Expert study on the issues arising from taxing the supply of goods and the supply of services, including restaurant and catering services, for consumption on board means of transport : executive summary.
Date: 2016-10-14
Institutions: Directorate-General for Taxation and Customs Union
Subjects: VAT rate, assessment of prices, carriage of passengers, catering industry, consumption, directive (EU), fiscal policy, goods and services, means of transport, report

Expert study on the issues arising from taxing the supply of goods and the supply of services, including
restaurant and catering services, for consumption on board means of transport

Executive Summary

Specific contract No. 3, TAXUD/2010/DE/326
Ref. 004054GVD.NAL

Final Report – 8 February 2012
Page 7 of 324

Expert study on the issues arising from taxing the supply of goods and the supply of services, including
restaurant and catering services, for consumption on board means of transport

Background and scope

26

27

28

29

According to article 37 of the VAT Directive goods supplied on board ships, aircraft or trains during a
passenger transport operation effected within the Community are to be taxed at the point of
departure of the passenger transport operation. Pursuant to article 57 of the VAT Directive, the same
applies to the supply of restaurant and catering services physically carried out on board such means
of transport. These provisions do not cover other means of transport, like coaches, on which the
same kinds of supplies of goods and services may be carried out.

VAT is due on the supply of goods and restaurant and catering services carried out during the section
of the operation effected, without stopover outside the Community, between the point of departure
(first scheduled point of passenger embarkation within the Community, where applicable after a
stopover outside the Community) and the point of arrival (last scheduled point of disembarkation
within the Community of passengers who embarked in the Community, where applicable before a
stopover outside the Community) of the passenger transport operation.

According to article 37(3) of the VAT Directive, the Commission shall, at the earliest opportunity,
present to the Council a report, accompanied if necessary by appropriate proposals, on the place of
taxation of the supply of goods for consumption on board and the supply of services, including
restaurant services, for passengers on board ships, aircraft or trains. Until that time, Member States
may, however, pursuant to article 37(3), exempt or continue to exempt, with deductibility of the VAT
paid at the preceding stage, the supply of goods for consumption on board ships, aircraft or trains.
Pending adoption of those proposals, this option will continue to exist.

The overall objective of this Study and the resulting Report is to provide the Commission with input
for its report on the place of taxation of the supply of goods for consumption on board and the supply
of services, including restaurant services, for passengers on board ships, aircraft or trains.
Additionally, the VAT treatment of the supply of services and goods for consumption for passengers
on board coaches should also be analysed.

30

The Study contains 3 Parts:



Part I: VAT and economic data collection

Collection of VAT and economic data on the basis of a survey in the 27 EU Member States
regarding their VAT legislation and economic data relative to the passenger transport market,
and qualitative and quantitative economic data from stakeholders;



Part II: Review of policy options

Definition of the main issues with respect to the current VAT regime, an assessment of the
robustness of the current place-of-supply rules and a qualitative analysis of 4 alternative policy
options from a VAT perspective and from an industry perspective on the basis of a stakeholder
consultation;



Part III: Conclusions and recommendations

Summary of the working and the deficiencies of the current VAT system, a recommendation on
alternative taxation options, an assessment of the need for a VAT exemption and
recommendations for future actions.

Specific contract No. 3, TAXUD/2010/DE/326
Ref. 004054GVD.NAL

Final Report – 8 February 2012
Page 8 of 324

Expert study on the issues arising from taxing the supply of goods and the supply of services, including
restaurant and catering services, for consumption on board means of transport

31

The following activities do not fall within the scope of this Study:









quantitative estimate of the potential impact of ending the option to exempt the supply of goods
for consumption by passengers on board ships, aircraft or trains due to the lack of data in this
respect;

assessment of the potential budgetary impact of the different policy options and of ending the
existing option to exempt;

assessment of other impacts not related to VAT (e.g. concurrence of the different policy options
with excise duties or other taxes or charges);

draft of amending provisions to the VAT Directive.

VAT and economic data collection

32

This section of the Report provides an overview of:





the VAT legislation in place in the 27 EU Member States in respect of the supply on board ships,
aircraft, trains and other means of transport (e.g. coaches) of (1) goods for consumption on
board, (2) goods to take away, (3) restaurant and catering services and (4) other services
(situation on 31 January 2011). These supplies are defined as “buy-on-board” transactions. The
information has been gathered in respect of both the “section of a passenger transport operation
effected within the Community” and the “section of a passenger transport operation not effected
within the Community”;

the practical issues related to the VAT treatment on the basis of input received from relevant
stakeholders in the travel sector;

 market data in respect of the supply of goods and services on board means of transport in the 27

EU Member States.

“Buy-on-board” transactions are transactions that are supplied and paid for on board the relevant
means of transport. They are not included in the ticket price for the transport operation.

The place of supply of the “buy-on-board” transactions differs according to the means of transport,
the itinerary and the nature of the transaction. Depending on these three variables, the articles 31,
37, 44, 45, 53, 54(1), 55 and 57 of the VAT Directive determine the actual place of taxation.

The overview below gives a summary of how the Directive’s current provisions have been
implemented by the 27 EU Member States:

 Member States correctly applying the place-of-supply rules and the exemption rule:

Austria, Cyprus, Hungary, Latvia, Lithuania, Luxembourg, Poland, Portugal, Romania, Slovakia
and Slovenia;

 Member States correctly applying the place-of-supply rules, but incorrectly applying the

exemption rule:

Finland, Germany, Italy and the Netherlands;

33

34

35

Specific contract No. 3, TAXUD/2010/DE/326
Ref. 004054GVD.NAL

Final Report – 8 February 2012
Page 9 of 324

Expert study on the issues arising from taxing the supply of goods and the supply of services, including
restaurant and catering services, for consumption on board means of transport

 Member States incorrectly applying the place-of-supply rules and the exemption rule:

no Member States fall into this category;

 Member States not having an exemption rule but incorrectly applying the place-of-supply rules
(as a result, certain supplies are out of scope, although the place of supply should be within that
Member State):

Bulgaria, the Czech Republic, Estonia, France, Greece, Ireland, Malta, Spain, Sweden and the
UK;

 Member States correctly applying the place-of-supply rules and with legal exemption provisions
in line with the VAT Directive, but where the Member State’s interpretation leads to the rules
being (potentially) applied incorrectly in practice:

Belgium and Denmark.

36

37

38

39

40

41

42

The economic data shows that only 18,5% of the passenger transport operators operate in the
international passenger travel market (the other operators being urban buses, trams and
underground railways, taxis, inland waterways, etc.), the majority of which are long-distance bus
and coach operators.

However, the EU’s air, maritime and railway transport market accounts for about 65% of
turnover in the international passenger transport market.

Overall, the air, maritime, railway and long-distance bus and coach passenger transport market
represents 1.8% of total EU GDP.

No data is available relating to “buy-on-board” transactions.

Even though no specific data is available on turnover of “buy-on-board” transactions, it should be
noted that they represent a percentage of the turnover of the total passenger transport market.

Moreover, no economic data is available for hospitality businesses providing goods and/or services
on board means of transport (including data on number of operators, turnover or employment).

The EU Member States from where most passengers depart on international journeys are, in
descending order:



air: UK, Spain, Germany, France, Italy, the Netherlands;

 maritime – ferry: Italy, Greece, Denmark, Sweden, UK, France, Germany, Spain, Finland,

Estonia;

 maritime – cruise: Spain, Italy, UK, Germany, Greece, Denmark, France;



railway: France, UK, Belgium, Denmark, Sweden, Germany, Austria, the Netherlands,
Luxembourg.

Specific contract No. 3, TAXUD/2010/DE/326
Ref. 004054GVD.NAL

Final Report – 8 February 2012
Page 10 of 324

Expert study on the issues arising from taxing the supply of goods and the supply of services, including
restaurant and catering services, for consumption on board means of transport

Review of policy options - Methodology

43

This section of the Report reviews different alternative options for the taxation regime of the supply
of goods and services, including restaurant and catering services, for consumption on board means
of transport.

44

Part II of the Report is intended to provide the Commission with:









an assessment of the ability of the current place-of-supply rules, without an optional exemption,
to allow for taxation of supplies of goods and services on board means of transport;

a description and an assessment of 4 alternative options for the taxation regime of the supply of
goods and services, including restaurant and catering services, for consumption on board means
of transport;

an assessment of the additional measures that could be used to mitigate the weaknesses in each
taxation option;

an assessment on whether a VAT exemption, optional or obligatory, sectoral or general, is still
needed in one or the other taxation option.

In order to provide a qualitative analysis of the ability of the current place-of-supply rules, without an
optional VAT exemption, and the 4 alternative policy options and to come to final recommendations
on the taxation of buy-on-board transactions, we have followed a ten-step approach.

As a 1st step, we identified and described the main issues with the current VAT regime
(combination of place-of-supply rules with optional VAT exemption), including an assessment for
which operator(s) these main issues are especially true.

As a 2nd step, we developed a glossary of terms used in the matrix containing the policy options
for the taxation of buy-on-board transactions.

As a 3rd step, we identified 5 Key Performance Indicators (“KPIs”) to evaluate the current place-
of-supply rules and to benchmark each policy option against the current taxation rule, from both a
VAT technical and an industry perspective.

45

46

47

48

49

The KPIs used to evaluate each policy option are:











simplicity;

efficiency;

certainty;

non-distortionary; and

effectiveness and fairness.

50

It is noted that the 5 KPIs retained to assess the current place-of-supply rules and the 4 policy
options for on-board supplies (which in itself is a limited segment of the market) are of a general
nature and are not targeting this sector only. Many elements are of a broad nature and apply to the
functioning of the VAT system as such.

Specific contract No. 3, TAXUD/2010/DE/326
Ref. 004054GVD.NAL

Final Report – 8 February 2012
Page 11 of 324

Expert study on the issues arising from taxing the supply of goods and the supply of services, including
restaurant and catering services, for consumption on board means of transport

51

52

As a 4th step, we assessed the ability of the current place-of-supply rules, without an optional VAT
exemption, to allow for taxation of supplies of goods and services on board means of transport and
we gave our opinion on the robustness of those rules (“VAT technical assessment”).

As a 5th step, we identified and described 4 alternative policy options for the taxation of buy-on-
board transactions, including a preliminary evaluation of the issues each policy option would solve
and what possible issues may (continue to) exist compared to the current VAT regime.

53

The 4 alternative taxation options that were retained are:









the place of actual consumption in the EU;

the place of establishment of the supplier of the goods or services (buy-on-board transactions);

the place of establishment of the supplier of the transport services;

the point of departure of the transport operation for all transport sections.

54

55

As a 6th step, we identified 4 additional measures to mitigate the weaknesses of each policy option, if
any.

The mitigating measures proposed are of a general nature linked with the functioning of the VAT
system as such and are not specifically targeted to buy-on-board supplies only.

56

The 4 mitigating measures are:









providing common, binding interpretation;

implementing a one-stop-shop system;

harmonising the VAT compliance requirements; and

applying a single VAT rate and single VAT return with a clearing mechanism.

57

58

59

60

61

As concerns the application of the 4 additional mitigating measures, the analysis has been made as a
separate step. In other words: first the analysis of the given policy option is made against the KPIs
and only the use of the 4 additional mitigating measures to overcome the remaining shortcomings is
reviewed.

The need to apply an exemption (optional or obligatory, sectoral or general), is only considered
where the 4 additional mitigating measures would prove to be insufficient.

As a 7th step, we performed a stakeholder consultation (“industry assessment”).

In this respect, we developed a matrix regarding the policy options, which we completed from a VAT
technical perspective before sharing with the stakeholders.

In order to compare the impact of the policy options, the matrix contained 4 sheets, i.e. one for each
type of transport section:





“domestic” transport section, including 272 transaction lines: 68 per means of transport;

“intra-EU” transport section, including 304 transaction lines: 76 per means of transport;

Specific contract No. 3, TAXUD/2010/DE/326
Ref. 004054GVD.NAL

Final Report – 8 February 2012
Page 12 of 324

Expert study on the issues arising from taxing the supply of goods and the supply of services, including
restaurant and catering services, for consumption on board means of transport





“EU – non-EU” transport section, including 304 transaction lines: 76 per means of transport;
and

“non-EU – EU” transport section, including 304 transaction lines: 76 per means of transport.

On the basis of the VAT technical assessment between the current VAT regime and the VAT regime
under each policy option as completed by PwC, the stakeholders in the passenger transport industry
were asked to assess each policy option on its strengths and/or weaknesses using the KPIs identified.

We did not provide the stakeholders with a separate sheet to assess the current place-of-supply rules
without an optional VAT exemption using the 5 KPIs.

The stakeholders did however compare the current place-of-supply rules without an optional VAT
exemption (“as is” situation) with the place-of-supply rules under the 4 proposed policy options (“to
be” situation) by completing the stakeholder matrix.

Furthermore the stakeholders were asked to explicitly assess for each policy option a variant whereby
the optional VAT exemption is kept which allowed us to compare that input with their assessments
where no such exemption is provided for.

As a result, the stakeholders did also indirectly assess the current rules on the place of supply without
an optional VAT exemption when assessing policy option 1 (place of supply is place of actual
consumption in the EU) and policy option 4 (place of supply is point of departure of the transport
operation for all transport sections), which accord with the current place-of-supply rules.

Based on the impact assessment made by the stakeholders against the KPIs, the stakeholders could
also indicate or suggest additional measures to mitigate the weaknesses of each policy option (if any).

Some of the stakeholders provided their input by completing the matrix while others provided a
position paper outlining the advantages and disadvantages of each policy option and general
conclusions on the way forward.

The stakeholders consulted in Phase 2 of the Study were mainly industry-segment associations from
across the EU for the air, maritime (i.e. cruise and ferry), railway and long-distance bus and coach
travel markets in order to maximise the input received. We agreed with these associations that they
would forward the matrix to their members for completion.

Via the segment organisations consulted, we received 11 stakeholder contributions, representing the
views of 75 businesses in total.

Step 8 consisted in a qualitative impact assessment of the 4 policy options against the KPIs,
comparing the VAT technical assessment with the assessment from an industry perspective.

Under step 9, we evaluated the need to use additional mitigating measures only where the
analysis of the given policy option on the basis of the KPIs proved to be insufficient.

Finally, under step 10, we evaluated the need to use a VAT exemption, optional or obligatory,
sectoral or general, only where none of the alternative taxation options combined with mitigating
measures would be sufficiently effective.

This section also includes a qualitative assessment by stakeholders in the passenger transport
industry on the impact of ending the option to exempt the supply of goods for consumption by
passengers on board ships, aircraft or trains.

62

63

64

65

66

67

68

69

70

71

Specific contract No. 3, TAXUD/2010/DE/326
Ref. 004054GVD.NAL

Final Report – 8 February 2012
Page 13 of 324

Expert study on the issues arising from taxing the supply of goods and the supply of services, including
restaurant and catering services, for consumption on board means of transport

Main issues with the current VAT regime

72

In our review of the VAT treatment in the 27 EU Member States of the supply of goods and services,
including restaurant and catering services, for consumption on board means of transport, we
identified three main issues:

 With respect to the identification of the place of taxation: high complexity and

divergent interpretations of the place-of-supply rules.

The current place-of-supply rules differ according to the means of transport used (ships, aircraft
and trains vs. other means of transport e.g. coaches), the travel itinerary (transport section in the
EU vs. transport section outside the EU) and the nature of the on-board transaction (supply of
goods vs. supply of restaurant and catering services vs. supply of other services).

There is also a lack of clarity and harmonisation in the definition of terms used to describe a
travel itinerary (“stopover”, “point of departure”, “point of arrival”, “scheduled”, “embarkation”,
“disembarkation”).

As a result, it is very difficult for passenger transport operators to implement suitable criteria in
their business systems and, hence, correctly identify the place of taxation for their on-board
supplies. This is especially true for transport operators in the maritime travel market (i.e. cruise
and ferry) that operate flexible itineraries.

 With respect to the level of taxation: multiple VAT rates and discordant application
of the exemption (with a right to deduct the VAT paid at the preceding stage) for
supplies of goods for consumption on board ships, aircraft or trains.

14 EU Member States apply an exemption with a right to deduct VAT for the supply of goods or
the supply of restaurant and catering services, but not in a harmonised way (we refer to Table 9
and Table 10 in the first Phase of the Study). This is due to the optional nature of the exemption
and the lack of clear definitions of terms used to describe buy-on-board transactions (“supply of
goods for consumption”, “supply of goods for take away”, “restaurant and catering services” and
“other services”).

If no exemption applies, there is a large discrepancy between standard and reduced VAT rates
within the 27 EU Member States.

As a result of the lack of clear definitions, the optional nature of the exemption and the multiple
VAT rates, it is very difficult for international passenger transport operators to correctly classify
buy-on-board transactions.

 With respect to compliance requirements: multiple VAT registrations and

divergent compliance requirements in the EU Member States.

Because suppliers of buy-on-board transactions are very often liable to account for VAT in
different EU Member States for (parts of) their buy-on-board transactions, they would be liable
to register for VAT purposes in many EU Member States.

Because of the divergent VAT obligations in the 27 EU Member States, it is very complex and
costly for suppliers of buy-on-board transactions to apply all these requirements correctly in
practice.

Specific contract No. 3, TAXUD/2010/DE/326
Ref. 004054GVD.NAL

Final Report – 8 February 2012
Page 14 of 324

Expert study on the issues arising from taxing the supply of goods and the supply of services, including
restaurant and catering services, for consumption on board means of transport

73

The above-mentioned main issues are especially true for suppliers of buy-on-board transactions in
the air, maritime (i.e. cruise and ferry) or railway travel markets that provide goods and/or services
on board ships, aircraft or trains. Suppliers of buy-on-board transactions in the long-distance bus &
coach travel market indicated in the first Phase of the Study that no or few difficulties have been
experienced in applying the current VAT rules. They indicated that, in practice, supplies of goods
and/or services do not occur very often on board long-distance buses and coaches.

Interim conclusion on the ability of the current place-of-
supply rules without an optional VAT exemption

74

The table below shows that the overall VAT technical assessment of the application of the current
place-of-supply rules without an optional exemption is negative. None of the KPIs are satisfied.

Table 1 – Assessment of the current place-of-supply rules without an optional VAT exemption
against KPIs (VAT technical)

KPIs

SIMPLICITY

EFFICIENCY

CERTAINTY

NON-DISTORTIONARY

EFFECTIVENESS AND FAIRNESS

Assessment

-

-

-

-

-

75

The current place-of-supply rules without an optional VAT exemption are not robust enough due
to:



highly complexity and divergent interpretations of the place-of-supply rules;

 multiple VAT rates; and

 multiple VAT registrations and divergent compliance requirements in the EU Member States.

76

Therefore, we propose 4 policy options to change the current place-of-supply rules allowing for
taxation of the supplies of goods and the supply of services, including restaurant and catering
services, for consumption on board means of transport.

Specific contract No. 3, TAXUD/2010/DE/326
Ref. 004054GVD.NAL

Final Report – 8 February 2012
Page 15 of 324

Expert study on the issues arising from taxing the supply of goods and the supply of services, including
restaurant and catering services, for consumption on board means of transport

Identification of policy options

77

We identified 4 alternative options for defining the place of taxation for the supply of goods and
services, including restaurant and catering services, for consumption on board means of transport.

 Place of actual consumption in the EU: taxation in the country where the supply physically

takes place.

 Place of establishment of the supplier: taxation in the country where the supplier of the

goods (for consumption on board and to take away), the restaurant and catering services or the
other services has established his business.

 Place of establishment of the transport company: taxation in the country where the
supplier of the transport services has established his business irrespective of the country of
establishment of the supplier of the goods or services and where different to the supplier of the
transport services.

 Point of departure of the transport operation for all transport sections: taxation in

the country of the first scheduled point of passenger embarkation (each transport leg considered
separately).

78

The common objectives of these policy options are:





defining a uniform place of supply from a VAT perspective regardless of the transport mode
(ships, aircraft and trains vs. other means of transport e.g. coaches), the travel destination
(transport section in the EU vs. transport section outside the EU) and the nature of the buy-on-
board transaction (supply of goods vs. supply of restaurant and catering services vs. supply of
other services) so as to provide clarity and legal certainty;

removing VAT-induced distortion of competition, for example, the relocation to low-tax EU
Member States or a non-EU country;

 minimising the VAT compliance obligations for stakeholders leading to higher voluntary VAT

compliance at a low(er) cost.

Specific contract No. 3, TAXUD/2010/DE/326
Ref. 004054GVD.NAL

Final Report – 8 February 2012
Page 16 of 324

Expert study on the issues arising from taxing the supply of goods and the supply of services, including
restaurant and catering services, for consumption on board means of transport

Recommendation on alternative taxation options

79

Based on our review of the 4 alternative options for the taxation of buy-on-board transactions, the
following 2 alternatives could be considered:





taxation at the place of establishment of the supplier of the buy-on-board transactions (policy
option 2);

taxation at the point of departure for all transport sections (policy option 4).

Both of them require additional measures to avoid distortion of competition and possible double or
non-taxation.

From a VAT technical perspective, taxation at the place of establishment of the supplier of the buy-
on-board transactions (policy option 2) gives the most robust results to allow for taxation of buy-on-
board transactions.

However, this policy option requires stringent measures to avoid the risk of relocation.

Such measures could consist in the implementation of a use and enjoyment provision for non-EU
established operators, using the point of departure of the transport operation in the EU as a criterion
and combined with the implementation of a mini one-stop-shop scheme to simplify compliance.

Policy option 2 is also not supported by any of the consulted stakeholders as they fear market
distortions between EU and non-EU based operators and possible double or non-taxation.

For the above reasons, we believe that taxation at the point of departure for all transport sections
(policy option 4) would be preferable as this policy option is closest to the current place-of-supply
rules. For this reason, policy option 4 is also supported by some of the consulted stakeholders.

It should be noted that the generalisation of the departure principle will also require the
implementation of a use and enjoyment provision to avoid taxation of consumption outside the EU.

For any option for change withheld, existing definitions will need to be amended or improved to
create certainty and consistent implementation in the 27 EU Member States.

80

81

82

83

84

85

86

87

Assessment of the need for a VAT exemption

88

89

90

91

The VAT data analysis and the outcome of the stakeholder consultation confirm that the exemption
with a right to deduct for some buy-on-board transactions in certain EU Member States creates
distortions of competition within the single market.

Where the exemption does not apply, the complexity of the current place-of-supply rules increases
the compliance costs of businesses operating in several EU Member States and could result in
mistakes and even evasion.

Abolishing the optional VAT exemption without changing the current place-of-supply rules will most
likely only increase the current shortcomings.

From a mere VAT technical perspective, our review of the alternative taxation options shows that the
application of a VAT exemption, optional or obligatory, general or sectoral, does not contribute to a
more efficient and effective taxation regime.

Specific contract No. 3, TAXUD/2010/DE/326
Ref. 004054GVD.NAL

Final Report – 8 February 2012
Page 17 of 324

Expert study on the issues arising from taxing the supply of goods and the supply of services, including
restaurant and catering services, for consumption on board means of transport

92

However, we note that there is much resistance against the abolition of the current optional VAT
exemption from an industry perspective, resistance that is often motivated for reasons outside VAT
(e.g. application of other indirect taxes in the tourism industry).

Recommendations for future action

Policy objectives and general options for change

93

94

95

96

97

98

The future reform initiatives by the Commission to adopt common rules on the treatment of
transactions on board means of transport should create certainty and avoid double or non-taxation.
They should also ensure the smooth functioning of the internal market by avoiding distortions of
competition created by the current shortcomings.

In general, the following options for change could be considered by the Commission: do nothing,
“soft law” type approaches or modernisation of the existing VAT legislation.

Doing nothing will cause the current shortcomings to persist and even increase.

The options for change could involve a range of non-legislative “soft law” instruments to
resolve mismatches in taxation either through VAT Committee Guidelines or litigation (infraction
procedures). A combination of each of these elements might have to be considered.

For a legislative approach, the range of options, from a VAT technical perspective only, could
involve:











introducing common definitions with respect to the existing provisions via a binding Council
Implementing Regulation;

introducing a one-stop-shop scheme to reduce costs where multiple VAT registrations and
divergent compliance obligations remain;

changing the place-of-supply rules for the taxation of buy-on-board transactions, for example, by
introducing one of the 4 policy options suggested;

abolishing the existing VAT exemption;

assessment of the current VAT rates structure.

Whatever option for change the Commission might consider, it is advisable to further involve the
different stakeholders in order to assess the impact on their operations and to assess the
administrative burden, as well as the EU Member States most concerned taking into account the VAT
and economic data collected in this Report. In this respect, it is pointed out that, although no data
were found specifically relating to buy-on-board transactions, the economic data collected in this
Report together with the VAT data is still very relevant to assess the importance of this sector for the
EU Member States concerned.

99

As regards the design of a possible alternative taxation regime in the future, we propose the following
layered approach.

Specific contract No. 3, TAXUD/2010/DE/326
Ref. 004054GVD.NAL

Final Report – 8 February 2012
Page 18 of 324

Expert study on the issues arising from taxing the supply of goods and the supply of services, including
restaurant and catering services, for consumption on board means of transport

Recommendations for action in the short term

100

101

102

103

104

In the short term, we recommend keeping the existing VAT regime (combination of the place-of-
supply rules with option to exempt the supply of goods for consumption on board ships, aircraft or
trains) whilst adopting common rules for implementing those provisions.

This is also the preferred option for the industry according to the stakeholder consultation.

Both with respect to the identification of the place of taxation (first main issue) and the level of
taxation (second main issue), there is a lack of clear definitions of terms used to describe a travel
itinerary (“stopover”, “point of departure”, “point of arrival”, “scheduled”, “embarkation”,
“disembarkation”) and the buy-on-board transactions (“supply of goods for consumption”, “supply of
goods for take away”, “restaurant and catering services” and “other services”).

We recommend introducing common definitions of these terms in the 27 EU Member States through
a Council Implementing Regulation and, as deemed appropriate, litigation (infraction
procedures).

In addition, we recommend introducing a one-stop-shop scheme by analogy of the existing
scheme in place for electronically supplied services by businesses established outside the EU and
learning from the proposed system for B2C telecommunications, television and broadcasting and
electronic services as of 1 January 2015.

Recommendations for action in the medium term

105

106

107

108

109

In the medium term, the VAT place-of-supply rules between the different transport modes and
itineraries should be aligned. The possibility to keep the VAT exemption should be considered.

In this respect, one of the 4 alternative taxation options analysed in Part II of the Study could be
considered. As explained above, 2 policy options came out as preferable from our review.

An alignment of the VAT place-of-supply rules will remove the current distortions of
competition between ships, aircraft and trains compared to other means of transport used (e.g. long-
distance buses & coaches).

Taking into account the potential risk of relocation that is inherent to policy option 2 (place of
establishment of the supplier of the buy-on-board transactions) and in view of controllability, we
believe the point of departure (policy option 4) to be the most adequate reference point to
define the place of taxation. Policy option 4 is also supported by some of the consulted stakeholders.

From a pure VAT technical perspective, our review shows that the application of a VAT exemption,
general or sectoral, does not contribute to a more effective taxation regime. However, we note that
there is much resistance against the abolition of the current optional VAT exemption from an
industry perspective, resistance that is often motivated for reasons outside VAT (e.g. application of
other indirect taxes in the tourism industry).

Recommendations for action in the longer term

110

While the VAT exemption could be maintained in the medium term, it could be abolished in the
longer term.

Specific contract No. 3, TAXUD/2010/DE/326
Ref. 004054GVD.NAL

Final Report – 8 February 2012
Page 19 of 324

Expert study on the issues arising from taxing the supply of goods and the supply of services, including
restaurant and catering services, for consumption on board means of transport

111

112

When abolishing the current optional VAT exemption and in order to avoid multiple VAT
registrations and divergent compliance requirements, we recommend continuing the application of a
one-stop-shop scheme which should allow to further limit the cost of compliance and the cost of
collection.

Finally, as mentioned in the European Commission’s Communication on the future of VAT1, we
would also suggest reviewing the current VAT rates structure in view of reducing the dissimilarity of
the VAT rates structure between EU Member States. Such harmonisation could not only tackle the
legal uncertainty, distortion of competition but also help reducing compliance costs pointed out by
stakeholders.

1 Communication from Commission to the European Parliament, the Council and the European Economic and Social Committee on the
future of VAT: Towards a simpler, more robust and efficient VAT system tailored to the single market,
http://ec.europa.eu/taxation_customs/taxation/vat/key_documents/communications/index_en.htm.

Specific contract No. 3, TAXUD/2010/DE/326
Ref. 004054GVD.NAL

Final Report – 8 February 2012
Page 20 of 324