give indicative figures at an EU level as follows
255
.
Special Scheme output VAT
On average, Special Scheme output VAT, as indicated by 75 utilised respondents in respect of question 11, was circa
€2.1m. The average turnover of the utilised respondent businesses was €194m. This indicates that Special Scheme
output tax can be estimated to be in the order of 1% of turnover. Per Fig. 4b in section 4, macroeconomic data analysis
indicates total proxy EU Special Scheme turnover of circa €187bn. 1% of this figure gives an indication of €1.9bn.
Irrecoverable Special Scheme output VAT on B2B supplies
The percentage of B2B supplies for each respective business, as indicated by 95 utilised respondents in respect of
question 10, was applied to the total identified Special Scheme output VAT from question 11 (for the 75 utilised
respondent businesses, but excluding respondents from Belgium, Finland, France, Hungary and Sweden for which per
section 5.5.10 recovery of this VAT is allowed and excluding Germany and Slovakia where the Special Scheme does
not apply to B2B supplies)
256
. The data does not allow a distinction between wholesale supplies and supplies for
consumption, so no adjustments could be made in this regard
257
.
This indicated B2B Special Scheme output VAT was on average circa 0.16% of turnover. Per Figure 4b,
macroeconomic data analysis indicates total proxy EU Special Scheme turnover of circa €187bn. 0.16% of this figure
gives an indication of circa €0.29bn for the EU as a whole.
Irrecoverable input tax on direct Special Scheme costs
The irrecoverable input tax on direct Special Scheme costs, as indicated by 45 utilised respondents in respect of
question 12, was calculated for each respondent as a percentage of that respondent’s turnover, giving a rounded
average of 3%.
Per Figure 4b, macroeconomic data analysis indicates total proxy EU Special Scheme turnover of circa €187bn. 3% of
this figure gives an indication of €5.6bn.
Irrecoverable input tax on direct Special Scheme costs of B2B supplies
The percentage of B2B supplies for each respective business, as indicated by 95 utilised respondents in respect of
question 10, was applied to the Special Scheme irrecoverable input VAT indicated by utilised respondents to question
12 (for 88 sampled businesses excluding respondents from Germany and Slovakia, for which the Special Scheme does
not apply to B2B supplies)
258
. The data does not allow a distinction between wholesale supplies and supplies for
consumption, so no adjustments could be made in this regard
259
.
255
These figures should be considered to be only indicative estimates of potential VAT impacts. All the underlying data is necessarily either
approximation or sample-based. Some of the approximations would imply that the estimates are more likely to be over-estimates than under-estimates
but, overall, we cannot confirm this
256
Austrian responses were not excluded from this exercise. The Special Scheme is set to apply in Austria from May 2019
257
Typically any Special Scheme output tax declared on wholesale supplies would not be identifiable to the recipient as input VAT (see section 5.5.5).
Respondents to the business questionnaire were not asked to provide a distinction between wholesale supplies and supplies for consumption in respect
of irrecoverable Special Scheme output VAT on B2B supplies or in respect of irrecoverable input tax on direct Special Scheme costs of B2B supplies as
this would have required respondents to provide an onerous level of detail
258
Austrian responses were not excluded from this exercise. The Special Scheme is set to apply in Austria from May 2019
259
Both elements were included as they comprise VAT amounts collected by the tax authorities from a supplier (e.g. a hotel) and which typically cannot
be recovered. Where a travel business makes wholesale supplies, the margin VAT declared by the first travel business could potentially be “double-
counted” as irrecoverable input VAT by the second travel business. However in general, the margin VAT would not be disclosed on the invoice, and so
could not be known to the second business in the supply chain
146
This indicated that irrecoverable input tax on direct Special Scheme costs in respect of B2B supplies was circa 0.62%
of turnover, circa €1.15bn for the EU as a whole.
Output tax accounted for under "normal” rules
The value of output VAT declared under “normal” rules, as indicated by 48 utilised respondents in respect of question
14, was calculated for each respondent as a percentage of that respondent’s turnover, giving a rounded average of 2%.
Per Fig. 4b, macroeconomic data analysis indicates total proxy EU Special Scheme turnover of circa €187bn. 2% of
this figure gives an indication of €3.7bn.
(€bn)
Special Scheme output tax can be indicatively estimated to be in the order of 1.9
Of which, Special Scheme output tax pertaining to B2B supplies can be indicatively estimated
to be in the order of
0.29
Irrecoverable input tax on direct Special Scheme costs can be indicatively estimated to be in
the order of
5.6
Of which, irrecoverable input tax on direct costs of B2B Special Scheme supplies can be
indicatively estimated to be in the order of
1.15
Output tax accounted for under "normal rules" can be indicatively estimated to be in the order
of
3.7
Whilst at the outset of the project it was hoped that figures could be scaled by each Member State and by each
business model, the relatively small sample size in the majority of Member States is such that specific quantification of
any given issue in a particular Member State is not possible. However, as an indication of relative value, the relative
sizes by country and by business model of the Figs. 4a and 4b in section 4.3.7 (turnover by Member State and turnover
by business model) should be borne in mind.
Wholesale illustration
We have prepared a generic model to help illustrate the effect on EU VAT revenue if the CJEU decision on the
treatment of wholesale supplies is adopted by all Member States.
Data is not available to permit a calculation of the effect of such a change across the EU. Therefore, we have focused
on the effect on revenue in relation to the wholesale supply of travel enjoyed in two Member States: the UK and a
second illustrative Member State (“MS2”). The UK is one of the Member States which does not require wholesale
supplies to be included in the Special Scheme.
We have used the value of total inbound travel (the main operation of DMCs) in 2016 for the UK of €25.65bn
260
. Based
on our experience in the UK, we have used 20% of the total inbound value as the estimated turnover of DMCs. In other
words, we have estimated that 20% of inbound travel to the UK is organised by a DMC or other wholesaler, with the
balance being arranged by travellers themselves directly with primary suppliers such as hotels or via intermediaries
such as travel agents and TMCs.
Also based on our experience, we have prepared the model so that 60% of the wholesale value is treated as the value
of FIT services (i.e. the provision of single services such as the supply of hotel accommodation only) and 40% is the
value of organised packages. Of the FIT value, for this model we have taken 90% to be the supply of accommodation
and 10% to be the value of passenger transport. For the package business, we have taken what we consider to be a
typical mix of services and used the VAT rates applied in the UK to the services involved. Where more than one rate is
possible, we have used a weighted average. The services included are set out in the calculations.
MS2 is intended to represent other Member States which also exclude wholesale supplies from the Special Scheme.
We have used a set of illustrative VAT rates for the services purchased and re-supplied by DMCs for inbound travel to
MS2. We have used the same value of inbound travel to MS2 as above for the UK so as to allow a straight comparison
between the results.
In addition, the assumptions made for both calculations are as follows:
• 80% of the DMC business is conducted by businesses established in MS2 or the UK as the case may be. Of
the remaining 20%, half of this (10%) is conducted by a DMC established elsewhere in the EU and the other
half by DMCs established in third countries.
260
Taken from “UK Tourism Statistics 2017” published by the Tourism Alliance
147
• Of the value of wholesale supplies made by DMCs in other Member States, half of this is subject to the
Special Scheme and the remaining half is supplied by DMCs established in a Member State which does not
apply the Special Scheme to wholesale supplies and no payment of VAT is made (nor any input tax
deducted).
• No third country DMC is registered for VAT, pays output tax or deducts input tax either under the current rules
or if the CJEU judgments were adopted.
• The margin made by all suppliers involved is 10%.
• The standard VAT rate adopted for all Member States is 20%.
• We treat supplies of guiding services as liable to the standard VAT rate but have treated all purchases of
guiding services as VAT-free (so there is no input tax to deduct) on the assumption in this model that the
guides are operating small businesses with turnovers below the local registration threshold.
The current payment of VAT is calculated using a multiple supply approach i.e. for packages, the component parts are
each considered to be a supply and each supply is taxed in accordance with the nature of the service provided and at
the rate applicable. For all services, it is assumed that the place of supply is the Member State in which the service is
consumed. The DMC turnover is apportioned to calculate the value of each supply on the basis of the costs of the
individual services.
Some of the services in certain Member States, for example Ireland, can be exempt without credit for input tax. If the
Special Scheme was applied, this exemption would not apply and it could be expected that the DMCs involved would
see improved deduction of input tax on indirect costs. No account is taken of this point in the model.
Illustrative calculations
3.9.3.1 UK to Spain
As an indication, data from the UK industry body ABTA
261
shows that the value of tourism from the UK to Spain was
£6bn or €6.8bn in 2015. The business questionnaire indicated that on average irrecoverable Special Scheme VAT was
circa 3% of turnover for the surveyed businesses whilst Special Scheme margin VAT was circa 1% of turnover. (This is
an EU average across our 100 sampled business and ignores variation in domestic VAT rates.) If it is assumed that
50% of the travel from the UK to Spain was arranged “direct” and 50% via travel agents we can infer that the VAT
generated for Spain in 2015 from the inability of UK travel agents to recover input tax was circa €102m. The statistics
presented in ABTA’s “Holiday Habits Report 2017” are, in our opinion, consistent with it being reasonable to assume
that perhaps around 50% (by value) of the travel from the UK to Spain was organised by a travel agent in such a way
that the Special Scheme would have applied.
By a similar method revenue collected in the UK could be estimated at circa €34m. (As a sense-check, based on an
assumed average margin achieved by UK agents of circa 10%, revenue collected in the UK can be estimated
262
as
€56m.)
263
3.9.3.2 Germany to Greece
Similarly, data from the Bank of Greece
264
shows that the value of tourism from Germany to Greece was €2.2bn in
2015. Using the same method above it can be inferred that the VAT generated for Greece in 2015 from the inability of
German travel agents to recover input tax was circa €33m and that revenue collected in Germany on these supplies
could be estimated at circa €12m.
3.9.3.3 UK to EU
The data from ABTA discussed above shows that the value of tourism from the UK to the rest of the EU in 2015 was
£19bn (£6bn to Spain, £2.8bn to France, £1.6bn to Italy, £1.3bn to Greece, £1.1bn to Portugal) - and that the value to
the UK from the rest of the EU was £6.4bn. The net position is £12.6bn or €14.4bn.
The business questionnaire indicated that on average Special Scheme output tax was circa 1% of turnover for the
surveyed businesses. (This is an EU average across our 100 sampled business and ignores variation in domestic VAT
rates.) Based on these ABTA figures, the net decrease to UK Special Scheme income from a shift to destination as the
place of supply could therefore be estimated to be in the order of circa €0.14bn.
265
261
ABTA document reference []
262
Ignoring the effect of the transport company arrangements – see section
263
€6.8bn x 50% x 10% x 1/6
264
http://www.bankofgreece.gr/Pages/en/Statistics/externalsector/balance/travelling.aspx
265
This is an indicative figure only, notably relying on the assumption that all Member States involved are equivalent to the “average” Member State
covered by the questionnaire respondent, and ignoring variations in local VAT rates.
148
Annex 4
Articles 306 to 310 of the
VAT Directive
149
Annex 4 Articles 306 to 310 of the VAT Directive
4.1 Article 306
a) Member States shall apply a special VAT scheme, in accordance with this Chapter, to transactions carried out by
travel agents who deal with customers in their own name and use supplies of goods or services provided by other
taxable persons, in the provision of travel facilities.
b) This Special Scheme shall not apply to travel agents where they act solely as intermediaries and to whom point (c)
of the first paragraph of Article 79 applies for the purposes of calculating the taxable amount.
c) For the purposes of this Chapter, tour operators shall be regarded as travel agents.
4.2 Article 307
Transactions made, in accordance with the conditions laid down in Article 306, by the travel agent in respect of a
journey shall be regarded as a single service supplied by the travel agent to the traveller.
The single service shall be taxable in the Member State in which the travel agent has established his business or has a
fixed establishment from which the travel agent has carried out the supply of services.
4.3 Article 308
The taxable amount and the price exclusive of VAT, within the meaning of point (8) of Article 226, in respect of the
single service provided by the travel agent shall be the travel agent's margin, that is to say, the difference between the
total amount, exclusive of VAT, to be paid by the traveller and the actual cost to the travel agent of supplies of goods or
services provided by other taxable persons, where those transactions are for the direct benefit of the traveller.
4.4 Article 309
If transactions entrusted by the travel agent to other taxable persons are performed by such persons outside the
Community, the supply of services carried out by the travel agent shall be treated as an intermediary activity exempted
pursuant to Article 153.
If the transactions are performed both inside and outside the Community, only that part of the travel agent's service
relating to transactions outside the Community may be exempted.
4.5 Article 310
VAT charged to the travel agent by other taxable persons in respect of transactions which are referred to in Article 307
and which are for the direct benefit of the traveller shall not be deductible or refundable in any Member State
.
150
Annex 5
List of Abbreviations
151
Annex 5 List of common abbreviations used in this study
B2B
Business-to-Business
B2C Business-to-Consumer
bn billion
CJEU Court of Justice of the European Union
DMC Destination Management Company
ETOA European Tour Operators Association
ECTAA European Travel Agents’ and Tour Operators’
Associations
EU European Union
FIT Fully Independent Traveller
MICE Meetings, Incentives, Conferences and Events
m million
OECD Organisation for Economic Co-operation and
Development
TFEU Treaty of the Functioning of the European Union
(TFEU)
TMC Travel Management Company
tn trillion
VAT Value Added Tax
VAT Directive Council Directive 2006/112/EC
EUROPEAN COMMISSION
Directorate-General for Taxation and Customs Union
TAXUD/2016/AO-05
EUROPEAN COMMISSION
Directorate-General for Taxation and Customs Union
TAXUD/2016/AO-05
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calling 00 800 6 7 8 9 10 11 (freephone number from anywhere in the EU) (*).
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doi:10.2778/078698
Catalogue Number:
KP
-07-17-131-EN-N
