COMMUNICATION FROM THE COMMISSION TO THE COUNCIL in accordance with Article 395 of Council Directive 2006/112/EC
Date: 2020-05-06
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: Denmark, VAT, basis of tax assessment, derogation from EU law, provision of services, taxpayer, travel agency

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 6.5.2020  COM(2020) 168 final  COMMUNICATION FROM THE COMMISSION TO THE COUNCIL in accordance with Article 395 of Council Directive 2006/112/EC  
 
 
1.  

BACKGROUND 

Pursuant to Article 395 of Council Directive 2006/112/EC of 28 November 2006 on the 
common  system  of  value  added  tax1  (the  VAT  Directive),  the  Council,  acting 
unanimously  on  a  proposal  from  the  Commission,  may  authorise  any  Member  State  to 
introduce special measures for derogation from the provisions of this Directive, in order 
to simplify the procedure for collecting VAT or to prevent certain forms of tax evasion or 
avoidance. As this procedure provides for derogation from the general principles of VAT, 
in accordance with the consistent rulings of the Court of Justice of the European Union 
(CJEU), any such derogation should be proportionate and limited in scope. 

By  letter  registered  with  the  Commission  on  10  February  2020,  Denmark  requested  an 
authorisation  to  apply  a  measure derogating from  Article 308 of the VAT Directive.  In 
accordance  with  Article  395(2)  of  the  VAT  Directive,  the  Commission  informed  the 
other Member States by letter dated 10 March 2020 of the request made by Denmark. By 
letter  dated  11  March  2020,  the  Commission  notified  Denmark  that  it  had  all  the 
information it considered necessary for appraisal of the request. 

As  a  general  rule,  the  taxable  amount  under  the  special  scheme  for  travel  agents, 
according to Article 308 of the VAT Directive, is the travel agent margin, that is to say, 
the difference between the total amount, exclusive of VAT, to be paid by the traveller and 
the  actual  cost  to  the  travel  agent  of  supplies  of  goods  or  services  provided  by  other 
taxable  persons,  where  those  transactions  are  for  the  direct  benefit  of  the  traveller.  The 
purpose  of  the  derogation  requested  by  Denmark  is  to  lay  down  a  rule  determining  the 
cost of passenger transport that has to be taken into account when calculating the travel 
agent’s profit margin, in case there are parties in the chain of transactions that are closely 
linked. This cost will be the payment received by the last company in the chain that is not 
closely linked to the travel agent. 

2.  

THE TRAVEL AGENT SCHEME 

This  special  VAT  scheme,  set  out  in  Articles 306  to  310  of  the  VAT  Directive,  was 
brought in due to the special nature of the industry. The services offered by travel agents 
usually  consist  of  a  package  of  services,  in  particular  transport  and  accommodation 
obtained from third parties. These packages are then sold by travel agents, in their own 
name,  to  their  customers.  Those  are  circumstances  where  it  is  particularly  difficult  to 
apply the normal rules on the place of taxation, the taxable amount and deduction of input 
tax due to the complexity and location of the services provided. 

Under Article 307 of the VAT Directive, all transactions performed by a travel agent in 
respect  of  a  journey  are  regarded  as  a  single  service.  The  taxable  amount  is  the  profit 
margin realised by the travel agent on the supply of a travel package and hence the travel 
agent  is  not  entitled  to  deduct  input  VAT.  The  place  of  taxation  for  the  travel  agent's 

1 OJ L 347, 11.12.2006, p. 1 

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supply is where he has established his business or has a fixed establishment from which 
he  provides  the  single  service  or,  failing  this,  the  place  where  he  has  his  permanent 
address or usually resides. 

The special VAT scheme has two aims:  

(a) 
to simplify the application of EU VAT rules for these supplies, particularly so that 
a travel agent avoids having to register for VAT purposes in each of the Member States 
where the services acquired by the travel agent are performed; 

(b) 
to ensure that VAT revenue goes to the Member State in which final consumption 
of  each  individual  component  of  the  single  supply  takes  place,  with  VAT  revenue  on 
services  enjoyed  in  the  course  of  the  journey,  such  as  hotels,  restaurants  or  transport, 
going  to  the  Member  State  in  which  the  traveller  receives  the  service  and  VAT  on  the 
travel agent’s margin returning to the Member State where the travel agent is established. 

3.  

THE REQUEST 

Denmark requests, under Article 395 of the VAT Directive, that the Council, acting upon 
a proposal of the Commission, authorises it to apply a special measure derogating from 
Article 308 of the VAT Directive as regards the determination of the taxable amount to 
be  applied  under  the  travel  agent  special  scheme  when  the  parties  intervening  in 
transactions  obtained  by  the  travel  agent  are  closely  linked.  In  these  cases,  the  cost  of 
passenger transport that has to be taken into account when calculating the travel agent’s 
profit  margin  is  supposed  not  to  be  the  payment  to  the  taxable  person  which  is  closely 
linked, but the payment received by the last company in the chain of transactions that is 
not closely linked to the travel agent. 

Denmark  submits  that  the  introduction  of  the  derogating  measure  is  necessary  to  fight 
fraud occurring in the travel agent sector. Several travel agencies have reduced their VAT 
payment  by  establishing  subsidiaries  that  purchase  airline  tickets  from  airlines,  after 
which  they  are  sold  to  the  travel  agency  for  an  artificially  high  price.  This  results  in 
diminishing profits for the travel agency and, therefore, a smaller tax base. The subsidiary 
in  return  obtains  unusually  high  profit  margins.  However,  the  purchase  and  sale  of 
international airline tickets is zero rated passenger transport in Denmark. For this reason, 
the subsidiary has no VAT to declare or pay on these purchases and sales. 

The Danish Tax Agency estimates that the VAT loss due to  this practice has increased 
from DKK 3.5 million in 2014 to DKK 25.0 million in 2017. This loss will highly likely 
increase  further  over  the  coming  years.  Furthermore,  this  abusive  practice  gives  a 
competitive advantage to those travel agencies which already use it, forcing other travel 
agencies to adopt the same abusive practice in order to remain competitive. 

By  establishing  that  the  payment  received  by  the  last  company  in  the  chain  of 
transactions  that  is  not  closely  linked  to  the  travel  agent  will  be  the  cost  used  for  the 

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calculation of the margin of the travel agent, Denmark would curb  this abusive practice 
taking place in the travel agent sector. 

4.  

THE COMMISSION´S VIEW 

When  the  Commission  receives  requests  in  accordance  with  Article  395  of  the  VAT 
Directive, these are examined with a view to ensure that the basic conditions for granting 
a  derogation  are  fulfilled,  i.e.  whether  the  proposed  specific  measure  simplifies 
procedures  for  taxable  persons  and/or  the  tax  administration  or  whether  the  proposal 
prevents certain types of tax evasion or avoidance. In this context, the Commission has 
always taken a restrictive, cautious approach to ensure that derogations do not undermine 
the  operation  of  the  general  VAT  system,  are  limited  in  scope,  necessary  and 
proportionate. 

Any derogation from the rules laid down for the travel agent scheme can, therefore, not 
be more than a last resort and an emergency measure and must offer guarantees as to the 
necessity and exceptional nature of the derogation granted. 

It  follows  from  the  request  that  the  measure  aims  to  tackle  the  abusive  practice  of 
reduction  of  a  margin  which  serves  as  a  tax  base  for  the  transactions  covered  by  the 
special scheme for travel agents. This reduction is caused by the fact that the supply of 
international airline tickets is zero rated in Denmark and thus no VAT is declared or paid 
on  those  supplies.  In  other  words,  such  supplies  would  not  be  covered  by  the  special 
scheme  for  travel  agents  in  Denmark.  The  Commission  services  do  not  agree  with  the 
assessment  that  such  supplies  would  not  be  covered  by  the  special  scheme  for  travel 
agents  and,  therefore,  could  benefit  from  the  exemption  applicable  to  the  passenger 
transport. 

The  CJEU  in  case  Madgett  and  Baldwin2,  stated  that  the  underlying  reasons  for  the 
special scheme for travel agents and tour operators are equally valid where the  trader is 
not a travel agent or tour operator within the normal meaning of those terms, but effects 
identical  transactions  in  the  context  of  another  activity,  such  as  that  of  hotelier.  To 
interpret  Article 26  of  the  Sixth  VAT  Directive  (now  Articles  306  to  310  of  the  VAT 
Directive) as applying solely to traders who are travel agents or tour operators within the 
normal  meaning  of  those  terms  would  mean  that  identical  services  would  come  under 
different provisions depending on the formal classification of the trader. 

Furthermore,  the  CJEU  in  case  Alpenchalets  Resorts3,  ruled  that  the  mere  supply  by  a 
travel  agent  of  holiday  accommodation  rented  from  other  taxable  persons,  or  such  a 
supply of a holiday residence combined with the supply of additional ancillary  services, 

2 Judgment of 22 October 1998, C-94/97, Madgett and Baldwin, EU:C:1998:496 

3 Judgment of 19 December 2018, C-522/17, Alpenchalets Resorts, EU:C:2018:1032 

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regardless of the importance of those ancillary services, each amounts to a single service 
covered by the special scheme for travel agents. 

It  should  be  noted  that  the  CJEU  in  cases  Commission  v  Spain4  and  Commission  v 
Germany5, stated that the special scheme applies not only to services directly supplied to 
the  traveller  but  also  to  services  supplied  to  any  customer,  including  thus  business-to-
business transactions. 

Therefore, the mere supply of airline tickets by a travel agent or tour operator is covered 
by  the  special  scheme  for  travel  agents.  When  such  a  transaction  is  carried  out  by  a 
taxable person other than a travel agent or tour operator, as is the case with a subsidiary 
of the travel  agent,  it will also  be covered by the special scheme  for travel  agents.  The 
fact that the customer is not the traveller does not preclude the application of the special 
scheme. 

The  CJEU  also  stated  in  case  Alpenchalets  Resorts,  that  transactions  made  by  a  travel 
agent  in  respect  of  a  journey  are  regarded,  for  the  purpose  of  their  tax  treatment,  as  a 
single service supplied by the travel agent to the traveller. It follows that, since the supply 
of  holiday  accommodation  is  covered  by  the  special  scheme  for  travel  agents,  its  tax 
treatment is not subject to the rules applicable to the supply of holiday accommodation, 
but that treatment is determined by the special scheme established by the VAT Directive 
for single services supplied by travel agents. 

Therefore, the supply of airline tickets by the subsidiary, as it is already covered by the 
travel agents scheme, cannot be regarded as zero rated passenger transport. That supply 
will be taxed under that scheme, which implies the application of the standard rate  and 
the determination of the taxable amount according to Article 308 of the VAT Directive. 

Taking  into  account  the  above,  the  Commission  has  come  to  the  conclusion  that  a 
derogation  allowing  for  the  taxable  amount  under  the  travel  agent  scheme,  to  be 
calculated by the travel agent having to base his cost on the payment received by the last 
company in the chain of transactions that is not closely linked to the travel agency, is not 
considered an appropriate solution to tackle abusive practices occurring in this sector. 

Denmark  should  instead  ensure  that  the  provisions  of  the  travel  agent  scheme  are  also 
applied to transactions carried out by subsidiaries acting as intermediaries. 

More  generally,  the  Commission  would  like  to  note  that  it  is  currently  evaluating  the 
application  and  implementation  of  the  special  scheme  for  travel  agents  in  Member 

4 Judgment of 26 September 2013, C-189/11 et al., Commission v Spain, EU:C:2013:587 

5 Judgment of 8 February 2018, C-380/16, Commission v Germany, EU:C:2018:76 

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States6.  An  online  public  consultation  will  have  provided  an  opportunity  for  Member 
State authorities, businesses and the wider public to contribute to this evaluation. 

5.  

CONCLUSION 

On  the  basis  of  the  above-mentioned  elements,  the  Commission  objects  to  the  request 
made by Denmark. 

6 

https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/11883-Evaluation-of-the-special-VAT-

scheme-for-travel-agents  

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