COMMISSION OF THE EUROPEAN COMMUNITIES 
#"ffa COM(94) 302 final 
Brussels, 08.07.1994 
COMMUNICATION FROM THE COMMISSION TO THE COUNCIL 
REQUEST SUBMITTED BY THE GOVERNMENT OF THE FEDERAL REPUBLIC 
OF GERMANY UNDER ARTICLE 27(1) AND (2) OF THE SIXTH VAT 
DIRECTIVE 77/388/EEC FOR AUTHORIZATION TO INTRODUCE A SPECIAL 
MEASURE DEROGATING FROM THAT DIRECTIVE IN RESPECT OF THE 
MARGIN ON TRAVEL AGENTS' SERVICES RELATED TO TRAVEL OUTSIDE 
THE COMMUNITY 
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REQUEST SUBMITTED BY THE GOVERNMENT OF THE FEDERAL REPUBLIC 
OF GERMANY UNDER ARTICLE 27(1) AND (2) OF THE SIXTH VAT 
DIRECTIVE 77/388/EEC FOR AUTHORIZATION TO INTRODUCE A SPECIAL 
MEASURE DEROGATING FROM THAT DIRECTIVE IN RESPECT OF THE 
MARGIN ON TRAVEL AGENTS' SERVICES RELATED TO TRAVEL OUTSIDE 
THE COMMUNITY 
(Communication from the Commission to the Council) 
1. INTRODUCTION 
(a) Member States are required by the Sixth VAT Directive 
(77/388/EEC)1 to apply the common system of value added tax. 
Under the terms of Article 27(1) of that Directive, the Council may 
authorize any Member State to introduce special measures for 
derogation from the provisions of the Directive in order to simplify the 
procedure for charging the tax or to prevent certain types of tax 
evasion or avoidance. 
(b) In a letter dated 22 March 1994, received by the Secretariat-General 
of the Commission on 18 April 1994, the office of the Permanent 
Representative of the Federal Republic of Germany notified the 
Commission of a measure to exempt from value added tax certain 
services provided by travel agents which relate to journeys by air to 
destinations outside the Community and to cruises. 
(c) By letter from the Secretary-General of the Commission dated 10 
May 1994, the other Member States were informed, in accordance 
with Article 27(3) of the Sixth VAT Directive, of the measure 
envisaged by the Federal Republic of Germany. Under the terms of 
paragraph 4 of that Article, the Commission or any Member State 
may request that the matter be raised by the Council. 
2. DESCRIPTION OF THE PROPOSED MEASURE 
Article 26(3) of the Sixth VAT Directive provides that where 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 
1 OJ N° L 145, 13.6.1977, p. 1. Directive as last amended by Directive 94/5/EC (OJ N° L 
60, 3.3.94, p. 16). 
be exempted. The German authorities maintain that the apportionment made 
necessary by this provision is difficult to apply in practice, and in the case 
of cruises, these difficulties are disproportionate in relation to the amount of 
tax due. 
The Government of the Federal Republic of Germany is, therefore, proposing 
to exempt from value added tax the margins of travel agents in respect of 
passenger transport by air for which the place of destination is outside the 
Community and in respect of cruises which involve the transport of 
passengers both within and outside the territory of the Community. 
For the purposes of applying these arrangements, return journeys are 
regarded as a single supply of passenger transport services, the destination 
being that of the outward flight. 
The exemption of the travel agent's services in respect of cruises would 
apply, for example, to cruises which begin and end at a Community port, 
but whose route falls outside the Community territory. The justification 
given by the German authorities for this measure is that, on average, only a 
small proportion of the total route is within the territory of the Community, 
and the cost involved in establishing the actual portion of the route travelled 
within the territory of the Community is generally disproportionate to the 
amount of tax revenue generated. 
The travel agent who applies the simplification will have to do so in respect 
of all the services it provides. However, the travel agent may, at any time, 
apportion its services according to the proportions of the journey performed 
within and outside the Community, as provided for in Article 26(3). 
3. OPINION OF THE COMMISSION 
It is the opinion of the Commission that the measure proposed by Germany 
does not constitute a special measure, but constitutes rather a fundamental 
derogation to Article 26 of the Sixth Directive in particular, and more 
generally to one of the fundamental principles of the Directive concerning 
the taxable base. 
Article 26(3) of the Sixth Directive provides that an apportionment is 
necessary between the part of the travel agent's services which relate to 
transactions performed by other taxable persons within the Community and 
the part relating to transactions performed outside the Community. 
In case N° C-74/91 before the European Court of Justice between the 
Commission of the European Communities and the Federal Republic of 
Germany, the Commission contested the provisions of German law due to 
the fact that they provided for the exemption of the travel agent's services 
which related to transactions performed wholly or partially within the 
territory of the Community, contrary to Article 26 of the Sixth Directive 
which only provided for the exemption of all or part of such services which 
relate to transactions performed outside the Community. 
i~ 
In its judgement the Court, which found in favour of the Commission, 
recognised that even if there were real technical difficulties in apportioning 
between the parts of the travel agent's services which related to 
transactions performed within the Community and the parts performed 
outside the Community, these had not prevented this provision from being 
transposed into the national law of several Member States. Moreover, 
concerning the organization of cruises, the Court reasoned that even if the 
Federal Republic of Germany wished to invoke, for reasons of simplification, 
the difficulties of apportionment between the Community and extra-
Community portions, it was sufficient to recall that these difficulties were 
not insurmountable. 
Article 26, which provides for special arrangements for travel agents, is 
nevertheless, based on the principle that all goods and services consumed 
within the Community should be subject to tax. The organisational service 
provided by travel agents to their customers are services whose place of 
consumption is the place where the travel agent is established, and from 
where such organisational services will have been provided. 
Article 26(3) diverges from this principle by exempting the travel agent's 
margin in the case of transactions performed outside the Community. This 
derogation was introduced in order to put travel agents within and outside 
the Community on an equal footing in respect of travel outside the 
Community. 
The application of Article 26 is clearly intended to maintain a consistency of 
treatment between travel agents established in different Member States. 
Inspite of having the appearance of maintaining a balance between the 
number of cases where the taxable margin is decreased with the cases 
where it is increased, in reality the measures envisaged by the German 
authorities would result in an unjustified overall advantage in favour of 
travel agents established in Germany. It is a matter of fact that the 
Community portion of flights to third country destinations generally exceeds 
the extra-Community portion of flights between two Member States. It 
would be undesirable to allow a derogation based on Article 27 which 
would give one Member State a competitive advantage over the others. 
Concerning cruises, the German authorities request that the travel agent's 
margin in respect of all cruises be exempt from value added tax, on the 
grounds that, even for cruises which call at Community ports, the travel 
within the Community territory constitutes on average less than 1 % of the 
total route travelled. This claim does not appear to be credible taking into 
account the fact that a succession of Community ports of call can easily 
necessitate a prolonged sailing within the territorial waters of one or several 
Member States. Moreover, what are globally referred to as "cruises" can 
often include several types of service apart from transport, such as meals, 
entertainment and sight-seeing, the value of which can be considerable. 
Furthermore, the Commission notes that exempting the whole of the travel 
agent's margin that relates to transactions performed partially within the 
Community would create a fiscal treatment more favourable to third-country 
holiday destinations than to Community destinations. Such a fiscal incentive 
is not considered desirable by the Commission. 
Turning specifically to the provisions of Article 27 of the Sixth Directive, the 
Commission notes that the exemption would have an adverse effect on the 
Communities' VAT own resources. Article 27(1) stipulates that any 
derogation from the provisions of the Directive may not, except to a 
negligible extent, affect the amount of tax due at the final consumption 
stage. As, by the very nature of their business, travel agents generally deal 
with final consumers, and taking into account that the value of transactions 
performed in the Community can be considerable, as explained above, an 
exemption such as requested by Germany would affect the amount of tax 
due at the final consumption stage to more than a negligible extent. 
Finally, Article 27(1) provides for derogations from the Sixth Directive "in 
order to simplify the procedure for charging the tax or to prevent certain 
types of tax evasion or avoidance". However, the present German request 
is not so much a question of simplifying the procedure for charging the tax, 
but the exclusion from taxation of the travel agent's services which relate 
to certain transactions performed within the Community. One can only 
speak of simplification of procedures for charging tax if tax is charged; in 
other words, the procedure for charging tax which is not due cannot be 
simplified. 
4. CONCLUSION 
As the measure in question gives rise to fundamental objections, the 
Commission requests that the matter be raised by the Council in accordance 
with Article 27(4) of the Sixth Directive. 
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KSNQ254-1475 
C0M(94) 302 final 
DOCUMENTS 
EN 09 
Catalogue number : CB-CO-94-317-EN-C 
ISBN 92-77-71516-2 
Office for Official Publications of the European Communities 
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