Agents to benefit from VAT proposal

The European Commission is planning to make life easier for travel agents by simplifying the VAT arrangements that govern the selling of holiday packages for destinations within the EU.

The “margin scheme” rules permit travel agents to levy VAT on their profit margin instead of on the full value of their sales.

The simpler scheme that is proposed would remove double taxation when travel agents make sales to other agents, rather than to the general public. It would also remove unfair competitive advantages for a number of agents who gain through the inconsistent application of the current rules by various Member States, and through the non-application of VAT to operators outside the EU selling holiday packages to EU residents.

“This proposal would create a level playing field for travel agents in Europe and eliminate competitive distortions” said Frits Bolkestein (pictured), the EU Commissioner for Taxation.

The proposal also reflects the increasing specialisation in the travel business, and in the reselling of packages between travel agents. It will remove the current option for Denmark, Ireland and Holland to exempt operators from VAT.

Non-EU travel agents will have to register and pay VAT in the EU Member State to which they supply travel services. Internet travel booking has led to what the Commission sees as a distortion of competition, since, at present, a travel package is taxed under the margin scheme when it is supplied by an EU established tour-operator, but is not subject to tax when supplied by a tour operator established in a third country.

Agents can however opt for the application of the normal VAT arrangements instead of the margin scheme if they choose. This would resolve the problems that arise when a travel agent is involved in supplying travel packages to businesses or other traders subject to VAT.

The proposals also includes a new, simpler definition of the profit margin and a single profit margin for travel packages supplied within a certain period.

The special rules – known as the margin scheme – have been obligatory, but Denmark, Ireland and the Netherlands, which exempted the supplies of travel packages by travel agents at the time the present rules were adopted, have up to now been allowed to maintain that exemption.

Related material

• Travel Agents & VAT FAQs (PDF)
• Commission proposals (PDF)

This article was supplied by TravelMole’s sister site, accountingweb.co.uk