Provisional text
OPINION OF ADVOCATE GENERAL
SZPUNAR
delivered on 27 November 2025 (1)
Case C‑565/24
P-GmbH & Co. KG
v
Finanzamt Q
(Request for a preliminary ruling from the Bundesfinanzhof (Federal Fiscal Court, Germany))
( Reference for a preliminary ruling – Taxation – Common system of value added tax – Directive 77/388/EEC – Article 17 – Right to deduct input tax due or paid – Article 26 – Special scheme for travel agents – Scope – Excursions combined with sale of goods – Margin taxation – Negative margin – No right to deduct )
Introduction
1.        The common system of value added tax (‘VAT’) consists in taxing all business revenue at each stage of marketing, and because, at each stage, the tax paid at the preceding stage is deducted, the tax is not cumulative and the final burden is borne by the consumer.
2.        However, some types of activities are taxed under special rules, according to which tax is levied strictly on the value added at each stage of marketing, while the taxable person recovers the input tax paid in the price of its goods or services. Such special taxation rules apply, inter alia, under the special scheme for travel agents, which is the subject of the present case.
3.        The question the present case poses to the Court is specifically whether that special tax scheme should apply in the unusual situation where a taxable person provides tourist services at a loss, and therefore does not generate added value from those services, but its business is profitable thanks to the sale of goods combined with those services. That is because the application of the special tax scheme in such circumstances is in conflict with the basic principles of the common system of VAT.
Legal framework
European Union law
4.        Article 2 of First Council Directive 67/227/EEC of 11 April 1967 on the harmonisation of legislation of Member States concerning turnover taxes,(2) as amended by Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, (3) provided as follows: (4)
‘The principle of the common system of [VAT] involves the application to goods and services of a general tax on consumption exactly proportional to the price of the goods and services, whatever the number of transactions which take place in the production and distribution process before the stage at which tax is charged.
On each transaction, [VAT], calculated on the price of the goods or services at the rate applicable to such goods or services, shall be chargeable after deduction of the amount of [VAT] borne directly by the various cost components.
The common system of [VAT] shall be applied up to and including the retail trade stage.’
5.        Articles 11, 17 and 26 of Directive 77/388 provided as follows:
‘Article 11
A.      Within the territory of the country
1.      The taxable amount shall be:
(a)      in respect of supplies of goods and services other than those referred to in (b), (c) and (d) below, everything which constitutes the consideration which has been or is to be obtained by the supplier from the purchaser, the customer or a third party for such supplies including subsidies directly linked to the price of such supplies;
…
Article 17
…
2.      In so far as the goods and services are used for the purposes of his taxable transactions, the taxable person shall be entitled to deduct from the tax which he is liable to pay:
(a)      [VAT] due or paid in respect of goods or services supplied or to be supplied to him by another taxable person;
…
Article 26
Special scheme for travel agents
1.      Member States shall apply [VAT] to the operations of travel agents in accordance with the provisions of this Article, where the travel agents deal with customers in their own name and use the supplies and services of other taxable persons in the provision of travel facilities. This Article shall not apply to travel agents who are acting only as intermediaries and accounting for tax in accordance with Article 11A(3)(c). In this Article travel agents include tour operators.
2.      All transactions performed by the travel agent in respect of a journey shall be treated as a single service supplied by the travel agent to the traveller. It 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 provided the services. The taxable amount and the price exclusive of tax, within the meaning of Article 22(3)(b), in respect of this service shall be the travel agent’s margin, that is to say, the difference between the total amount to be paid by the traveller, exclusive of [VAT], and the actual cost to the travel agent of supplies and services provided by other taxable persons where these transactions are for the direct benefit of the traveller.
…
4.      Tax charged to the travel agent by other taxable persons on the transactions described in paragraph 2 which are for the direct benefit of the traveller, shall not be eligible for deduction or refund in any Member State.’
German law
6.        The special tax scheme for travel agents was provided for in Paragraph 25 of the Umsatzsteuergesetz (VAT Law) of 26 November 1979 in the wording in force at the time of the facts in the main proceedings.
Facts, procedure and questions referred
7.        From 1997 to 1999, P-GmbH & Co. KG, a company incorporated under German law (‘Company P’), organised excursions combined with the sale of goods, commonly referred to in Germany as ‘Kaffeefahrten’ (‘coffee trips’). Those excursions involved transporting the participants by bus to various tourist attractions, where they would receive a meal and possibly participate in an additional tourist programme, but primarily they would participate in sales events during which they could purchase a variety of goods sold by Company P.
8.        Company P purchased transportation services from other taxable persons and offered those services in its own name to the excursion participants. The participants paid a fee to participate in the excursion, but that fee did not fully cover the costs that Company P incurred in connection with the purchase of transportation services from other taxable persons.(5) The remainder of those costs, as well as the costs of other services which were free of charge to
the participants, were covered by Company P using revenue from the sale of goods to certain participants (the purchase of those goods was not mandatory). From the point of view of the provisions on VAT, that sale constituted a separate supply of goods. Gradually, more and more excursions were offered to participants completely free of charge, and all the costs were covered by revenue from the sale of goods.
9.        Company P taxed its activities under the general rules, exercising the right to deduct all tax paid on services purchased from other taxable persons, which initially did not raise any objections from the tax authorities. However, as a result of tax audits and subsequent administrative and judicial proceedings, Company P’s right to deduct transportation costs was only recognised with respect to those excursions for which the company did not charge any fees to participants.(6) In contrast, with respect to those excursions for which Company P charged participants a fee to cover part of the cost of the transportation service, the Niedersächsisches Finanzgericht (Lower Saxony Finance Court, Germany) ruled in its judgment of 12 May 2022 that the transportation service fell under the special tax scheme for travel agents, and therefore Company P had no right to deduct the tax it had paid when purchasing that service from other taxable persons. The company brought an appeal on a point of law against that judgment before the referring court.
10.      In those circumstances, the Bundesfinanzhof (Federal Fiscal Court, Germany) decided to refer the following questions to the Court of Justice for a preliminary ruling:
‘(1)      Does an “excursion organised by the trader away from his business premises” within the meaning of the first indent of Article
1(1) of Directive 85/577/EEC (7) fall within the scope of “transactions performed by the travel agent in respect of a journey” within the meaning of the first sentence of Article 26(2) of Directive [77/388]?
(2)      If the first question is to be answered in the affirmative: Is the special scheme for travel agents under Article 26 of Directive [77/388] applicable even if the margin, which is the taxable amount under the third sentence of Article 26(2) of Directive [77/388], is negative because the actual cost exceeds the “total amount” to be paid by the traveller “exclusive of [VAT]”?
(3)      If the first and second questions are to be answered in the affirmative: Is the first sentence of Article 12(1) of Directive [77/388] applicable to the margin, which is the taxable amount within the meaning of the third sentence of Article 26(2) of Directive [77/388], even if the margin is negative, such that a negative margin results in a refund to the taxable person?’
11.      The request for a preliminary ruling was lodged at the Court on 21 August 2024. Written observations were submitted by Company P, the German Government and the European Commission. Those same parties were represented at the hearing held on 11 September 2025.
Analysis
12.      The referring court has referred three questions for a preliminary ruling in the present case. However, since the first two questions essentially concern the same issue, I propose to consider them together. I will then move on to analyse the third question.
Wording of the question
13.      The first two questions referred concern the applicability of the special tax scheme for travel agents provided for in Article 26 of Directive 77/388 to a situation such as that in the main proceedings. Those questions, however, as worded by the referring court, are based on certain assumptions that must be clarified before proceeding to a proper analysis of the legal issue raised therein.
14.      The first question specifically concerns whether the special tax scheme for travel agents applies to excursions organised by a trader away from his or her business premises within the meaning of Directive 85/577. The referring court assumes that the activity at issue in the main proceedings should be classified in that manner.
15.      I do not believe, however, that that classification from the point of view of the aforementioned directive could be of decisive significance for the interpretation of the
provisions on VAT. The Court has already had occasion to rule that in determining the scope of application of Article 26 of Directive 77/388, the classification of the taxable person’s activities from the point of view of Directive 90/314/EEC (8) is irrelevant, as that provision sets its own application criteria.(9) A similar conclusion must be reached, in my opinion, with regard to Directive 85/577. As the Commission rightly points out, that directive serves different purposes than Directive 77/388 and uses different terminology, and thus there is no reason to make the interpretation of one of those directives dependent on the interpretation of the other.
16.      The referring court’s reference to Directive 85/577 is not entirely misplaced, however. By making that reference, the court draws attention to an important aspect of the activity at issue in the main proceedings, the real purpose of which, from the taxable person’s point of view, is not the provision of tourist services per se, but rather the sale of goods carried out in connection with those services, which is reflected in the manner in which the costs of that activity are financed.
17.      The latter aspect is also the subject of the second question referred. The issue is whether Article 26 of Directive 77/388 applies when the fee charged by a taxable person for the provision of tourist services does not fully cover the costs of providing those services, so that the margin on that activity is negative.
18.      Under Article 4(1) of Directive 77/388, a taxable person means any person who independently carries out
economic activity, whatever the purpose or results of that activity. In accordance with that principle, the Court recognises in its settled case-law that the fact that the remuneration received by a taxable person for the provision of services or the supply of goods does not fully cover the input costs incurred by the taxable person does not affect the application of VAT rules.(10) In principle, the same position should be taken with regard to the special tax scheme for travel agents. Indeed, as the Commission again rightly points out, travel agents sometimes provide services at a loss, for instance, in order to recover at least some of the costs previously incurred when purchasing services from subcontractors. Therefore, the fact that a tourist activity in circumstances such as those in the main proceedings results in a loss does not in itself justify the non-application of that special scheme.
19.      The specificity of the present case, however, is that in the economic model adopted by the taxable person, the activity consisting in organising excursions, considered separately, is permanently loss-making, and its costs are covered in part by revenue from the sale of goods and thus become a component of the price of those goods.
20.      By its first and second questions, therefore, the referring court essentially seeks to determine whether Article 26 of Directive 77/388 must be interpreted as applying to a situation in which a taxable person purchases tourist services, in particular transportation services, from other taxable persons and subsequently provides them in its own name within the framework of excursions combined with the supply of goods, the purchase of which is not a condition for participation in the excursion, with the taxable person charging participants a fee that does not cover the entire cost of the services purchased from other taxable persons, and the remainder of that cost being covered by revenue from the supply of goods, thus becoming a component of the price of those goods.
Current case-law
21.      In its case-law to date on the special tax scheme for travel agents, the Court has defined very precisely the scope and rules for applying that scheme. The following elements of that case-law are particularly relevant to the present case.
22.      First, the Court has ruled that the scheme applies not only to the activities of traders that are travel agents or tour operators in the commonly accepted meaning of those terms, but also to the activities of any trader that organises travel or tour packages in its own name and uses the services of other taxable persons for that purpose.(11) The scheme applies irrespective of the purpose and duration of the trip, (12) so, for instance, organising a trip abroad for several months for language learning or study purposes is also subject to its provisions. (13)
23.      The situation may be different only if the tourist services purchased from other taxable persons are purely ancillary to the main services of the trader in question, in the sense that they do not constitute for customers an aim in themselves, but a means of better enjoying the principal service, and the price of those tourist services is marginal in relation to the price of the entire service.(14)
24.      The Court justified that interpretation by the need to ensure that identical or similar services are taxed in the same manner, as otherwise competition could be distorted and the uniform application of VAT rules jeopardised.(15)
25.      Secondly, the Court held that where a taxable person provides, as part of a single package, tourist services it purchases from other taxable persons as well as its own services, the special tax scheme for travel agents only applies to the services purchased from other taxable persons.(16) That is the case even if the taxable person’s own services are also tourist services, and the taxable person charges a flat fee for the entire service. (17)
26.      This follows, according to the Court, (i) from the literal wording of Article 26(1) of Directive 77/388, which does not cover the taxable person’s in-house services; (ii) from the special taxable amount provided for in that scheme, which is the margin understood as the difference between the cost of services purchased from other taxable persons and the price paid by the customer; (iii) and from the purpose of the scheme, which is to avoid the administrative difficulties related to the taxing of services purchased from other taxable persons.(18)
27.      Thirdly and finally, the Court ruled that the margin under the special scheme for travel agents must be calculated, in accordance with Article 73 of Directive 2006/112,(19) separately for each single service within the meaning of Article 308 of Directive 2006/112 (20) (namely the entire service provided to a single customer) rather than globally during a tax period. (21)
Application to the present case
28.      In circumstances such as those in the main proceedings, the case-law discussed above indicates that the special tax scheme for travel agents should be applied to transportation services provided by Company P to its customers for consideration, as those services undeniably have the character of short tourist excursions, and Company P purchases those services from other taxable persons, but provides them to its customers in its own name. As the fees charged by Company P to participants do not fully cover the cost of the transportation services purchased by the company from other taxable persons, the margin calculated in accordance with Article 26(2) of Directive 77/388 is negative, and thus the tax due is zero.(22)
29.      On the other hand, the supply of goods that takes place during those excursions is a separate transaction that is not a tourist service and is provided by Company P itself; it is therefore not subject to the special tax scheme, and the revenue from that supply does not count towards the margin. The supply is taxed under the general rules.
30.      The Commission suggested in its written observations that transportation services provided in circumstances such as those in the main proceedings could be regarded as ancillary to the supply of goods, which would result in them being taxed together with that supply under the general rules. That issue was discussed during the hearing.
31.      However, I agree with the arguments raised during that discussion, including by the Commission itself, that in light of the case-law discussed above, it would be difficult to consider the transportation services provided by Company P as ancillary to the supply of goods. It must be borne in mind here,
primarily, that although participation in the excursion is undoubtedly intended to encourage participants to purchase the goods offered during the excursion, it is by no means mandatory and a participant may simply go on the excursion without purchasing any goods. Moreover, even if participants are aware that goods will be offered to them for purchase during the excursion, participation in the excursion has an intrinsic value for them, as it allows them to peruse the goods on offer and then decide whether they want to purchase them. In those circumstances, it is difficult to accept that, from the customers’ point of view, the excursion is not an end in itself, but only a means to better enjoy the principal service, which is the supply of goods.
32.      The interpretation indicated in point 30 above is also opposed by the fact that the price of the supply of goods is completely independent of the fee charged for the transportation service, which further indicates that those two transactions are separate. Moreover, if, as the referring court points out, the fees for the transportation service covered on average 60% of the cost of that service during the period in question, they can hardly be considered marginal from the customers’ point of view.
33.      In any case, from a purely logical point of view and regardless of the circumstances of the specific case, I agree with the Commission’s contention that it is difficult to consider a service provided in principle to any customer (such as the transportation service in the main proceedings) as ancillary to an optional service that the customer may or may not take advantage of (such as the supply of goods).
34.      In view of the above and in the light of the case-law, the special tax scheme for travel agents should in principle be considered applicable to transportation services provided in circumstances such as those in the main proceedings.
Outline of the problem and proposed solution
35.      Such a conclusion, however, raises serious systemic questions. In circumstances such as those in the main proceedings, the cost of a taxable person’s purchase of transportation services, which it subsequently provides to its customers, is covered only in part by the fees paid by those customers. Nevertheless, the remainder is covered by the revenue from the sale of goods conducted as part of the tourist services provided. Thus, that cost is clearly a component of the price of the supply of goods. However, owing to the application of the special tax scheme for travel agents, that component,
from a VAT perspective, cannot be properly counted towards those costs, which stands in contradiction to the fundamental principles of the functioning of the common system of VAT.
36.      I must clearly emphasise here that the problem does not relate to the tax treatment of transportation services, as that treatment results from the provisions of Article 26 of Directive 77/388, but rather to the tax treatment of the supply of goods economically linked to those services, which is not covered by the provisions of that article.
37.      First, in accordance with the principle enshrined in Article 2 of Directive 67/227,(23) VAT is a turnover tax levied at each stage of marketing, but in a strictly non-cumulative manner. The non-cumulative nature of the tax is achieved, in principle, through the mechanism of deducting from the tax due at each stage of marketing the tax paid at the preceding stage. On the other hand, in a tax scheme such as the special scheme for travel agents, cumulation is avoided by the principle of taxing the margin, that is to say, the value added at the given stage, without once again taxing the VAT included in the price of services purchased at earlier stages. Under normal circumstances, both schemes produce the same result in terms of tax burden.
38.      However, the application of the special tax scheme for travel agents in circumstances such as those in the main proceedings, namely its application to transportation services whose cost is a component of the price of the supply of goods that is not covered by the scheme, results in the cumulation of tax (in other words, double taxation): the VAT paid on the purchase of the transportation service, in so far as it is not covered by the transportation fee charged to participants, is taxed again in the price of the supply of goods. This is due to the application of elements of two different tax regimes to a single transaction, namely the prohibition on deducting the input tax paid that is typical of the margin taxation scheme, combined with the taxation of the entire price of the supply of goods made at the next stage under the general rules.
39.      Secondly, VAT is a consumption tax, which means that its economic burden should be borne by consumers at the final stage of marketing. Although taxable persons for VAT purposes, namely economic operators engaged in taxable economic activities, are taxpayers, that is to say, they collect the tax and pay it to the state treasury, from a financial point of view that tax should be neutral for them – they should not bear its economic burden. That effect is ensured precisely by the right to deduct input tax. Through that mechanism, the economic burden of the tax is ‘shifted’ up to the retail sales stage, when it is recovered by the last participant (not including the consumer) in the price of the goods sold or services provided.
40.      Tax neutrality is also preserved by applying the special tax scheme for travel agents. The price the customer pays covers both the VAT on the margin and the tax ‘hidden’ in the cost of purchasing the service at an earlier stage. As the referring court explains in its reference for a preliminary ruling, assuming the price of the service is the same, the effect of the special scheme
is identical to the effect of taxation under the general rules.
41.      In circumstances such as those in the main proceedings, however, the application of the special tax scheme for travel agents results in a breach of the principle of neutrality. Input VAT, in so far as it is not covered by the participants’ fees, becomes a component of the cost of the supply of goods taxed under the general rules, where, however, it is not deductible. Therefore, the taxable person must either increase the price of that supply of goods accordingly, or bear the economic burden of the tax itself.
42.      Thirdly and finally, tax neutrality also consists in the fact that similar activities are treated equally from a tax point of view, and tax treatment does not affect the economic decisions of taxable persons.(24) It is for that reason that the Court held that the special tax scheme for travel agents should be extended to all taxable persons who provide in their own name tourist services purchased from other taxable persons. (25)
43.      The specificity of the case at issue, however, is that it involves two very different activities that are inseparably linked in economic terms. While the application of the special tax scheme for travel agents helps to ensure that transportation services are treated identically to similar services provided by other taxable persons, the same cannot be said for the supply of goods.
44.      Indeed, as the referring court itself states in its reference, in a situation where Company P does not charge fees to excursion participants at all and covers the entire cost of organising those excursions from revenue from the sale of goods, its activities are taxed under the general rules, and the VAT on the tourist services it purchases from other taxable persons is deductible from the tax due on the supply of goods. Therefore, the special tax scheme for travel agents does not apply. This is logical, as only services supplied for consideration are subject to VAT, and therefore also to special schemes. At the same time, Company P clearly purchases those tourist services for the purposes of its taxable activity, which is the supply of goods, and is therefore entitled to deduct the tax paid on the purchase of those services.
45.      The same type of activity, that is to say, the supply of goods carried out during short tourist excursions, is therefore subject to a different tax treatment depending on whether or not Company P charges excursion participants a fee to cover part of the transportation costs.
46.      However, the inconsistent tax treatment of the activities carried out by Company P is not the only issue here, as that company competes with other economic operators engaged in similar activities. If those economic operators do not charge fees to excursion participants, they enjoy better tax treatment than Company P when it charges such fees. In such circumstances, tax treatment also affects the economic decisions of taxable persons, as it is more advantageous in taxation terms not to charge a fee to excursion participants and to finance the cost of those excursions entirely from revenue from the sale of goods. Operators that provide in-house transportation services are also in a more favourable position. Because the special tax scheme for travel agents does not apply to them, the VAT included in the cost of providing those services is deductible from the tax due on the supply of goods. The tax burden thus differs depending on the degree of vertical integration of the undertaking (that is to say, whether it provides services in-house or through subcontractors), which is contrary to the principle of VAT neutrality.
47.      Moreover, Company P also competes with operators that supply goods at various sales events to which customers travel independently. In that case, the issue of whether the special tax scheme for travel agents applies does not arise at all, and those operators can fully deduct from the tax due on the supply of goods the tax paid on the goods and services used for the purposes of that supply, such as the hire of the room where the event is to be held, or gifts given to participants to encourage them to attend. Those operators are therefore in a more favourable tax situation than operators such as Company P.
48.      The Court has repeatedly stressed the importance of the right to deduct input tax and the principle of tax neutrality for the functioning of the common system of VAT. According to settled case-law, the right of deduction forms an integral part of the VAT scheme and, in principle, may not be limited. The deduction rules thus established are intended to free the taxable person completely of the burden of the VAT accruing or paid in all its economic activities. The common system of VAT therefore ensures that all economic activities, whatever their purpose or results, provided that they are, in principle, themselves subject to VAT, are taxed in a neutral way.(26)
49.      It is true that in the judgment in Commission
v
Germany the Court rejected the German Government’s arguments, based on the principle of tax neutrality, against the application of the special tax scheme for travel agents to tourist services provided to other taxable persons. The Court held that the alleged infringement of the principle of neutrality in that case arose directly from the application of the provisions of the directive establishing that scheme as a derogation from the general principles of the common system of VAT and, therefore,
could not be regarded as contrary to that principle. (27) The Court also recalled that the principle of tax neutrality is not a principle of primary law but a principle of interpretation, and therefore cannot undermine the effectiveness of derogations expressly provided for by the EU legislature, such as derogations from the general rules of the common system of VAT introduced under the special tax scheme for travel agents. (28)
50.      However, the Court’s comment as to the special tax scheme for travel agents being a derogation concerned tourist services purchased from other taxable persons, and hence services covered by that scheme. By contrast, in the present case, the breach of the principle of tax neutrality and of the right to deduct relates to the supply of goods – a service that is not covered by the scheme. The fact that the scheme constitutes a derogation cannot justify a breach of the aforementioned principles with respect to transactions that are not covered by the derogation, as that would be incompatible with the principle of strict interpretation of exceptions.
51.      Next, as regards the effectiveness of the special tax scheme for travel agents, the main purpose of its introduction was to avoid the difficulties to which economic operators would be exposed by application of the general rules of the common system of VAT to transactions involving the supply of services bought in from third parties. The application of the normal rules concerning the place of taxation, taxable amount and deduction of tax would, by reason of the multiplicity of services and the locations in which they are provided, entail practical difficulties for those undertakings of such a nature as to obstruct their operations.(29)
52.      It should be noted, however, that the excursions combined with the sale of goods at issue in the main proceedings are generally organised within a single Member State, and the number of tourist services offered as part of those excursions is limited, as otherwise it would be financially difficult to organise them from revenue from the sale of goods. It does not appear, therefore, that the taxation of such activities under the general rules would pose undue administrative difficulties. It is thus difficult to speak of undermining the effectiveness of the special tax scheme for travel agents, as that scheme would not serve its purpose anyway.
53.      The Commission also refers to an additional objective of introducing the special tax scheme for travel agents, which is the balanced distribution of VAT revenues among Member States. The idea is that individual services provided directly to tourists should be taxed in the place where they are consumed, while the travel agent’s margin should be taxed in the place where it has its registered office. However, it is sufficient to note that services such as passenger transportation are taxed in the place of consumption irrespective of the taxation scheme applied and the identity of the service provider,(30) while in a situation such as that in the main proceedings the margin is, as a rule, negative and therefore does not give rise to tax revenue. As a result, that goal of the scheme in question will not be met either.
54.      Lastly, the Court also held that the application of a special tax scheme for travel agents to any taxable person that purchases tourist services from other taxable persons and subsequently provides those services to its customers is necessary to preserve undistorted competition between economic operators that provide similar services.(31) That is also the argument raised by the German Government and the Commission in the present case in support of the application of that scheme to the activity at issue in the main proceedings.
55.      On the one hand, it should nevertheless be noted that even if an economic operator such as Company P competes with organisers of ‘ordinary’ tourist excursions (that is to say, ones not combined with the sale of goods), it derives its competitive advantage primarily from the ability to offer those excursions at very low prices, as the remainder of their cost is financed from the sale of goods. However, tax treatment is of marginal importance here, if at all. That is because, as I have already emphasised, under normal circumstances the application of the general rules and of the special scheme results in the same tax burden. Besides, the Court raised that argument to protect the competitive position of ‘atypical’ tourist service providers rather than typical travel agents.
56.      On the other hand, the argument about the need to ensure undistorted competition between economic operators such as Company P and other tour operators addresses only one aspect of the problem, and the less important one at that. A more important issue is the inferior competitive position of those economic operators who supply goods in the context of tourist excursions (if the special tax scheme for travel agents is applied to them) compared to those who also supply goods away from their business premises, but are not covered by the scheme.(32) That inferior competitive position is a direct result of the different tax treatment of the former group of economic operators, that is to say, their inability to fully deduct the VAT paid on the price components of those goods.
57.      In summary, the special tax scheme for travel agents serves the formal purpose of facilitating the calculation and payment of tax and balancing the distribution of tax revenues among Member States. However, the application of that special scheme in a situation such as that in the main proceedings infringes the fundamental and substantive principles of the common system of VAT, such as the right of deduction and tax neutrality, and that infringement concerns activities that do not fall within the scope of the special scheme. In such a case, formal considerations should not take precedence.
58.      Of course, the common system of VAT is designed in such a way that it functions optimally only when uniformly applied to every economic activity. Any derogations, such as exemptions, margin taxation, the application of reduced rates, or even the lack of full harmonisation of those rates across Member States, distort, or have the potential to distort, the functioning of that system and potentially competition as well. Such distortions are acceptable if the positive effects of the derogations outweigh the negative ones. The opposite is true, however, in a situation such as in the present case, where the negative effects in the form of unfavourable tax treatment of the supply of goods are not offset by any benefits resulting from the application of the special tax scheme for travel agents to tourist services.
59.      Therefore, Article 26 of Directive 77/388 should, in my view, be interpreted in such a way as to avoid that unfavourable treatment of the supply of goods made in the context of tourist excursions.
60.      The simplest solution would be to grant a taxable person engaged in an activity such as the one at issue in the main proceedings the right to deduct from the tax due on the supply of goods the tax paid on the purchase of transportation services (and possibly other tourist services) in so far as the cost of purchasing those services is not covered by the fees from excursion participants.
61.      Such an interpretation would make it possible to combine the application of the special tax scheme for travel agents with the correct application of the general principles of taxation to the supply of goods, together with the right – which is inseparable from those principles – to deduct the tax paid on the purchase of goods and services used for the purposes of the taxable activities. Indeed, while the costs of purchasing transportation services for excursion participants cannot be attributed to specific transactions involving the supply of goods conducted as part of that excursion, as not every participant is required to purchase goods, those costs – in so far as they are not covered by the fees charged to participants – undoubtedly constitute general costs of the activity consisting in the supply of goods and, as such, give rise to the right to deduct.(33)
62.      However, Article 26(4) of Directive 77/388 expressly excludes the right to deduct VAT paid on the purchase of services for the direct benefit of travellers if the special tax scheme for travel agents applies. Therefore, an interpretation allowing the deduction of that tax in so far as the fees charged to excursion participants do not cover the cost of transportation services would be an interpretation contra legem – contrary to the express wording of that provision.
63.      In contrast, the phrase ‘operations of travel agents’ in Article 26(1) of that directive, which defines the scope of application of the special tax scheme for travel agents, is not as unequivocal.(34) Moreover, a situation such as that in the present case has not yet been considered by the Court, as the case-law to date has dealt with situations in which the taxable person charged a flat fee for all services provided, and that fee covered all the costs of those services. The only problem, if any, was the calculation of the proportion in which that fee constituted payment for the services covered by the scheme. (35)
64.      In my view, therefore, an interpretation is possible according to which the operations of travel agents within the meaning of that provision do not include operations which consist in organising excursions combined with the supply of goods in a situation where the fees charged to excursion participants do not cover the entire cost of purchasing transportation services from other taxable persons, and those costs constitute, in the remaining part, a component of the price of those goods.
65.      Such an interpretation entails taxing all of the taxable person’s activities under the general rules. This will not actually change the tax burden on tourist services, which will be taxed,(36) but the taxable person will have the right to deduct the input tax paid, that is to say, the tax paid when purchasing those services from subcontractors. The result will be similar to the application of the special tax scheme for travel agents, assuming a negative margin. On the other hand, the taxable person will regain the right to deduct the remaining part of that tax from the tax due on the supply of goods, thus restoring the tax neutrality of that element of its business and preventing the distortions discussed in points 35 to 47 of this Opinion.
66.      In view of the above, I propose that the answers to the first and second questions should be that Article 26 of Directive 77/388 must be interpreted as not applying to a situation in which a taxable person purchases tourist services, in particular transportation services, from other taxable persons and subsequently provides them in its own name within the framework of excursions combined with the supply of goods, the purchase of which is not a condition for participation in the excursion, with the taxable person charging participants a fee that does not cover the entire cost of the services purchased from other taxable persons, and the remainder of that cost being covered by revenue from the supply of goods, thus becoming a component of the price of those goods.
Third question referred
67.      By its third question, the referring court essentially seeks to determine, in the event that the first two questions are answered in the affirmative, whether Article 12(1) of Directive 77/388 concerning the rate of VAT applies to a travel agent’s negative margin, with the result that the amount of tax is negative and the taxable person obtains the right to a refund.
68.      If the Court agrees with my proposed answer to the first two questions referred, the third question will become irrelevant. However, I will address it briefly below for the sake of completeness in the analysis of this case.
69.      The question is based on the assumption that the application of the tax rate to a travel agent’s negative margin should result in negative taxation. Arithmetically, that assumption is correct: the product of a negative taxable amount and a positive tax rate is a negative number.
70.      However, the common system of VAT does not recognise the concept of ‘negative taxation’. The system is based on the assumption that the taxable amount is, in principle, always positive, as only transactions made for consideration, that is to say, for remuneration defined as a positive amount of money, are subject to taxation. In the absence of such remuneration, the transaction is not made for consideration and is not taxable. It is irrelevant, however, whether that remuneration is higher or lower than the costs incurred by the taxable person for the purposes of the transaction in question.(37)
71.      A margin taxation scheme, such as the special scheme for travel agents, disrupts that principle, because the taxable amount is not the entire price of the service, but only the margin understood as the difference between that price and the costs incurred, and the difference may be negative if the cost of purchasing tourist services from other taxable persons exceeds the price the taxable person charges to its customers.
72.      Directive 77/388 does not provide for any mechanism for refunding tax to the taxable person in such a situation, however. If the margin is negative, the taxable amount should be considered to be zero, and therefore the VAT due is also zero.
73.      The only possibility of refunding VAT to the taxable person is provided for in Article 18(4) of Directive 77/388, but that applies to the refund of input
tax paid where the amount of authorised deductions exceeds the amount of tax due on the taxable person’s taxable transactions during the tax period. As I understand it, the third question referred seeks to achieve a similar effect within the framework of the special tax scheme for travel agents. However, under that scheme, the right to deduct the input tax paid is expressly excluded pursuant to Article 26(4) of the Directive.
74.      In view of the above, the answer to the third question should be that Article 12(1) of Directive 77/388, read in conjunction with Article 26 of that directive, must be interpreted as meaning that the application of the tax rate to a travel agent’s negative margin does not give rise to a taxable person’s right to a VAT refund.
Conclusions
75.      In the light of all of the foregoing, I propose that the Court’s answer to the questions referred for a preliminary ruling by the Bundesfinanzhof (Federal Fiscal Court, Germany) should be as follows:
Article 26 of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment
must be interpreted as
not applying to a situation in which a taxable person purchases tourist services, in particular transportation services, from other taxable persons and subsequently provides them in its own name within the framework of excursions combined with the supply of goods, the purchase of which is not a condition for participation in the excursion, with the taxable person charging participants a fee that does not cover the entire cost of the services purchased from other taxable persons, and the remainder of that cost being covered by revenue from the supply of goods, thus becoming a component of the price of those goods.
1      Original language: Polish.
2      OJ,
English Special Edition: Series I Volume1967, pp. 14-15.
3      OJ 1977 L 145, p. 1.
4      Those directives, in effect at the time of the facts in the main proceedings, were repealed and replaced by Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1).
5      By way of example, the referring court states that in 1999, the fees charged to participants covered 60% of the transportation costs on average.
6      Company P maintains that that is confirmed by the judgment of 13 December 2018 (V R 52/17, BStBl II 2019, 345, ECLI:DE:BFH:2018:U.131218.VR52.17.0) of the Bundesfinanzhof (Federal Fiscal Court, Germany), which is the referring court in the present case.
7      Council Directive of 20 December 1985 to protect the consumer in respect of contracts negotiated away from business premises (OJ 1985 L 372, p. 31).
8      Council Directive of 13 June 1990 on package travel, package holidays and package tours (OJ 1990 L 158, p. 59).
9      Judgment of 13 October 2005, ISt (C‑200/04, ‘the judgment in ISt’, EU:C:2005:608, paragraphs 31 to 33).
10      See, in particular, with regard to the provisions of Directive 2006/112, which are identical in substance to those of Directive 77/388, judgment of 22 June 2016, Gemeente Woerden (C‑267/15, EU:C:2016:466, paragraphs 40 and 41 and the case-law cited).
11      See, in particular, judgment of 22 October 1998, Madgett and Baldwin (C‑308/96 and C‑94/97, ‘the judgment in Madgett and Baldwin’, EU:C:1998:496, paragraph 23).
12      The judgment in ISt (paragraph 36).
13      The judgment in ISt (operative part).
14      See, in particular, the judgment in ISt (paragraphs 26 to 28 and the case-law cited).
15      See, in particular, the judgment in Madgett and Baldwin (paragraphs 21 and 22).
16      The judgment in Madgett and Baldwin (paragraph 35).
17      The case that gave rise to the judgment in Madgett and Baldwin involved a hotel operator that provided to its customers, in addition to accommodation, an additional service of transportation to and from the hotel, which it purchased from another taxable person. Similarly, in its judgment of 25 October 2012,
Kozak (C‑557/11, EU:C:2012:672, operative part), the Court held, on the basis of provisions of Directive 2006/112 which are identical in substance to Article 26 of Directive 77/388, that an in-house transportation service provided as part of a broader tourist service is not subject to the special tax scheme for travel agents.
18      The judgment in Madgett and Baldwin (paragraphs 32 and 33). See also Opinion of Advocate General Léger in Joined Cases Madgett and Baldwin (C‑308/96 and C‑94/97, EU:C:1998:182, points 46 to 53).
19      Which corresponds to Article 11(A)(1)(a) of Directive 77/388.
20      Which corresponds to Article 26(2) of Directive 77/388.
21      Judgments of 26 September 2013, Commission
v
Spain (C‑189/11, EU:C:2013:587, paragraphs 101 to 103), and of 8 February 2018, Commission
v
Germany (C‑380/16, not published, ‘the judgment in Commission
v
Germany’, EU:C:2018:76, paragraphs 88 to 92).
22      As regards the effect of a negative margin on the amount of VAT due, see below the analysis of the third question referred (points 69 to 73 of this Opinion).
23      Currently in Article 1(2) of Directive 2006/112.
24      See, most recently, judgment of 1 August 2025, Galerie Karsten Greve (C‑433/24, EU:C:2025:600, paragraph 35).
25      The judgment in Madgett and Baldwin (paragraphs 21 to 23).
26      See, most recently, judgment of 13 March 2025,
Greentech (C‑640/23, EU:C:2025:175, paragraph 33).
27      The judgment in Commission
v
Germany (paragraph 55).
28      The judgment in Commission
v
Germany (paragraph 58).
29      See, to that effect, judgment in Madgett and Baldwin (paragraphs 18 and 33); judgment of 25 October 2012,
Kozak (C‑557/11, EU:C:2012:672, paragraph 19).
30      See Article 9(2)(b) of Directive 77/388, now Article 48 of Directive 2006/112. The same holds true for accommodation and restaurant services (see Articles 47 and 55 of Directive 2006/112).
31      The judgment in Madgett and Baldwin (paragraphs 21 to 23).
32      See points 46
and
47 of this Opinion.
33      See, to that effect, judgment of 14 September 2017, Iberdrola Inmobiliaria Real Estate Investments (C‑132/16, EU:C:2017:683, paragraph 29).
34      It should be remembered that it is only as a result of the Court’s case-law that the provision applies to all taxable persons providing tourist services that they purchase from other taxable persons.
35      See the judgment in Madgett and Baldwin (paragraphs 36 to 46).
36      VAT will be charged on the entire fee charged to excursion participants.
37      That is because VAT is not an income tax, but a turnover tax – what is taxed is turnover, that is to say, total revenue from taxable activities, and not the profit from those activities.