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VAT: Special scheme applicable to travel agencies

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VAT: Special scheme applicable to travel agencies

This directive aims to simplify and amend the VAT rules applicable to travel agencies selling travel packages within the European Union, in order to put these agencies on an equal footing, promote more uniform application of the special VAT scheme and eliminate distortions of competition, especially in relation to third country operators.


Proposal for a Council Directive of 8 February 2002 amending Directive 77/388/EEC as regards the special VAT scheme for travel agencies

When the 6th VAT Directive was adopted in 1977 a special scheme was introduced for travel agencies and tour operators. This special VAT scheme, set out in Article 26 of the 6th VAT Directive (Directive 77/388/EEC), was brought in due to the special nature of the industry. The services offered by travel agencies and tour operators usually consist of a package of services, in particular, transport and accommodation obtained from third parties. These packages are then sold by travel agencies, in their own names, to travellers. Under these circumstances, the normal rules on the taxable amount, deduction of input tax and place of taxation are particularly difficult to apply due to the complexity and location of the services provided.

The special tax system as now applied

Under Article 26 of the 6th VAT Directive, all transactions performed by the travel agency in respect of a journey are regarded as a single supply. The taxable amount is the profit margin realised by the agency on the supply of a travel package and hence the agency is not entitled to deduct input VAT on transactions directly benefiting the traveller. The place of taxation for the agent's supply is where he has established his business activities or has a fixed base from which he provides the service or, failing this, the place where he has his permanent address or usually resides.

Hence this special VAT scheme has two aims: (a) to simplify application of Community VAT rules for these supplies, particularly so that a travel agency avoids multiple registration for VAT purposes in each Member State where the services are provided; (b) to ensure that the VAT revenue goes to the Member State in which final consumption of each individual service takes place (NB 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 agencies' margins returns to the Member State where the agency is established).

On the basis of case law from the European Court of Justice, the Commission considers that the margin-based system is only applicable when the package is sold to the traveller (the final consumer). If the package is sold by one tour operator or a travel agency to another, the margin scheme is not applicable and each transaction must be taxed separately in accordance with the relevant criteria determining the place of supply.

Certain Member States apply this system differently, however, even going so far as to uphold another interpretation of Article 26 whereby the margin scheme should also apply where a package is sold by one tour operator or travel agency to another.

Similarly, some Member States grant an exemption on the sale of package tours, while others apply an all-in method for calculating the travel agency's profit margin.

Problems encountered

In practice the special VAT scheme for travel agencies is not applied uniformly by Member States. As the interpretation of Article 26 varies widely from one Member State to the next, the margin scheme is applied in a very divergent way, which sometimes leads to double taxation, distortions of competition and unfair distribution of VAT receipts among Member States.

Proposed solution: amendment of Article 26

In view of the above problems and the basic aims of this special scheme (cf. point 3), the Commission proposes amending Article 26 while still preserving the logic of this Article. It thereby aims to simplify and update Community legislation relating to VAT and promote more uniform and hence fairer application of the rules.

More uniform application of the margin scheme

The Commission proposes broadening the scope of application of the special scheme applying to travel agencies so as to allow them to apply VAT to their profit margin for services sold to other travel agencies as well as to private individuals.

This proposal would also make it no longer possible for Denmark, Ireland and the Netherlands to exempt tour operators from VAT. It would also abolish the all-in method of margin calculation as now applied in Belgium.

Inclusion of tour operators not established in the European Union within the scope of the VAT system

With the growing use of the Internet as a sales outlet, package tour agencies or tour operators established in third countries are increasingly providing package tours to EU residents. This situation causes a clear distortion of competition since at present package tours in the EU are taxed under the margin scheme when supplied by an operator established in the EU yet are not taxable when supplied by an operator established in a third country. Under these circumstances, the Commission proposes that tour operators established outside the EU should also be VAT registered when selling package tours to those established in the EU and that they pay the tax in the EU Member State where the customer is established. In order to simplify the obligations of suppliers not established in the EU and avoid their registration for VAT purposes in all Member States where they have clients, the Commission proposes use of the "one stop shop" scheme introduced in the special VAT scheme applicable to certain electronically supplied services (see point 12).

Optional provision in respect of sales to other commercial operators

In the present situation, when a customer, such as a firm, orders a package tour from a travel agent for business purposes, he is not entitled to deduct the VAT comprised in the cost of the package tour, even though normally he would be able to do so for services provided to him for business purposes. It follows that it is in the best interest of firms to deal with individual suppliers of the items of a package tour, subject to normal VAT rules, rather than dealing with a travel agency, so as to be able to deduct VAT. To avoid this problem, the Commission proposes entitling travel agencies to opt for application of the normal VAT system rather than the margin scheme if they choose to do so. This would entitle the taxable client to deduct the remaining VAT invoiced to him by the travel agency.

The proposal also introduces a simplification of the definition of "profit margin" in order to put an end to the difficulties experienced by several Member States in calculating the profit margin under the special system applicable to travel agencies.

In order to simplify the profit margin system, the Commission also proposes authorising travel agencies to calculate a single profit margin for package tours provided over a certain period, so that they need not determine this margin for every package tour they sell.

To this end, on 21 February 2003 the Commission adopted a proposal for a Regulation of the Council and the European Parliament amending Regulation (EEC) No 218/92 on administrative cooperation in the field of indirect taxation (VAT) as regards additional measures regarding supplies of travel services [COM(2003) 78/2 - Not published in the Official Journal]. This proposal aims to include in the special margin scheme applicable to travel agencies the simplified mechanism adopted for services provided electronically by suppliers not established in the European Union to customers established in the EU. On 2 September 2003 the European Parliament approved the Commission proposal without amendment, at first reading.

References and procedure


Official Journal


COM(2002) 64

OJ C 126 E of 28.05.2002


Last updated: 18.08.2006