Background
When the UK left the EU, the Tour Operators’ Margin Scheme (TOMS) continued for UK tour operators and organisers of events, meetings or conferences, but VAT is only now payable on the margin for UK holidays. Prior to Brexit VAT was payable on the margin on EU holidays. It seemed at the time of Brexit that UK tour operators had come out on top but since 2021 we have seen both the European Commission and some EU countries looking to tax UK tour operators who send travellers into their jurisdiction. So, what is the current position and what might happen over the next few years?
Current position for UK tour operators in the EU
Croatia requires UK tour operators that send travellers to Croatia to register for Croatian VAT. This rule came in on 5 January 2021. VAT is payable at Croatian VAT rates (25% standard rate and 13% for e.g. accommodation) and not under TOMS rules. Input tax is recoverable on purchases in Croatia as long as VAT invoices are held.
Germany originally said that VAT registration would be required there but postponed this requirement twice. We are currently expecting UK tour operators to have to register from 1 January 2023. German VAT rates are 19% standard rate and 7% for hotel accommodation.
In addition to Croatia and Germany, there are rumours that some other countries are considering introducing a VAT registration requirement for UK and other non-EU tour operators. These are Austria, Portugal and Cyprus. I have no concrete information yet about any of these.
What does the future hold?
There has been talk for years about requiring non-EU tour operators to have to register for VAT in the EU if they are sending travellers to those countries but the UK leaving the EU has meant an increased focus on this. EU tour operators feel that it is unfair that they must pay VAT on EU holidays when non-EU tour operators do not.
The European Commission sponsored a study on TOMS in 2017 which amongst other things, raised the issue of a lack of taxation for non-EU tour operators. In 2020, the Commission held a consultation, open to anyone to comment on how TOMS operates in the EU. Of those who responded, 94% thought that differences in the application of TOMS create distortions of competition. Importantly for the UK, 77% of respondents cited the treatment of third country tour operators as a cause of such distortion.
The European Commission’s 2022 study
The Commission asked economic consultants, Economisti Associati, to conduct an assessment of the effects of possible changes to modernise and harmonise the rules, and to create a level playing field.
The study team was tasked to consider making proposals in four areas:
- The place of taxation – a key objective is to achieve equality (or at least greater equality) between EU and third country suppliers
- The definition of travel facilities – to aid simplification and harmonisation
- The margin – simplification of the calculation requirements
- The treatment of B2B supplies – to increase flexibility and VAT efficiency
Economisti Associati’s interim report has been delivered to the Commission already and their final report is expected in February 2023.
We understand that the aims of this new assessment are to get the same VAT outcome wherever the supplier is established. The current place of supply is where the supplier is established. Therefore, if the supplier is not established in the EU then there is no requirement to pay EU TOMS VAT currently. The place of supply could therefore be changed to:
- Where the customer is situated - A place of supply where your customer is situated, might not impact greatly on UK tour operators assuming that most supplies of travel in the EU by UK operators are made to UK consumers. If so, then there would be no further VAT to pay.
- Where the travel services are consumed - A place of supply where travel services are consumed would require VAT registration in every EU country where a UK tour operator sends customers. This compliance would be costly and time consuming. There is an option to register instead for the EU’s One Stop Shop which allows non-EU suppliers to register once and declare VAT on sales in all EU countries. The One Stop Shop does not allow input VAT recovery however so if UK businesses want to be able to recover VAT, they would have to submit VAT claims under the 13th Directive to every country individually. This isn’t very attractive either.
- Different rules for EU and non-EU tour operators – taxation at place of establishment for EU operators and either taxation at place of customer for non-EU operators or taxation where the travel services are consumed for non-EU operators. This feels overly complicated and it would surely be clearer and fairer to have one place of supply for everyone, whether you are an EU or non-EU operator.
Conclusion
I am often asked by tour operators what they should do about the changes and in particular, should they set up a business in the EU and pay TOMS VAT in the EU through that entity. My answer (at the moment) is to register for VAT where they are required to register and then wait. To set up an EU business and account for EU VAT under TOMS would require actually selling holidays from the EU establishment and this would mean huge costs for the business and changes to its staff and operations.
I believe VAT registration in Croatia and Germany are probably just the tip of the iceberg and more countries may require VAT registration. However it is important to note that all member states have to agree before there are changes to EU taxation and this requirement may therefore delay the introduction of new rules.
Get in touch
If you would like more information or specific advice about your own situation please contact Sue Rathmell. Alternatively, you can use our online form to get in touch with us.
