COMMISSION STAFF WORKING DOCUMENT EVALUATION Special Scheme for travel agents of the Council Directive 2006/112/EC on the common system of value added tax
Date: 2021-02-17
Institutions: Directorate-General for Taxation and Customs Union, European Commission
Subjects: EU Member State, VAT, provision of services, tax collection, tax harmonisation, tax law, travel agency

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 17.2.2021  SWD(2021) 32 final  COMMISSION STAFF WORKING DOCUMENT  EVALUATION  Special Scheme for travel agents of the Council Directive 2006/112/EC on the common system of value added tax  {SWD(2021) 33 final}  
 
 
Table of contents 

1. 

INTRODUCTION --------------------------------------------------------------------------------------------------------------- 4 

1.1. 

PURPOSE AND SCOPE ----------------------------------------------------------------------------------------------------- 5 

2. 

BACKGROUND TO THE INTERVENTION -------------------------------------------------------------------------------- 6 

2.1. 
2.2. 

DESCRIPTION OF THE INTERVENTION AND ITS OBJECTIVES -------------------------------------------------------------- 6 
BASELINE AND POINTS OF COMPARISON --------------------------------------------------------------------------------- 8 
2.2.1.   Common EU rules ------------------------------------------------------------------------------------------------- 8 
2.2.2. Interpretation of the common EU rules by the CJEU -------------------------------------------------------- 9 

3. 

IMPLEMENTATION / STATE OF PLAY --------------------------------------------------------------------------------- 11 

3.1. 

3.2. 

THE TRAVEL-TOURISM INDUSTRY --------------------------------------------------------------------------------------- 11 
Importance of the industry in the EU ---------------------------------------------------------------------- 11 
3.1.1.  
3.1.2.  
Impact of the Covid-19 crisis --------------------------------------------------------------------------------- 12 
3.1.3.   Digital transformation ----------------------------------------------------------------------------------------- 13 
3.1.4.   Business models ------------------------------------------------------------------------------------------------- 15 
IMPLEMENTATION OF THE SCHEME BY MEMBER STATES ------------------------------------------------------------- 17 
3.2.1.   Scope of the special scheme ---------------------------------------------------------------------------------- 17 
3.2.2.   Wholesale supplies --------------------------------------------------------------------------------------------- 19 
3.2.3.   B2B supplies ------------------------------------------------------------------------------------------------------ 21 
3.2.4.   Mixed packages ------------------------------------------------------------------------------------------------- 22 
3.2.5.   The margin calculation ---------------------------------------------------------------------------------------- 25 
3.2.6.   Third country operators --------------------------------------------------------------------------------------- 27 

4.  METHOD ---------------------------------------------------------------------------------------------------------------------- 28 

4.1. 
4.2.  

SHORT DESCRIPTION OF METHODOLOGY ------------------------------------------------------------------------------ 28 
DATA COLLECTION ACTIVITIES AND LEGAL MAPPING EXERCISE ------------------------------------------------------- 28 
4.2.1.   The study – legal mapping and business survey -------------------------------------------------------- 28 
4.2.2.   Consultation of Member States – data collection ------------------------------------------------------ 30 
4.2.3.   Feedback to the evaluation roadmap – data collection ---------------------------------------------- 31 
The public consultation – data collection ----------------------------------------------------------------- 31 
4.2.4. 

5. 

ANALYSIS AND ANSWERS TO THE EVALUATION QUESTIONS ------------------------------------------------- 31 

5.1.1 
5.1.2 
5.1.3 

5.1  EFFECTIVENESS -------------------------------------------------------------------------------------------------------------- 31 
Simplification in the application of EU VAT rules ------------------------------------------------------- 31 
Allocation of VAT revenues ----------------------------------------------------------------------------------- 33 
Unintended effects – Third country operators ---------------------------------------------------------- 34 
5.2  EFFICIENCY ------------------------------------------------------------------------------------------------------------------ 36 
VAT compliance costs under the normal VAT rules ---------------------------------------------------- 36 
5.2.1 
Cost-benefit analysis for businesses------------------------------------------------------------------------ 38 
5.2.2 
5.2.3 
Potential distortions of competition ----------------------------------------------------------------------- 39 
5.2.3.1. Wholesale supplies ---------------------------------------------------------------------------------------------- 40 
5.2.3.2. Definition of travel facilities ----------------------------------------------------------------------------------- 44 
Lack of level playing field ------------------------------------------------------------------------------------- 47 
5.2.4 
Calculation of profit margin ---------------------------------------------------------------------------------- 49 
5.2.5 

 
 
 
 
5.3  RELEVANCE ------------------------------------------------------------------------------------------------------------------ 50 
5.4  COHERENCE ----------------------------------------------------------------------------------------------------------------- 52 
5.4.1 Shift towards taxation at destination -------------------------------------------------------------------------- 53 
Regulatory framework ----------------------------------------------------------------------------------------- 54 
5.4.2 
5.5  EU ADDED VALUE ----------------------------------------------------------------------------------------------------------- 55 

6. 

CONCLUSION ----------------------------------------------------------------------------------------------------------------- 57 

6.1  ACHIEVEMENTS OF THE SPECIAL SCHEME ---------------------------------------------------------------------------------- 57 
6.2  SHORTCOMINGS OF THE SPECIAL SCHEME --------------------------------------------------------------------------------- 57 
ISSUES AT STAKE ------------------------------------------------------------------------------------------------------------- 60 
6.3 

ANNEX 1: PROCEDURAL INFORMATION ------------------------------------------------------------------------------------- 62 

ANNEX 2: STAKEHOLDER CONSULTATION ---------------------------------------------------------------------------------- 63 

1. 
2. 
3. 
4. 

BUSINESS SURVEY WITHIN THE STUDY BY KPMG ------------------------------------------------------------------------- 63 
TARGETED CONSULTATION OF MEMBER STATES IN THE CONTEXT OF THE GROUP ON THE FUTURE OF VAT --------- 64 
FEEDBACK MECHANISM – COMMENTS AND CONTRIBUTIONS TO THE EVALAUTION ROADMAP ------------------------ 66 
PUBLIC CONSULTATION OPEN TO ALL STAKEHOLDERS AND MEMBERS OF THE PUBLIC ----------------------------------- 67 
The overview ----------------------------------------------------------------------------------------------------- 67 
Key findings ------------------------------------------------------------------------------------------------------- 68 

4.1. 
4.2. 

ANNEX 3: METHODS AND ANALYTICAL MODELS ------------------------------------------------------------------------- 78 

LIST OF TABLES 

Table 1:   VAT collected on travel services .................................................................................................. 34 
Table 2:   Country of origin .......................................................................................................................... 66 

LIST OF FIGURES 

Figure 1:  
Figure 2:  
Figure 3:  

Intervention Logic of the Travel Agent scheme ..................................................................... 9 
Turnover in tourism services in EU27................................................................................... 14 
Single  travel  services  –  Application  of  the  scheme  by  Member  States  and  United 
Kingdom ............................................................................................................................... 19 

Figure 4:   Meaning  of  travel  facilities  –  Application  of  the  scheme  by  Member  States  and 

United Kingdom ................................................................................................................... 20 

Figure 5:   Wholesale  supplies  -  Application  of  the  scheme  by  Member  States  and  United 

Kingdom ............................................................................................................................... 21 
B2B supplies - Application of the scheme by Member States and United Kingdom ............ 23 

Figure 6: 
Figure 7:   Mixed  packages  (VAT  on  in-house  element)  –  Application  of  the  scheme  by 

Member States and United Kingdom ................................................................................... 24 

Figure 8:   Mixed packages (margin  apportionment)  – Application of the scheme by Member 

Figure 9: 

Figure 10:  

Figure 11: 
Figure 12:  
Figure 13:  

States and United Kingdom .................................................................................................. 25 
Mixed packages (MICE) – Application of the scheme by Member States and United 
Kingdom ............................................................................................................................... 26 
The margin calculation – Application of the scheme by Member States and United 
Kingdom ............................................................................................................................... 27 
Supply of accommodation only – example 1 ....................................................................... 41 
Supply of accommodation only – example 2 ....................................................................... 42 
Supply of accommodation only – example 3 ....................................................................... 43 

 
 
 
 
Figure 14:  
Figure 15:  
Figure 16:  
Figure 17:  
Figure 18:  
Figure 19:  
Figure 20:  
Figure 21:  

Car rental .............................................................................................................................. 45 
Comments re simplification ................................................................................................. 70 
Comments re fitness for digital age ..................................................................................... 71 
Comments re lack of clarity .................................................................................................. 72 
Comments re distortion of competition .............................................................................. 73 
Comments re business needs ............................................................................................... 74 
Comments re need for amendment..................................................................................... 75 
Further comments ................................................................................................................ 76 

 
 
 
 
Glossary 

Bed Bank 

intermediaries  specialised 

in  distribution/aggregation  of 

Online 
products (e.g. hotel rooms) 
Billion 
Business-to-Business 
Business-to-Customer 
Court of Justice of the European Union 
European Commission 
Directorate General for Taxation and Customs Union 
Destination Management Companies 
European Union 
Euro 
Fully Independent Traveller 
Gross Domestic Product 
Information Communication Technology 
Meeting, Incentives, Conference and Events  
Organisation for Economic Co-operation and Development 
One Stop Shop 
Online Travel Agency 

Bn 
B2B 
B2C 
CJEU 
COM 
DG TAXUD 
DMC 
EU 
EUR 
FIT 
GDP 
ICT 
MICE 
OECD 
OSS 
OTA 
Principal supplier  Providers such as hotels, airlines, attractions and car rental companies 
supplying  their  own  services  both  directly  to  travellers  and  to  other 
operators 
Small and Medium-sized Enterprise 
Telecommunications,  broadcasting  and  electronically 
services 
Travel Management Companies 
Tourism Tax and Law Travel VAT Conference 
If  not  otherwise  specified,  the  whole  category  of  travel  agents  and 
tour operators to which the special scheme is applicable 
United Nations World Tourism Organization 
Value Added Tax 
Directive 2006/112/EC 
World Economic Forum 

UNWTO 
VAT 
VAT Directive 
WEF 

TMC 
TTL TVC 
Travel agents 

SME 
TBE 

supplied 

 
 
 
1. 

INTRODUCTION  

The  special  VAT  scheme  for  travel  agents1  (the  “special  scheme”  or  the  “travel  agent 
scheme”)  was  put  in  place  by  the  Sixth  VAT  Directive2  in  1977  as  a  simplification 
measure derogating from the normal VAT rules on the place of supply, taxable amount 
and deduction of input tax. This scheme, currently set out in Articles 306 to 310 of the 
VAT Directive3, has remained unchanged since the adoption of the common VAT system 
in the EU.  

Since  then,  however,  divergence  in  application  of  the  travel  agent  scheme  has  arisen 
between Member States, leading, over the years, to numerous judgments of the Court of 
Justice of the European Union (CJEU).  

As  a  result,  in  2002  the  Commission  adopted  a  proposal4,  amended  in  20035  (“the 
2002/2003 proposal”), to reform the travel agent  scheme. No agreement could however 
be reached in  the Council and the 2002/2003  proposal  was finally withdrawn in  20146, 
because it had become obsolete after a series of other rulings of the CJEU.  

In compliance with its commitment of periodically and regularly review of the provisions 
of the VAT Directive, in 2017 the Commission contracted a study7 (“the study”) in order 
to  evaluate  the  current  state  of  the  play  of  the  special  scheme,  together  with  possible 
options for its review. 

1   According  to  Article 306  of  the  VAT  Directive,  the  scheme  is  also  applicable  to  tour  operators. 
Throughout  the  text,  if  not  otherwise  specified,  the  term  “travel  agent”  will  stand  for  the  whole 
category of travel agents and tour operators to which the special scheme is applicable.  

2   Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of the Member 
States relating to  turnover taxes  – Common  system of  value-added tax:  uniform basis of assessment 
(OJ L 145, 13.6.1977, p. 1). 

3   Council  Directive  2006/112/EC  of  28 November  2006  on  the  common  system  of  value  added  tax 

(OJ L 347, 11.12.2006, p. 1),  
http://eur-lex.europa.eu/legal-content/EN/TXT/?uri=URISERV%3Al31057  

4   Proposal  for  a  Council  Directive  amending  Directive  77/388/EEC  as  regards  the  special  scheme  for 

travel agents (COM(2002) 64 final of 8.2.2002). 

5   Amended  proposal  for  a  Council  Directive  amending  Directive  77/388/EEC  as  regards  the  special 
scheme for travel agents and Proposal for a Regulation of the European Parliament and of the Council 
amending Regulation (EEC) No 218/92 on administrative co-operation in the field of indirect taxation 
(VAT)  as  regards  additional  measures  regarding  supplies  of  travel  services  (COM(2003) 78 final  of 
24.3.2003). 

6   OJ C 153, 21.5.2014, p. 3. 
7   Study on the review of the VAT Special Scheme for travel agents and options for reform (Final report 

of December 2017, TAXUD/2016/AO-05). The report was prepared by KPMG. 

5 

 
 
                                                 
This  evaluation  fits  into  the  priorities  set  by  the  Tax  Action  Plan8,  in  particular  those 
aiming  at  simplifying  EU  tax  rules  for  more  competitiveness  in  the  Single  Market, 
especially in light of the current Covid-19 crisis. 

In  this  context,  this  Staff  Working  Document  presents  the  outcome  of  the  evaluation 
process carried out on the travel agent scheme.  

1.1. 

Purpose and scope 

As set out in the Roadmap9 published on 4 February 2020, the purpose of this evaluation 
is twofold. Firstly, it seeks to establish whether the special scheme still meets its original 
objectives,  namely  simplifying  the  application  of  VAT  rules  for  travel  agents  and 
ensuring that VAT revenue goes to the Member States of consumption. Secondly, it sets 
out to assess whether new concerns and challenges have arisen since its adoption, which 
cannot be addressed by the scheme in its present form.  

In particular, the evaluation looks at the implementation of the different provisions of the 
travel  agent  scheme,  and  assesses  its  application  by  Member  States.  In  this  regard, 
particular attention is given to the relevant case law of the CJEU. It also assesses possible 
distorsions of competition that may affect the functioning of the internal market as well 
as possible side effects that might be due to the application of the scheme. 

Developments  in  the  travel  industry,  including  its  different  business  models  and  the 
digitalisation of the sector, are important aspects that are given consideration.  

The  evaluation  also  takes  into  account  developments  in  the  regulatory  framework,  like 
the introduction of the “One Stop Shop” in 2021 (a solution enabling all businesses that 
deal with final consumers to avoid multiple registrations and declarations) and the shift to 
destination-based  taxation  (in  the  current  VAT  Directive  and  in  a  definitive  VAT 
system).  

The performance of the special scheme is assessed against the five evaluation criteria: i) 
relevance, ii) effectiveness, iii) efficiency, iv) coherence and v) the EU added value10 as 
defined in the Better Regulation Guidelines11.  

The time period covered stretches from the creation of the special scheme in 1977 until 
the  availability  of  the  latest  reported  data  (e.g.  data  from  the  open  public  consultation 
ended in September 2020). In terms of geographical coverage, the evaluation covers all 

8   Communication from the Commission to the European Parliament and the Council - An action plan for 
fair and simple taxation supporting the recovery strategy (COM(2020) 312 final of 15 July 2020). 
https://ec.europa.eu/taxation_customs/general-information-taxation/eu-tax-policy-strategy/package-
fair-and-simple-taxation_en1  

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

special-VAT-scheme-for-travel-agents  

10  As regards the last one, it has to be recalled that the travel agent scheme is a particular feature of the 
VAT system, which is harmonised at EU level. Any intervention in this field can therefore only pass 
through an amendment of the VAT Directive. 

11   https://ec.europa.eu/info/sites/info/files/better-regulation-guidelines.pdf  

6 

 
                                                 
 
EU Member States and the United Kingdom. With the view to assess whether the special 
scheme  ensures  a  level  playing  field,  the  evaluation  also  covers  economic  operators 
located  in  third  countries.  This  evaluation  will  help  determine  whether  any  subsequent 
policy action is needed in order to address any identified shortcomings. It could be then 
followed by an impact assessment of possible options for reform and eventually result in 
a legal initiative of the Commission. 

2. 

BACKGROUND TO THE INTERVENTION 

2.1.  Description of the intervention and its objectives 

When the Sixth  VAT Directive was adopted in  1977, a special scheme was introduced 
for travel agencies and tour operators. This special scheme, now set out in Articles 306 to 
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,  acting  in  their  own  name,  to  their  customers.  Those  are 
circumstances  where  it  is  particularly  difficult  to  apply  the  normal  VAT  rules  on  the 
place of supply, the taxable amount and deduction of input tax due to the complexity and 
location of the services provided. 

The special scheme pursues two main objectives:  

(a)  to  simplify  the  application  of  the  normal  VAT  rules,  especially  for  the  supply  of 
travel packages, 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. 

To be kept  in  mind that  the normal  activity of travel  agents  consists of purchasing 
services  for  the  direct  benefit  of  a  traveller  from  service  providers,  mainly 
established  in  other  Member  States  or  outside  the  EU,  and  reselling  them  in  their 
own name to the traveller. Under Article 28 of the VAT Directive, taxable persons 
(travel  agents)  acting  in  their  own  name  but  on  behalf  of  another  (the  traveller) 
would  be  considered  to  have  received  and  supplied  those  services  themselves. 
Application  of  the  normal  VAT  rules  would  therefore  result  in  the  travel  agent 
having  to  register  in  each  of  the  Member  States  in  which  the  relevant  services  are 
supplied.  For  example,  the  provision  of  hotel  accommodation  is  deemed  to  take 
place  where  the  hotel  is  located12  and  admission  to  cultural,  artistic,  entertainment 
and  similar  events  is  deemed  to  take  place  where  those  services  are  physically 
carried  out13.  By  introducing  the  “single  service”  concept,  under  which  all 
transactions  in  respect  of  a  journey  are  regarded  as  a  single  supply  taxable  in  the 

12   Article 47 of the VAT Directive. 
13   Article 53 of the VAT Directive. 

7 

 
                                                 
Member  State  where  the  travel  agent  is  established,  the  special  scheme  does  away 
with the requirement of multiple VAT registrations. 

(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.  

Under the special scheme, travel agents are not taxed on their turnover, but on their 
margin. VAT incurred by the travel agent in respect of supplies made for the direct 
benefit  of  the  traveller  is  therefore  not  eligible  for  deduction  or  refund  in  any 
Member State. The effect of taxation on the margin is that VAT revenue on services 
enjoyed  in  the  course  of  the  journey,  such  as  hotel  accommodation,  restaurant 
services or transport, will go to the Member State in which the traveller receives the 
service,  whereas VAT on the travel  agent’s margin  returns to  the Member State in 
which  the  agent  is  established  so  that,  in  principle,  a  fair  distribution  of  VAT 
revenues  between  Member  States  is  guaranteed:  in  the  end,  each  element  of  the 
travel package will bear VAT in the country of consumption. 

In  addition,  without  an  arrangement  such  as  taxation  on  the  margin,  travel  agents 
putting together a holiday or travel package within the European Union would have 
to recover the VAT charged to them, often in other Member States, for supplies such 
as  accommodation,  meals,  transport,  guided  tours,  cruises  or  organised  leisure 
activities  to  be  provided  in  those  Member  States.  Not  only  would  that  result  in 
significant administrative complexity but, as a result, such services would be subject 
to VAT not in the Member State in which they were in fact provided and consumed 
but  in  the  Member  State  in  which  the  package  was  purchased.  Significant  VAT 
revenue might thus be diverted from Member States providing tourist destinations to 
those providing the tourists. 

Since its introduction in 1977, nevertheless, the travel agent scheme has not been applied 
uniformly  by  Member  States,  possibly  leading  to  double  taxation,  distortions  of 
competition and unfair distribution of VAT receipts among Member States. 

For that reason, in  2002 the Commission  adopted a proposal  with  a view to  amend the 
travel agent scheme14. That proposal had as its objective: 

 

 

 

 

to allow travel agents to apply VAT to their profit margin for services sold to other 
travel agents as well as to private individuals, 

to  include  travel  agents  not  established  in  the  EU  within  the  scope  of  the  VAT 
system, when selling package tours to customers established in the EU, 

to entitle travel agents to opt for application of the normal VAT system,  

to  authorise  travel  agents  to  calculate  a  single  profit  margin  for  package  tours 
provided over a certain period. 

14   Cf. supra note 4. 

8 

 
                                                 
The European Parliament proposed two amendments15 to this proposal, one of which was 
accepted by the Commission, namely the introduction of the “one stop shop” principle. 
The  introduction  of  an  exemption  for  supplies  to  third-country  established  clients  was 
however not accepted, as it would have been contrary to one of the basic principles of the 
EU  VAT  system  whereby  supplies  of  goods  and  services  are  taxed  where  the 
consumption takes place regardless the place of establishment of the client. To this end, 
in  2003  the  Commission  amended  its  proposal16  (“the  2002/2003  proposal”)  aiming  at 
extending the simplified mechanism just adopted for services provided electronically by 
suppliers not established in the European Union to customers established in the EU17 so 
that  it  would  also  cover  supplies  made  under  the  travel  agent  scheme.  No  agreement 
could  however  be  reached  in  the  Council  and  the  2002/2003  proposal  was  finally 
withdrawn in 2014, because it had become obsolete after a series of rulings of the CJEU.  

Figure 1: Intervention Logic of the Travel Agent scheme 

15  Report on the Proposal for a Council Directive amending Directive 77/388/EEC as regards the special 
scheme  for  travel  agents  (COM(2002) 64  –  C5-0112/2002  –  2002/0041(CNS)),  PE  307.532, 
A50274/2002. 
16   Cf. supra note 5. 
17   Council  Directive  2002/38/EC  of  7 May  2002  amending  and  amending  temporarily  Directive 
77/388/EEC  as  regards  the  value  added  tax  arrangements  applicable  to  radio  and  television 
broadcasting services and certain electronically supplied services (OJ L 128, 15.5.2002, p. 41). 

9 

 
 
                                                 
2.2.  Baseline and points of comparison  

2.2.1.   Common EU rules 

The  travel  agent  scheme  is  set  out  in  Articles 306  to  310  of  the  VAT  Directive  and  is 
mandatory for both Member States and businesses.  

According  to  Article 306,  the  special  scheme  applies  to  operations  carried  out  by  the 
travel agents (including tour operators) who deal with customers in their own name and 
use the supplies of goods or services of other taxable persons in the provision of travel 
facilities. When travel agents act as intermediaries, i.e. act in the name of another person, 
the special scheme does not apply and the supplies of travel facilities are instead treated 
according to the normal VAT rules. 

Under Article 307 of the VAT Directive, transactions performed, in accordance with the 
conditions laid down in Article 306, by a travel agent in respect of a journey are regarded 
as a single supply.  

The  place  of  taxation  for  the  travel  agent's  supply  is  where  he  has  established  his 
business or has a fixed establishment from which the service is provided or, failing this, 
the place where he has his permanent address or usually resides. 

According to Article 308 of the VAT Directive, the taxable amount is the profit margin 
realised by the travel agent on the supply of single service, 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 
(inclusive of VAT), where those transactions are for the direct benefit of the traveller. 

Hence, the travel agent is not entitled to deduct input VAT: tax charged to a travel agent 
by other taxable persons on transactions that directly benefit a traveller is not eligible for 
deduction  or  refund  in  any  Member  State.  However,  Article 310  of  the  VAT  Directive 
leaves the right for the travel agent to deduct input tax incurred on transactions other than 
those directly benefiting a traveller, such as VAT on overhead costs (advertising, office 
expenses, etc.). 

Finally, as for transactions entrusted by a travel agent to other taxable persons performed 
by  such  persons  outside  the  European  Union,  the  exemption  with  right  of  deduction 
applies based on Article 309 of the VAT Directive, read in conjunction with Articles 153 
and 169. When the transactions entrusted by a travel agent to other taxable persons are 
performed  both  inside  and  outside  the  EU,  only  the  part  of  the  service  relating  to  the 
transactions outside the European Union is exempted with right of deduction.  

2.2.2. Interpretation of the common EU rules by the CJEU 

Differences in interpretation by Member States of the above rules have led to a multitude 
of judgments rendered by the CJEU over the years. These have served to clarify the EU 
common rules and to complement them as a baseline for the special scheme.  

10 

 
The  crucial  interpretative  role  played  by  the  CJEU  over  the  last  years  has  also  been 
underlined  by  Advocate  General  Sharpston  in  her  opinion  in  case  C‑ 189/11  et  al. 
Commission  v  Spain:  “It  is  hard  to  avoid  the  impression  that  the  Court  is  being  called 
upon  to  decide  a  matter  of  VAT  policy  (and  of  legislative  drafting)  which  has  proved 
beyond the capabilities or the willingness of the Member States and the legislature.”. 

The CJEU confirmed that the special scheme derogates only in terms of place of supply, 
taxable amount and deduction of input tax and that  in  any other  case, the normal  VAT 
rules must be applied: 

  The supply of travel services is not included in Annex III of the VAT Directive and 
can  therefore  not  benefit  from  a  reduced  rate  of  VAT  (C-74/91  Commission  v 
Germany18 and C-552/17 Alpenchalets19). 

  The  value  of  the  margin  must  be  considered  in  a  manner  consistent  with  normal 

valuation provisions (C-149/01 First Choice Holidays20). 

  VAT  payable  must  be  calculated  separately  for  each  supply.  Using  a  global  or 
aggregated  basis  is  not  permitted  (C-189/11  et  al.  Commission  v  Spain21  and 
C-380/16 Commission v Germany22). 

  When a travel agent, subject to the special scheme, receives a payment on account, 
VAT  is  chargeable,  in  accordance  with  Article 65,  on  receipt  of  that  payment  on 
account (C-422/17 Skarpa Travel23). 

  The turnover of a travel agent (and not his margin) must be taken into account, when 
the  travel  agent  wants  to  benefit  from  exemption  as  a  small  business  (C-388/18  B 
(Chiffre d’affaires du revendeur de véhicules d’occasion)24). 

The CJEU clarified that, as the special scheme is an exception to the normal VAT rules, 
it must be applied only to the extent required to achieve its objectives: 

  Services  supplied by the travel  agent  himself cannot  fall within the special  scheme 

(C-557/11 Kozak25). 

18   CJEU, judgment of 27 October 1992, Commission v Germany, C-74/91, EU:C:1992:409. 
19   CJEU, judgment of 19 December 2018, Alpenchalets Resorts, C-552/17, EU:C:2018:1032. 
20   CJEU, judgment of 19 June 2003, First Choice Holidays, C-149/01, EU:C:2003:358.  
21   CJEU, judgment of 26 September 2013, Commission v Spain, C-189/11, EU:C:2013:587. 
22  CJEU, judgment of 18 February 2018, Commission v Germany, C-380/16, EU:C:2018:76. In this case, 
the  CJEU  highlighted  that  the  fact  that  the  calculation  of  the  margin,  as  provided  for  in  this 
Article 308,  for  sales  in  the  B2C  area  may  give  rise  to  difficulties,  as  claimed  by  Germany  and  the 
Netherlands,  is  not  an  exclusion  criterion  for  this  interpretation.  Member  States  must  also  apply  the 
VAT Directive, even if they deem it to be improved (see, to that effect, judgment of 6 October 2005, 
Commission  v  Spain,  C-204/03,  EU:C:2005:588,  paragraph 28),  until  the  Union  legislature  decides, 
where appropriate, to amend the content of the special scheme. 

23   CJEU, judgment of 19 December 2018, Skarpa Travel, C-422/17, EU:C:2018:1029. 
24   CJEU,  judgment  of  29 July  2019,  B  (Chiffre  d’affaires  du  revendeur  de  véhicules  d’occasion), 

C-388/18, EU:C:2019:642. 

11 

 
                                                 
  Bought-in  services  should  not  be  included  in  the  special  scheme  when  merely 
ancillary to in-house services (C-308/96 and C-94/97 Madgett and Baldwin26).  

 

In-house services (when supplied together with  bought-in  services) must be  valued 
by reference to their market value whenever this market value can be established. A 
travel agent may only use an actual costs basis to identify the market value where he 
can prove that that basis accurately reflects the structure of the package supplied or 
where it is simply not possible to establish the market value (C-291/03 MyTravel27).  

  A  supply  in  isolation,  which  does  not  relate  to  a  journey,  is  to  be  taxed  under  the 

normal VAT rules (C-31/10 Minerva Kulturreisen28).  

The CJEU emphasised that the special scheme must be applied in a consistent manner in 
order to achieve its objectives:  

  The special scheme is not limited to travel agents and tour operators but must apply 
equally  to  any  person  supplying  travels  under  the  circumstances  envisaged 
(C-308/96  and  C-94/97  Madgett  and  Baldwin29,  C-200/04  iSt30  and  C-220/11  Star 
Coaches31). 

  The status of the customer is not relevant in determining whether the special scheme 
applies.  B2B  and  B2C  supplies  are  therefore  treated  equally  (C-189/11  et  al. 
Commission  v  Spain  and  C-380/16  Commission  v  Germany).  In  particular,  in  case 
C-380/16 Commission v Germany, the CJEU made clear that it is important to ensure 
that the interpretation that best matches the objectives of the special scheme, which 
is that B2B supplies are also covered, must be applied in a uniform manner by the 
Member  States.  The  CJEU  also  repeated  that  the  two  objectives  of  the  special 
scheme, namely simplification of the VAT rules for travel agents and the balanced 
distribution  of  revenue  from  the  collection  of  VAT  between  Member  States,  are 
better achieved with the customer principle.  

  The  special  scheme  applies  both  to  single  items  and  packages  (C-163/91  Van 

Ginkel32 and C-552/17 Alpenchalets33).  

25   CJEU, judgment of 25 October 2012, Kozak, C-557/11, EU:C:2012:672. 
26   CJEU, judgment of 22 October 1998, Madgett and Baldwin, C-308/96 and C-94/97, EU:C:1998:496. 
27   CJEU, judgment of 6 October 2005, MyTravel, C-291/03 EU:C:2005:591. 
28   CJEU, judgment of 9 December 2010, Minerva Kulturreisen, C-31/10, EU:C:2010:762. 
29   Cf. supra note 25. 
30   CJEU, judgment of 13 October 2005, iSt, C-200/04, EU:C:2005:608. 
31  CJEU,  order  of  1 March  2012,  Star  Coaches,  C-220/11,  EU:C:2012:120.  This  order  shows,  by 

contrast, that absent the “circumstances envisaged” the special scheme does not apply.  
32   CJEU, judgment of 12 November 1992, Van Ginkel Waddinxveen, C-163/91, EU:C:1992:435. 
33 

In Alpenchalets, the CJEU stated that the exclusion from the field of application of Article 306 of the 
VAT  Directive  of  services  supplied  by  a  travel  agent  on  the  sole  ground  that  they  cover 
accommodation only would lead to a complicated tax system in which the VAT rules applicable would 
depend upon the constituents of the services offered to each traveller. Such a tax system would fail to 
comply with the aims of the special scheme. 

12 

 
                                                                                                                                                 
 
3. 

IMPLEMENTATION / STATE OF PLAY 

3.1.  The travel-tourism industry  

3.1.1.   Importance of the industry in the EU 

The  travel  and  tourism  are  mainstays  of  the  EU  economy.  The  European  tourism 
ecosystem, covering a range of activities such as travel, transport, accommodation, food, 
recreation, directly and indirectly contributes close to 10% to EU GDP and has made the 
EU  the  world’s  leading  tourism  destination,  with  563 million  international  arrivals  and 
30% of global receipts in 2018 according to World Tourism Organization (UNWTO)34. 
For countries such  as  Spain  and  Italy, the  contribution  of tourism to their GDP is  even 
higher than the global average, 14.3% and 13.0% of their GDP in 2019, respectively. 

The  crucial  importance  of  tourism  in  the  EU  is  demonstrated  by  the  fact  that  it  is  the 
fourth largest EU export category and brings spill-over benefits to the European economy 
as a whole: EUR 1 of value added generated by tourism results in additional 56 cent of 
value added in indirect effect on other industries35. 

The  travel  ecosystem  is  made  up  by  different  players,  comprising  operators  of  varying 
description  (tour  operators,  travel  agents  etc.)  and  numerous  principal  suppliers36 
providing services both directly to travellers and to other operators (for example hotels, 
airlines, attractions and car rental companies).  

The  EU  travel  market  comprises  approximately  210 000  tour  operators  and  travel 
agents37.  The  total  annual  turnover  derived  from  EU  travel  services,  including  the 
organisation of conventions and trade shows, in 2018 was circa EUR 213 billion38. 

The  industry  is  increasingly  driven  by  technology  which  has  disrupted  the  traditional 
business  models  and  the  roles  of  players  within  the  ecosystem.  The  rise  of  the  digital 
consumer and a surge in demand for travel are also driving disruption and transformation 
in this sector. 

The  mere  supply  of  holiday  accommodation  by  the  travel  agent  is  sufficient  for  the  special  scheme 
under Articles 306 to 310 of the VAT Directive to apply and the importance of other supplies of goods 
or services, which may be combined with the supply of accommodation, cannot have a bearing on the 
legal classification of the situation at issue. 
It was particularly important for the CJEU to clarify that the outcome in Star Coaches does not allow 
reaching a different conclusion. 

34   Communication  from  the  Commission  to  the  European  Parliament,  the  Council,  the  European 
Economic and Social Committee and the Committee of the  Regions  “Tourism and transport in 2020 
and beyond” (COM(2020) 550 final of 13.5.2020). 

35   Communication “Tourism and transport in 2020 and beyond”. 
36   Principal suppliers are providers such as hotels, airlines, attractions and car rental companies supplying 

their own services both directly to travellers and to other operators. 

37   Eurostat structural business 2018 statistics EU-28. 
38   The  overall  EU  turnover  of  travel  industry  estimated  in  2015  by  KPMG  for  the  study  was 

EUR 187 billion. EUROSTAT data. 

13 

 
                                                                                                                                                 
 
 
3.1.2.   Impact of the Covid-19 crisis 

Worldwide travel and tourism have been the worst affected of all major economic sectors 
by the Covid-19 pandemic and measures introduced to contain its spread. It has resulted 
in  travel  restrictions being put  in  place in  virtually all countries around the world,  with 
conferences and events being cancelled, hotels closed and aircraft left on the ground.  

Depending  on  the  duration  of  the  crisis  and  the  speed  with  which  travel  and  tourism 
rebounds,  revised  scenarios  by  the  Organisation  for  Economic  Co-operation  and 
Development (OECD)39 indicate that the potential shock could range between a 60-80% 
decline in  the international  tourism economy in  2020.  The impact  is  particularly  felt in 
countries, cities and regions where tourism is an important part of the economy. 

OECD  analysis  also  indicates  that  a  high  share  of  jobs  are  at  risk  in  European 
destinations such as the Ionian islands in Greece, Balearic and Canary Islands in Spain, 
and  the  Algarve  region  in  Portugal,  given  the  importance  of  tourism  in  the  local 
economy. 

Between  February  and  June  2020,  the  turnover  for  services  related  to  tourism  (air 
transport, hotels, restaurants, tour operators etc.) dropped by 75% as during two months 
of  Covid-19  measures  (March  and  April)  many  hotels  and  restaurants  had  been  closed 
and  air  travel  was  massively  reduced.  Among  the  detailed  sectors  within  the  tourism 
sector, turnover of travel agencies and tour operators fell the most (-83.6%), followed by 
air transport (-73.8%), accommodation (-66.4%) and restaurants (-38.4%)40. 

Figure 2: Turnover in tourism services in EU27 

Source: Eurostat (online data code: sts_sepr_m) 

39   OECD  Policy  Responses  to  Coronavirus  (COVID-19)  “Rebuilding  tourism  for  the  future:  Covid-19 

policy responses and recovery”, 22 October 2020.  

40  https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Impact_of_Covid-

19_crisis_on_services#Comparison_with_2008.  
https://ec.europa.eu/eurostat/web/products-eurostat-news/-/DDN-20200904-2. 

14 

 
 
                                                 
 
A  report  published  by  the  Joint  Research  Centre  (JRC)  of  the  European  Commission41, 
provides an analysis of the potential effect of the Covid-19 outbreak on EU employment, 
as  the  result  of  tourism  flow  slowdown.  Based  on  the  results  of  surveys  conducted 
between  April  and  May  2020,  the  report  predicts  a  decline  in  tourist  arrivals  in  EU  of 
between 38% and 68% in 2020 and a subsequent potential risk of reduction in working 
hours or permanent jobs losses in 2020 of between 6.6 and 11.7 million jobs. 

3.1.3.   Digital transformation 

Travel  and  tourism  were  one  of  the  first  sectors  to  digitalize  business  processes  on  a 
global  scale,  bringing  flight  and  hotel  booking  online  to  become  a  digital  pioneer.  As 
information  and  communications  technology  (ICT)  became  a  global  phenomenon,  the 
travel  and  tourism  industry  was  consistently  early  in  adopting  digital  technologies 
because of its position as heavily service-oriented ecosystem.  

According  to  the  World  Economic  Forum42  (WEF),  the  digital  transformation  in  travel 
tourism and aviation is expected over the next years to: 

-  create up to US$ 305 billion of value for the industry; 
-  migrate US$ 100 billion of value from traditional players to new competitors;  
-  generate  benefits  valued  at  US$ 700 billion  for  customers  and  the  wider  society 

through in particular cost and time savings for consumers; 
result in a net displacement of current jobs in the industry. 

- 

Digital technologies are changing the way travel is traditionally researched, bought, 
sold, experienced and shared. In particular, digital platforms such as online travel 
agencies,  meta-search  engines  and  travel  service  aggregators  are  taking  shape 
across the industry and are challenging the travel incumbents. Their presence in the 
market now dominant has aggressively disrupted the value chain of the traditional 
travel system from end-to-end.  

In particular, Peer-to-Peer (P2P) platforms such as Airbnb have radically altered demand-
side  dynamics,  enabling  small  entrepreneurs  and  private  individuals  to  compete  with 
bigger  players.  According  to  the  World  Bank  Group,  the  annual  growth  rate  of  P2P 
platforms  providing  accommodation  services  is  estimated  at  31%  between  2013  and 
2025, six times the growth rate of traditional bed and breakfasts and hostels43. 

At the same time, online travel agencies such as Expedia and Booking.com44 have played 
a big  role in  shaping the current  state of travel  offerings and booking.  For instance, by 
offering  instant  booking  feature  to  guarantee  customers’  reservation,  online  travel 

41   “Behavioural changes in tourism in times of COVID-19, Employment scenarios and policy options”, 

JRC Science for Policy report, 2020. 

42   White  paper  “Digital  transformation  initiative  –  Aviation,  Travel  and  Tourism  Industry”,  January 

2017. The WEF analysis covers the period 2016-2025.  
43   “Tourism and Sharing Economy”, World Bank Group, 2018. 
44   With a market capitalisation of approximately US$ 85.96 billion, Booking.com ranks first among the 

leading online travel companies worldwide according to 2019 data compiled by GP Bullhound. 

15 

 
                                                 
agencies  have  helped  alleviate  many  of  the  customers’  concerns  and  helped  automate 
what  had  previously  been  an  incredibly  arduous  part  of  the  business  model  of  a  brick-
and-mortar travel agent.  

Indeed, on-line booking is one of the major areas of profit migration. WEF indicates that 
the share of travel booking made through online travel agencies is expected to grow from 
40%  in  2016  to  60%  in  2025  while  the  shift  from  traditional  to  online  channels  is 
expected to cause US$ 220 billion in additional revenues in 2025. 

As  more  and  more  devices  get  connected  to  the  Internet  of  Things  (IoT),  access  to 
customers’  data  and  ability  to  provide  hyper-personalised  services  are  key  for  a  travel 
operator to staying relevant. In the transformed travel ecosystem, power has then shifted 
to travellers and platforms that own data. 

These  changes  in  the  industry  make  collaboration  between  other  players  within  and 
outside the travel ecosystem extremely important. Greater integration allows companies 
to access more data and use it to optimize customer relationships.  

Collaboration  may  not  be  straightforward,  with  some  companies  potentially  losing 
customers  to  others  in  the  value  chain.  It  also  raises  the  possibility  that  partner 
organisations may become competitors. This could result from the vertical and horizontal 
integration  that  is  likely  to  take  place  as  industry  players  expand  their  activities.  An 
example would be an airline acquiring hotels  and, in  so doing, entering another part of 
the value chain. 

Digital transformation in the travel industry raises two main concerns:  

  Since new business models become viable and companies at the edge or outside 
the travel ecosystem are drawn in, it is hard to foresee the shape of the industry in 
a  decade.  Traditional  industry  roles  blur  and  become  less  relevant.  The 
distinction  between  acting  as  intermediary,  being  principal  supplier  or 
operating as undisclosed agent also becomes less and  less clear. On the other 
hand,  the  trend  of  convergence  and  networking  within  the  ecosystem  will  bring 
new type of services and diversification of activities. 

  Core  operational  processes  of  a  travel  operator  can  be  entirely  automated, 
digitalised or handled remotely. The growing use of asset-free models such as 
platforms  means  that  a  physical  business  presence  is  no  longer  necessary. 
This  renders  the  principle  of  taxation  at  the  place  where  the  travel  operator  is 
established inadequate and does not ensure a  level playing field  as major online 
players are based outside the EU.   

3.1.4.   Business models 

The evaluation takes into account six key business models that are in use in the industry. 
In general, travel businesses can operate via two or more of them. 

  Tour operators;  

16 

 
  Travel Management Companies (TMC);  
  Travel agents;  
  Destination Management Companies (DMC);  
  MICE (Meeting, Incentives, Conference and Events) organisers; 
  Online Travel Platforms.  

Tour  operators:  these  businesses  range  from  large  international  tour  operators  to  small 
independent  niche  operators  (mainly  business  to  consumer,  B2C).  Tour  operators 
organise  and  provide  package  holidays,  contracting  with  hoteliers,  airlines,  ground 
transport  companies  and  other  suppliers  such  as  Destination  Management  Companies 
(DMCs – see below), and advertising the holidays that they have assembled online or in 
printed  brochures.  Most  tour  operators  focus  on  leisure  tourism.  Historically,  tour 
operators  relied  upon  traditional  “brick  &  mortar”  sales  channels  but  this  is  gradually 
changing  as  businesses  adopt  an  online  presence  so  that  the  online  business  is  now  a 
sales  channel  in  its  own  right.  Continued  improvements  in  internet  connectivity  and 
increasing  access  to  digital  devices  have  resulted  in  more  customers  seeking  to  book 
travel online. The trend towards using online operators and agents has allowed customers 
to access providers operating outside their own territory.  

TMC:  Travel  management  companies  serve  primarily  corporate  customers  (business  to 
business, B2B). Travel management companies are able to compare different itineraries 
and  costs  in  real-time,  allowing  users  to  access  fares  for  air  tickets,  hotel  rooms  and 
rental cars simultaneously and to prepare bespoke travel plans for clients. 

Travel  agents:  these  businesses  operate  mainly  in  the  leisure  market  (i.e.  business  to 
consumer,  B2C)  either  as  “brick  &  mortar”  enterprises  or  as  “online”  agents  or  both. 
Travel  agents  may  provide  customers  with  travel  advice,  then  sell  and  administer 
bookings  acting  for  a  number  of  tour  operators  and  other  suppliers  such  as  airlines, 
hoteliers and car rental companies. Large travel agencies are often part of an international 
integrated group that also organises packaged tours and owns accommodation and other 
facilities.  Independent  travel  agents  can  also  join  up  in  consortia  or  networks.  These 
networks  combine  the  capacity  of  their  members  on  the  purchase  side  as  well  as  in 
providing  services  to  the  members  of  the  consortium  (HR  management,  taxation 
consultancy, etc.). 

DMC: Destination management companies operate mainly in the inbound segment (non-
residents travelling to a country). Destination management companies and wholesale tour 
operators  differ  from  the  tour  operators  as  they  usually  do  not  deal  directly  with  end-
clients,  but  sell  to  agents  (mostly  tour  operators).  They  cater  services  for  both  tour 
operators focusing on leisure tourism and for MICE organisers, and sometimes for travel 
transportation,  hotel 
include 
management 
accommodation,  activities,  excursions,  conference  venues, 
themed  events,  etc. 
Destination management companies/wholesale tour operators organise and sell packages 
but  also  sell  individual  components  e.g.  “room  only”.  The  package  business  is  often 

companies.  These 

services 

can 

17 

 
referred to as the “groups business” whilst the sale of single components is often called 
“FIT” (Fully Independent Traveller). 

MICE:  Meeting,  Incentives,  Conference  and  Events  organisers  are  often  specialised  in 
the  specific  segment  of  Meeting,  Incentives,  Conference  and  Events,  although  travel 
management  companies  can  have  their  own  in-house  MICE  department  as  well.  These 
operators  combine  features  of  travel  agents,  destination  management  and  travel 
management companies, generally focused around a specific event or collection of events 
catering to a particular purpose or special interest group. 

Online  Travel  Platforms:  digital  infrastructures  that  facilitate  the  interaction  between 
travel service providers (e.g. hotels, airlines, car rental companies) and customers. These 
platforms are today essential to operate in the travel sector as they collect and share up-
to-date  information  about  travellers’  needs  and  more  importantly  generate  insights  to 
optimize the customer experience. The platforms’ technology indeed allows customers to 
explore offerings, make personalised travel packages, book and pay for the service. The 
operators  that  use  this  model  are,  in  particular,  online  travel  agencies  but  also  travel 
aggregators  and  metasearch  engines  that  can  scrape  for  information  across  multiple 
sources  and  websites  to  get  up-to-date  availability  and  pricing  of  travel  facilities.  Fare 
aggregators then redirect the customer to an online travel agency, airline, hotel website or 
car rental website for the final purchase. These platform models are not only relevant in 
the  B2C  context  but  also  and  increasingly  for  business  users  and  other  players  in  the 
travel  industry.  Services  carried  out  by  Online  Travel  Platforms  mainly  qualify  as 
intermediation but it is also possible that these would fall within the scope of the special 
scheme.  

3.2. 

Implementation of the scheme by Member States 

This  section  explains  how  the  main  provisions  of  the  special  scheme  are  applied  by 
Member States and identifies deviations from the baseline: the VAT Directive and CJEU 
case-law. Deviations arise either by differing interpretation  of the common rules which 
lack  sufficient  clarity  or  by  the  fact  that  Member  States  do  not  all  to  comply  with  the 
common rules as interpreted by the CJEU.  

3.2.1.   Scope of the special scheme 

The scope of the special scheme is not clearly defined in the VAT Directive. This leads 
to differences in treatment between similar supplies in different Member States. 

-  Single travel services 

Some  Member  States  consider  that  the  special  scheme  only  applies  to  “packages”  and 
that  a  “package”  must  by  its  very  definition  consist  of  more  than  one  item.  Therefore, 
such Member States consider that the sale of,  for example, just a hotel room without a 
flight cannot be considered as falling within the special scheme. Although the CJEU in 
Van Ginkel and Star Coaches has given some guidance on this point, the application by 
Member States does not appear to be consistent. 

18 

 
Based  on  the  questionnaire  and  desk  research  used  for  the  study45,  thirteen  Member 
States  and  the  United  Kingdom  apply  the  special  scheme  to  a  single  travel  service  in 
conformity with the CJEU case law, while nine Member States apply the special scheme 
only where some additional “booking service” is provided. Nevertheless, in Van Ginkel, 
the  CJEU  ruled  that  the  application  of  the  special  scheme  is  not  conditional  on  these 
additional services being provided. As such, the special scheme continues to apply also to 
a supply of a single service (e.g. hotel accommodation).  

In Estonia, although in principle the special scheme applies to a single travel service, in 
practice normal VAT rules are regularly applied. Meanwhile, Romanian rules provide an 
explicit  “opt-out”  of  the  special  scheme  at  the  taxpayer’s  discretion,  whereby  a  single 
supply  (excluding  passenger  transport)  can  optionally  be  taxed  under  the  normal  VAT 
rules. In Latvia, the legislation does not specify how many items should be included in a 
package  for  it  to  fall  within  the  special  scheme.  Meanwhile,  in  Hungary  and  Slovenia, 
there is no clear guidance from the tax authority.  

In summary, there appears to be confusion across Member States as to the treatment of a 
single supply of, for example, hotel accommodation and the supply of, for example, hotel 
accommodation  with  a  booking  service.  Another  area  specifically  relates  to  car  hire 
which  in  some  Member  States,  when  supplied  on  a  standalone  basis,  is  deemed  to  be 
outside of the special scheme. 

Figure 3:  Single  travel  services  –  Application  of  the  scheme  by  Member 
States and United Kingdom 

Conforms with legislation/case law 

Appears slightly different to legislation/case law 

Can opt-out of special scheme if there is a single supply 

No guidance/guidance not clear 

Source: Study (section 5.5.11.1, p. 73) 

-  Meaning of travel facilities 

The lack of a common definition of travel for the purpose of applying the special scheme 
(i.e.  a  precise  list  of  what  are  travel  facilities)  leads  to  many  inconsistencies  and 
difficulties for taxable persons who operate in multiple Member States. 

According  to  the  study,  eleven  Member  States  apply  the  special  scheme  only  to  a 
prescribed  list  of  travel  facilities.  Meanwhile,  in  the  remaining  sixteen  Member  States 

45   Study on the review of the VAT Special Scheme for travel agents and options for reform (Final report 

of December 2017, TAXUD/2016/AO-05). The report was prepared by KPMG. 

19 

ATBEBGHRCYCZDKEEFIFRDEELHUIEITLVLTLUMTNLPLPTROSKSIESSEUK 
 
 
 
 
 
 
 
 
                                                 
and the United Kingdom the liability of certain services to the special scheme depends on 
whether those services are packaged with other elements. For example in many Member 
States restaurant meals, catering, admission tickets, sports facilities etc. are not subject to 
the special scheme unless packaged along with a special scheme supply. For twenty five 
of the Member States and in the United Kingdom, the duration of the travel services is 
irrelevant. However, in Finland and Italy, day-trips of a duration less than 24 hours (and 
without  overnight  accommodation)  are  taxed  outside  of  the  special  scheme,  subject  to 
normal VAT rules. 

It should be borne in mind, however, that the major differences in interpretation of scope 
pertain to “peripheral” elements of special scheme packages (such as airport lounges and 
restaurant  meals),  with  widespread  agreement  on  the  treatment  of  core  travel  elements 
such as accommodation and flights. 

20 

 
Figure 4: Meaning of travel facilities – Application of the scheme by Member 
States and United Kingdom 

Source: Study (Annex 1, p. 123) 

3.2.2.   Wholesale supplies 

Practice  is  divided  when  it  comes  to  the  treatment  of  “wholesale  supplies”  whereby  a 
travel service is supplied to a business customer for onward supply to a traveller. Three 
approaches exist at the moment as to the taxation of wholesale supplies: (i) Application 
of  the  special  scheme;  (ii)  Exclusion  from  the  special  scheme  and  application  of  the 
normal VAT rules; (iii) Optional application of the special scheme left at the discretion 
of the taxpayer.  

In  respect  of  wholesale  supplies  of  travel  facilities,  six  Member  States  and  the  United 
Kingdom consider such supplies to be outside the scope of the special scheme and taxed 

21 

 
 
under the normal VAT rules. In the United Kingdom, however, businesses may choose to 
include them in the scheme46. Fifteen Member States consider such wholesale supplies to 
fall  under  the  special  scheme.  Meanwhile,  treating  wholesale  supplies  as  subject  to  the 
special  scheme  in  six  Member  States  is  currently  optional  left  at  the  discretion  of  the 
taxpayer. 

Figure 5: Wholesale supplies - Application of the scheme by Member States 
and United Kingdom 

Conforms with legislation/case law 

Not in conformity with legislation/case law 

Optional to apply special scheme (not in conformity) 

Source: Study (section 5.5.7.1, p. 61), updated by Commission services  

Destination management companies are those most affected by the diversified treatment 
as they usually act as wholesalers, not dealing directly with end-clients. 

Destination  management  companies  and  other  wholesale  suppliers  of  travel  facilities 
provide  either  services  to  be  used  on  their  own  or  packages  of  services  to  be  used  in 
combination with each other. 

Implications from the application of normal VAT rules 

For wholesale supplies of single items, normal VAT rules implies the payment of VAT 
in the Member State in which the service takes place (for most tourism related services). 
For example, a supply of accommodation should be subject to VAT in the Member State 
in which the accommodation is situated whilst passenger transport falls within the scope 
of VAT in the Member State in which the transport takes place47. The supply would then 
be subject to VAT at the rate stipulated by the Member State of supply. 

As  regards  packages  of  services,  more  complexities  may  arise  from  the  taxation  under 
the  normal  VAT  rules  as  different  approaches  could  be  applied  and  different  Member 
States may be involved: 

-  The “multiple supply” approach, i.e. identify all the component parts of the 
package, attribute  a value to  each part and tax each part accordingly at  the 
appropriate  VAT  rate  (i.e.  following  the  appropriate  place  of  supply, 
valuation and liability rules for each supply identified). 

46   https://www.gov.uk/guidance/tour-operators-margin-scheme-for-vat-notice-7095#Sect-3. 
47  Under Articles 47 and 48 of the VAT Directive. 

22 

ATBEBGHRCYCZDKEEFIFRDEELHUIEITLVLTLUMTNLPLPTROSKSIESSEUK 
 
 
 
 
 
 
 
                                                 
-  The  “predominant  supply”  approach,  i.e.  identify  the  main  item  within  the 

package and apply the treatment applicable to that main item. 

-  The “general rule” approach, i.e. subject to certain tests, a package is a single 
supply taxed in accordance with Article 44 of the VAT Directive (i.e. VAT 
payable  where  the  business  client  is  established  –  using  the  reverse  charge 
mechanism)48. 

As  a  result,  potential  distortions  in  the  wholesale  package  market  may  arise  as  some 
Member States may require the use of the special scheme while others may exclude such 
supplies from the scheme or even allow taxpayers to choose to opt for normal VAT rules. 
These distortions are then even worsened by the different interpretations of which normal 
VAT  rules  should  be  applied.  These  mismatches  in  VAT  treatment  are  a  significant 
barrier to the efficient application of VAT to the wholesale sector and may lead to non-
taxation or double taxation of the margin. 

Destination management companies specialised in inbound supplies49 would however not 
suffer the same complexities as they would not have to comply with the VAT rules and 
interpretations given by different Member States.  

3.2.3.   B2B supplies 

Practice  as regards services supplied for a business  client’s own use is  more consistent 
than  that  applied  to  wholesale  supplies.  The  compulsory  use  of  the  special  scheme  is 
much more common in this sector.  

Austria, which considers services supplied to all taxable persons, no matter what the use 
of the service, to be excluded from the scheme, is expected to amend its legislation from 
202250. Germany, which also used to apply the special scheme only to B2C transactions, 
amended its legislation with effect from 2020, while Slovakia did so from 2018. These 
changes  were  triggered  by  case  C-380/16,  Commission  v  Germany  in  which  the  CJEU 
made  clear  that  it  is  important  to  ensure  that  the  interpretation  that  best  matches  the 
objectives of the special scheme, which is for B2B supplies also to be covered, be applied 
in  a  uniform  manner  by  the  Member  States.  The  CJEU  also  repeated  that  the  two 
objectives  of  the  special  scheme,  namely  simplification  of  the  VAT  rules  for  travel 
agents  and  the  balanced  distribution  of  revenue  from  the  collection  of  VAT  between 

48   In the case of supplies to non-taxable persons, Article 45 applies and the place of supply would be in 
the  travel  agent’s  Member  State  of  establishment  and  VAT  at  the  standard  rate  would  be  due 
regardless of the location of the holiday or of the client. 

49   Non-residents travelling to a country where the DMC is established and where the travel facilities are 

provided. 

50  The  Commission decided on  6 June 2019 to open an infringement procedure against  Austria  for not 
having implemented duly the margin regime. Changes in the legislation are expected as of 1 January 
2022. On 27 January 2021, the CJEU gave its decision in European Commission v Republic of Austria 
(Case C-787/19) and held that Austria failed to comply with the VAT Directive: (i) by excluding from 
the special travel agent scheme services that are provided to taxable persons who use those services for 
their  business,  and  (ii)  by  allowing  travel  agents,  in  so  far  as  they  are  subject  to  that  scheme,  to 
determine the taxable amount for value added tax on a flat-rate basis for groups of services or for all 
services provided during a taxable period.  

23 

 
                                                 
Member States, are better achieved with the customer principle. An opt-out option may 
therefore hamper the uniform application of the common rules resulting in the objectives 
of the special scheme no longer being achieved.  

Spain  and  Sweden,  on  the  other  hand,  still  allow  a  generalised  opt-out  option  for  B2B 
supplies, while other Member States, such as Romania, provide for a more limited opt-
out option (to domestic B2B transactions). 

Figure 6:  B2B  supplies  -  Application  of  the  scheme  by  Member  States  and 
United Kingdom 

Conforms with legislation/case law 

Not in conformity with legislation/case law 

Optional to apply special scheme (not in conformity) 

Source: Study (section 5.5.8.1, p. 71), updated by Commission services  

3.2.4.   Mixed packages 

The  VAT  treatment  of  the  B2B  supply  of  mixed  packages  made  up  by  in-house  and 
special  scheme  items  raises  some  issues  in  terms  of  the  approach  taken  as  regards 
invoicing and valuation. 

The  MyTravel  case-law  outlines  that  in-house  services  (when  supplied  together  with 
services bought from other taxable persons) must be valued by reference to their market 
value  whenever  this  market  value  can  be  established.  A  travel  agent  may  only  use  an 
actual  costs  basis  to  identify  the  market  value  where  he  can  prove  that  that  basis 
accurately reflects the structure of the package supplied or where it is simply not possible 
to establish the market value. A typical alternative to the use of market value is to base 
the apportionment of the total price by reference to the cost of the in-house and bought-in 
services respectively. 

According to the study, in twenty-four51 Member States an invoice must be issued when a 
B2B supply falls within the special scheme (Austria does not apply the scheme to B2B 
supplies and Cyprus does not require the invoice to be issued). In twenty of them52, the 
invoice must itemise the in-house and special scheme supplies separately. In Czechia the 
itemization is optional, while in Italy separate invoices must be issued for each element 
of the package53. 

51   Twenty-five if including Germany which now applies the special scheme also to B2B supplies. 
52   Belgium,  Bulgaria,  Croatia,  Denmark,  Estonia,  Finland,  France,  Greece,  Hungary,  Ireland,  Latvia, 

Lithuania, Malta, Netherlands, Portugal, Poland, Slovakia, Slovenia, Spain and Sweden. 

53   No information was provided by the study on Romania and Luxembourg. 

24 

ATBEBGHRCYCZDKEEFIFRDEELHUIEITLVLTLUMTNLPLPTROSKSIESSEUK 
 
 
 
 
 
 
 
                                                 
The majority of Member States do not allow for output VAT to be shown with reference 
to the special scheme supplies but just for the in-house supplies. In four Member States it 
is optional to display the VAT attributable to the special scheme element of the supply, 
whereas in other four Member States separate amount of output VAT must be shown for 
each element of the invoice (special scheme supplies included). Austria considers the full 
value of a supply of a mixed package as falling outside the scope of the special scheme. 

Figure 7:  Mixed  packages  (VAT  on  in-house  element)  –  Application  of  the 
scheme by Member States and United Kingdom 

Output tax for each element must be shown 

Output tax cannot be shown for special scheme element 

Optional whether to display output tax for the special scheme element 

Other / no specific guidance available 

Full value of supply falls outside of the Special Scheme 

Source: Study (section 5.5.12.3, p. 76), updated by Commission services 

Concerning  a  package  supplied  to  a  business  customer  for  consumption/own  use 
comprising  a  mixture  of  special  scheme  supplies  and  in-house  services,  in  twenty  one 
Member  States  the  package  margin  should  be  apportioned  between  the  special  scheme 
and in-house elements so that only a percentage of the margin is accounted for under the 
special scheme, with the in-house element accounted for under the normal VAT rules. In 
Hungary,  a  package  containing  in-house  services  and  special  scheme  supplies  is 
considered  a  single  supply,  all  of  which  is  subject  to  the  special  scheme.  In  Spain  and 
Sweden, the application of the special scheme is optional for B2B transactions, however 
if a business opts to apply the special scheme, then the margin should be apportioned. 

Figure 8:  Mixed  packages  (margin  apportionment)  –  Application  of  the 
scheme by Member States and United Kingdom 

Full value of supply falls within the special scheme 

Margin apportioned between in-house and special scheme element 

Full value of supply falls outside of the special scheme 

Optional whether the special scheme applies 

No guidance available 

Source: Study (section 5.5.12.4, p. 76), updated by Commission services  

25 

ATBEBGHRCYCZDKEEFIFRDEELHUIEITLVLTLUMTNLPLPTROSKSIESSEUKATBEBGHRCYCZDKEEFIFRDEELHUIEITLVLTLUMTNLPLPTROSKSIESSEUK 
 
 
 
 
 
 
 
 
 
 
 
 
As  for  the  valuation  of  the  margin  to  be  apportioned  for  a  B2B  supply  of  a  package 
containing  a  mixture  of  in-house  services  and  special  scheme  supplies,  a  variety  of 
methods are applied. Croatia, Bulgaria, Ireland, Malta and Slovenia apply either a market 
value or cost-based method. Denmark, Netherlands, Spain and Sweden apply the market 
value  method,  unless  no  such  market  value  can  be  found  in  which  case  a  cost-based 
method  should  be  used.  Cyprus,  Poland,  Romania  and  Lithuania  apply  a  cost  based 
method. Therefore, none of these countries would appear to apply the CJEU decision in 
MyTravel.  In  Belgium,  Czechia,  Estonia,  Finland,  Greece,  Hungary,  Italy,  Latvia, 
Portugal and Slovakia no clear guidance was available according to the study, although 
Finland appears to apply in practice a market value method.  

As  for  the  MICE  conferences  and  their  packages,  there  is  inconsistency  over  the 
treatment  of  facilities  (venue,  accommodation,  travel,  entertainment)  bought  in  for  the 
onward  B2B  provision  of  a  conference  or  similar  event.  Although  such  a  conference 
presumably  equates  to  a  mixed  package  comprising  “in-house”  and  special  scheme 
elements,  in  practice  the  VAT  treatment  varies.  Six  Member  States  (Croatia,  Czechia, 
Finland, France, Italy, Greece) consider the full value of the conference under the special 
scheme.  In  Denmark,  Hungary,  Poland,  Romania,  Slovenia  and  Spain,  a  conference 
would  not  be  subject  to  the  special  scheme.  However,  Spain  does  not  disregard  the 
possibility that such a supply would be subject to the special scheme, (for a B2B supply 
it  is  possible  to  opt  out  such  that  the  general  B2B  rules  would  apply)  and  that  MICE 
organisers  would  split  a  single  supply  so  that  just  the  provision  of  accommodation 
services is subject to the special scheme. In Sweden, although the full value would fall 
within  the  special  scheme,  in  the  MICE  sector  the  supplier  usually  treats  the  travel 
facility  separately  from  the remaining  conference elements  – and there the travel  agent 
may also apply the general rule for B2B transactions. In Cyprus, Malta and Ireland, the 
value  of  the  conference  would  be  apportioned  so  that  only  the  travel  elements  are 
accounted for within the special scheme with the remainder of the package accounted for 
under  normal  VAT  rules.  For  Belgium,  Luxembourg,  Bulgaria,  Latvia,  Lithuania, 
Portugal,  Sweden, Slovakia and Estonia, no specific guidance is  available in  respect  of 
conferences. As noted above, in Austria the special scheme does not currently apply to 
B2B transactions. However, a B2B supply would fall within the special scheme if it is for 
the benefit of a “non-entrepreneurial” traveller54. 

Figure 9:  Mixed  packages  (MICE)  –  Application  of  the  scheme  by  Member 
States and United Kingdom 

Value of conference apportioned 

Full value of conference falls within the special scheme 

Full value of conference not subject to the special scheme 

54  Cf. supra note 37. 

No guidance available/obtained 

Special scheme does not apply to B2B supplies 

26 

ATBEBGHRCYCZDKEEFIFRDEELHUIEITLVLTLUMTNLPLPTROSKSIESSEUK 
 
 
                                                 
Source: Study (section 5.5.15, p. 78), updated by Commission services  

3.2.5.   The margin calculation 

The special scheme requires output tax to be declared not on the sale value of the travel 
facilities, but on the margin. This requires the margin to be calculated, but each Member 
State has its own rules under which this calculation is undertaken. However, according to 
the judgment in C-189/11 Commission v Spain, there is nothing in the rules of the special 
scheme  to  allow  for  a  calculation  of  the  VAT  payable  on  any  basis  other  than  by 
reference  to  each  single  supply  provided  by  the  travel  agent.  The  practice  of  Spain  of 
allowing  travel  agents  to  make  an  overall  determination  of  the  taxable  amount  in 
aggregate  on  all  special  scheme  supplies  made  over  a  period  could  not  be  permitted. 
Therefore, the offsetting of losses is not allowed as the margin should be looked at on a 
transaction-by-transaction basis. 

The  main  difficulty  in  abiding  by  the  case-law  of  the  CJEU  is  the  effect  it  has  on 
calculating  VAT  due.  This  requires  identification  of  the  margin  every  time  a  service  is 
provided by the travel agent. It could mean calculating VAT payable numerous times for 
just a single provision of travel facilities. Furthermore, the travel agent’s cost of a single 
service may change several times after the service has been performed requiring him to 
adjust the VAT payable on more than one occasion. 

Currently, in  terms of methodology Member States in  their margin  calculation fall into 
the following two broad55 categories:  

-  An  “overall”  or  “global”  margin  calculation  that  allows  losses  made  on  one 
transaction to  offset  profits  made on another transaction carried out  during the 
same period; or  

-  A  “transaction-by-transaction”  margin  calculation  that  does  not  allow  losses 
made on one transaction to offset profits made on another transaction carried out 
during the same period. 

55  As  there  is  also  inconsistency  across  Member  States  on  the  very  definition  of  a  “transaction-by-

transaction” basis compared to a “global” margin calculation. 

27 

 
 
 
 
 
 
                                                 
Figure 10:  The  margin  calculation  –  Application  of  the  scheme  by  Member 
States and United Kingdom 

Conforms with legislation/case law 

Not in conformity with legislation/case law 

No guidance/guidance not clear 

Source: Study (section 5.5.16, p. 79), updated by Commission services  

According to the study, twelve Member States calculate the special scheme liability in a 
way that does not allow for the offsetting of losses, whereas thirteen Member States do 
allow losses to be offset (fourteen if including Austria whose changes in legislation are 
expected for 2022). This indicates that currently at least fourteen Member States do not 
comply with the full requirements of CJEU case-law. It is understood that Member States 
have  considered  it  appropriate  to  require  (or  at  least  to  allow)  an  aggregated  basis  of 
calculation recognition that the alternative (i.e. to calculate VAT as set out by the CJEU) 
would be very difficult. 

Sweden allows a choice of either the transaction basis or a simplified procedure, which is 
not  compliant  with  a  strict  interpretation  of  the  Commission  v  Spain  judgment.  Ireland 
allows taxpayers to use simplified accounting methods based on estimated margins, but 
they  are  required  to  adjust  any  estimate  to  actual  margin  for  each  transaction.  Estonia 
allows taxpayers to  use the average margin  of  the previous calendar  year, upon written 
application  to  the  Estonian  tax  authority.  However,  the  default  position  is  that  loss 
offsetting is not allowed and the calculation is done on a transactional basis. According to 
the  study,  there  is  no  legislative  guidance  on  the  appropriate  method  to  use  in 
Luxembourg. 

Regardless  of  whether  a  transactional  or  global  margin  approach  is  applied,  Member 
States also diverge in the ways the margin is actually computed.  

According  to  the  study,  five  Member  States  (Slovakia,  Belgium,  Italy,  Croatia  and 
Romania)  do  not  allow  retrospective  adjustments  to  be  made  where  the  final  profit 
margin  differs  from  the  “preliminary”  or  expected  margin  computed  at  the  time  of  the 
transaction. Cyprus and Estonia calculate an estimate of the special scheme liability for 
each  VAT  accounting  period  based  on  the  prior  year,  with  an  annual  adjustment  made 
once  per  year  to  correct  these  estimates  (in  Estonia  there  is  an  alternative  calculation 
method which does not entail annual adjustment). Ireland allows an estimate on either an 
annual or periodic VAT return basis with  a requirement to make an annual adjustment. 
The  remaining  Member  States  require  the  special  scheme  liability  being  calculated  for 
each  VAT  period  in  accordance  with  periodic  VAT  return  frequency.  The  majority  of 
Member  States  require  payment  of  the  special  scheme  liability  in  accordance  with 
periodic VAT returns, while Lithuania and Estonia require monthly liability settlements. 

28 

ATBEBGHRCYCZDKEEFIFRDEELHUIEITLVLTLUMTNLPLPTROSKSIESSEUK 
 
 
 
 
 
The majority of Member States requires an “actual” calculation of profit and therefore do 
not  allow  a  fixed  profit  percentage  to  be  used  to  calculate  the  VAT  due.  However,  in 
Sweden and Austria there is an option to apply a fixed profit percentage, which is instead 
compulsory  in  Belgium  (different  fixed  rates  are  applicable  dependent  upon  the 
underlying  nature  of  the  supply).  Under  a  procedure  laid  down  in  the  Sixth  VAT 
Directive,  Belgium  was  allowed  to  apply  a  simplification  measure  derogating  from  the 
rules  laid  down  in  the  Sixth  Directive  by  using  fixed  lump-sum  margins  that  must  be 
applied even where the actual margin realised by the travel agent is lower56. 

3.2.6.   Third country operators 

The  place-of-supply  rule  within  the  special  scheme  is  an  origin-based  rule  as  a  travel 
agent’s  margin  is  subject  to  VAT  in  the  Member  State  in  which  the  travel  agent  has 
established  his  business  or  has  a  fixed  establishment  from  which  the  supply  is  made. 
Therefore, under the current rules, a travel service is taxed under the special scheme only 
when  it  is  supplied  by  an  EU-based  operator  but  it  is  not  subject  to  tax  on  the  margin 
when it is supplied by an operator established in a third country. With the expanding use 
of  the  Internet,  however,  travel  agents  established  in  countries  outside  the  EU  have 
become increasingly involved in the supply of travel services to EU consumers.  

This has led to unequal treatment to detriment of EU businesses which caused reactions 
by  some  Member  States.  A  national  ruling  in  France  determined  that  a  travel  agent 
established in Switzerland must be taxed under the special scheme in France if supplying 
French  travel  to  French  citizens  for  reasons  of  equal  treatment57.  The  German  tax 
authorities also launched audits of travel agents located outside the EU and supplying EU 
travel  to  German  customers.  In  Portugal,  non-established  travel  agents  must  use  a 
certified computer invoicing software as of 2021.  

In the meantime, EU-based operators must need to  register in  Switzerland if their total 
worldwide  turnover  exceeds  CHF 100 000,  even  if  they  only  sell  one  overnight  stay  in 
Switzerland. However, since 1 January 2020, only Swiss sales must be declared. It is no 
longer necessary to declare the worldwide turnover58. Additionally, since 1 January 2021 
the United Kingdom have taxed the margin of travel agents supplying EU travel to EU 
citizens at zero rate, as any supply enjoyed outside the United Kingdom, increasing the 
distortion of competition vis-à-vis those remaining businesses in the EU59. 

The  competitive  position  of  EU  businesses  is  also  affected  by  the  great  variety  of 
approaches currently applied by Member States in respect of the VAT treatment of travel 
agents, also in relation to the sector they belong to, as described above. When the special 
scheme  is  applied,  third  country  operators  benefit  from  a  competitive  advantage,  not 

56  Derogation granted on 19 December 1978 based on Article 27(1) of the Sixth VAT Directive. 
57  CAA Versailles – n° 18VE01240 – Privilège Events et Communications - 5 Nov. 2019. 
58  TTL Travel VAT Conference 2020.  

https://www.estv.admin.ch/estv/en/home/mehrwertsteuer/fachinformationen/steuerpflicht/leistungen-
durch-auslaendische-unternehmen.html#479276818.  

59   https://www.legislation.gov.uk/uksi/2019/73/made  

29 

 
                                                 
 
being subject to it. When, instead, the special scheme is not applied (e.g. by a Member 
State allowing the opt-out for B2B transactions), the normal VAT rules on the place of 
supply  apply,  putting  EU  travel  agents  at  a  level  playing  field  with  third  country 
operators. Nevertheless, the latter seem to be less likely to be aware of these rules and to 
comply with them (e.g. by registering in the EU). 

4. 

METHOD 

4.1. 

Short description of methodology 

The evaluation is supported by an external study60, a consultation of Member States in the 
context of the Group on the Future of VAT, a Roadmap and a public consultation. The 
evaluation  is  based  on  a  set  of  evaluation  questions,  connected  to  the  five  evaluation 
criteria defined by the Commission Better Regulation Guidelines, namely  (i) relevance; 
(ii) effectiveness; (iii) efficiency; (iv) coherence; and (v) EU added value.  

4.2.   Data collection activities and legal mapping exercise 

A number of data collection activities took place to support and underpin the evaluation. 
The full range of information regarding the different activities can be found in Annex 2. 

4.2.1.   The study – legal mapping and business survey 

In 2017, a study analysed the functioning of the special scheme and reviewed all relevant 
judgments by the CJEU. The study evaluated national VAT laws and in that regard found 
that on a number of aspects, the vast majority of Member States were not complying with 
the common EU rules.  

With  regard  to  the  geographical  scope  of  the  study,  countries  addressed  in  the  report 
comprised the 27 EU Member States and the former EU Member State United Kingdom 
as  well  as  certain  key  non-EU  jurisdictions,  i.e.  Turkey,  Switzerland,  Norway,  the  US 
and Canada. 

The business models of the travel industry covered in the report comprised:  

  Tour operators – ranging from large international tour operators to small independent 
niche  operators  (mainly  B2C).  Tour  operators  can  also  operate  “online”  for  this 
market;  

  Travel  Management Companies (TMC)  – which mainly focus on business  travel  as 

intermediaries and serve primarily corporate customers (mainly B2B);  

  Travel  agents  – covering mainly the leisure market  as intermediaries. Travel  agents 
can  operate  as  “brick  &  mortar”  enterprises  or  as  “online”  agents  or  both  (mainly 
B2C);  

60  Cf. supra note 49. 

30 

 
                                                 
  Destination Management Companies (DMC)  – which are primarily operating in  the 

inbound segment (mainly B2B);  

  MICE  (Meetings,  Incentives,  Conferences  and  Events)  organisers  –  which  are 

primarily operating in the corporate segment (mainly B2B). 

The study, in particular, assessed the functioning of the current VAT rules provided for 
under the travel  agent  scheme, notably taking into account  a digital  environment and  a 
VAT  regime  based  on  the  destination  principle,  identifying  and  quantifying  potential 
distortions  of  competition.  It  also  identified,  assessed  and  compared  options  for  reform 
both under the current place-of-supply rules and under place-of-supply rules based on the 
destination principle. 

The study conducted a survey through a questionnaire that collected 98 responses from 
businesses located in 18 Member States.  

The study did not provide sufficient quantitative analysis with regard to compliance costs 
savings resulting from the application of the special scheme and on impacts of possible 
reform options.  

The  lack  of  quantifications  is  mostly  due  to  limited  available  data.  Tax  data  is 
confidential  and  the  tourism  statistics  published  by  Eurostat61  are  incomplete  when  it 
comes to travel agents.  To compensate for the absence of data, the study relied on data 
provided  directly  by  businesses.  The  answers  to  the  questionnaire  allowed  for  rough 
estimates  of  VAT  liabilities  of  businesses,  but  they  could  not  deliver  any  insight  as 
regards the distribution of VAT revenues between Member States (see Annex 3). 

More  details  about  the  business  survey  conducted  as  part  of  the  study  can  be  found  in 
Annex 2. 

4.2.2.   Consultation of Member States – data collection 

Following the results of the study and the evolving case-law, Germany, in collaboration 
with  the  Commission  services,  organised  a  FISCALIS  2020  workshop  in  Berlin  in 
October 2018. This was an opportunity to discuss the study with Member States and to 
consult them on the functioning of the special scheme and possible reform options. All 
Member States and three candidate countries took part in the workshop.  

On 11 November 2019, the Group on the Future of VAT met in order to collect Member 
States’  views  on  the  interpretation  of  the  common  EU  rules  given  by  the  CJEU,  the 
conclusions  reached  at  the  FISCALIS  2020  workshop,  the  findings  of  the  study,  the 
evaluation questions and reform options for the special scheme. Member States were also 
invited to provide their feedbacks in writing within one month following the meeting.  

61  That is data on tourism industries and trips of EU residents based on Regulation (EU) No 692/2011 of 
the European Parliament and of the Council of 6 July 2011 concerning European statistics on tourism 
and repealing Council Directive 95/57/EC (OJ L 192, 22.7.2011, p. 17). 

31 

 
                                                 
In the context of the feedbacks received, Member States underlined the lack of available 
data as either travel agents could be taxed both under the special scheme and under the 
normal  VAT  rules or there  are no specific obligations for disclosure imposed on travel 
agents  upon  them  filling  their  tax  return.  For  example,  some  Member  States  suggested 
that part of the travel industry, namely big tour operators, had left the EU, while others 
had received complaints from the industry on the competitive advantage of travel agents 
located  outside  the  EU  and  on  the  absence  of  a  level  playing  field.  However,  little 
evidence was available for Member States to share.  

More details about the targeted consultation of Member States can be found in Annex 2. 

4.2.3.   Feedback to the evaluation roadmap – data collection 

Through  publication  of  a  Roadmap  (4 February  2020  –  3 March  2020),  citizens  and 
stakeholders were informed about the Commission’s plans for an evaluation and invited 
to  provide feedback on the intended initiative. During these four weeks,  8 stakeholders 
have  submitted  contributions,  mostly  business  associations.  In  these  submissions, 
stakeholders provided their views on the Commission's understanding of the problem and 
possible solutions. More details about the Roadmap can be found in Annex 2. 

4.2.4.  The public consultation – data collection 

A  public  consultation  (25 May  2020  –  14 September  2020)  was  carried  out  in  order  to 
gather the view of citizens and stakeholders on the functioning of the travel agent scheme 
and the possible need for revisions. A total of 206 valid responses were received from 18 
Member  States,  the  United  Kingdom,  and  Liberia.  The  majority  of  respondents  (201) 
answered  the  public  consultation  in  their  professional  capacity,  while  5  private 
individuals  participated  in  their  personal  capacity.  More  details  about  the  public 
consultation can be found in Annex 2.  

5. 

ANALYSIS AND ANSWERS TO THE EVALUATION QUESTIONS 

This section provides the assessment and answers to the five evaluation criteria. 

5.1 

Effectiveness  

Effectiveness  analysis  considers  how  successful  EU  action  has  been  in  achieving  or 
progressing  towards  its  objectives  and  whether  any  unexpected  or  unintended  effects 
have occurred. 

Section 5.1.1 presents the assessment of effectiveness in terms of the extent to which the 
special scheme has been successful in achieving its two objectives of: i) simplification in 
the  application  of  EU  VAT  rules,  and  ii)  allocation  of  VAT  revenues  to  the  Member 
State in which final consumption of each individual component of the single supply takes 
place.  

32 

 
5.1.1  Simplification in the application of EU VAT rules 

Stakeholder consultations (both targeted and public) as well as the study have confirmed 
that the special scheme  has been effective in  providing simplification benefits  to  travel 
agents in the form of administrative ease and associated compliance cost savings.  

The scheme is indeed designed to simplify the application of VAT rules for businesses 
(travel agents) providing cross-border travel packages, as it allows taxation on the profit 
margin in the Member State where they are established.  

First  of  all,  by  changing  the  place-of-supply  rule,  the  scheme  permits  travel  agents  to 
operate within the EU without further need for VAT registration or declaration in each of 
the  other  Member  States  where  travel  services  take  place.  Indeed,  VAT  registration  is 
only needed in the Member State where the travel agent is located62. This avoids the need 
for travel agents to understand and comply with other Member States’ VAT regimes and 
to  interact  with  other  tax  authorities  in  different  languages.  Costs  for  external  tax 
advisory are therefore limited. 

Another  element  that  brings  simplicity  is  the  single  service  rule:  all  bought-in  services 
packaged and sold together to the customer are treated as a single service. Thanks to this 
rule,  the  travel  agent  does  not  have  to  determine  the  nature  of  the  package  (single  or 
multiple  supply)  and  apply  the  relevant  VAT  treatment  which  per  se  requires  an 
assessment  of  the  applicable  VAT  rate(s),  the  place  of  taxation  and  the  status  of  the 
customer (section 3.2.2).  

The special scheme proves to be most beneficial when a travel package contains services 
located in different Member States. It results from the public consultation that the special 
scheme simplifies the application of VAT rules for travel agents  (79% of respondents). 
The need for unique VAT registration only, the treatment of a package as a single supply, 
recourse  to  simplified  margin  calculation  which  avoids  the  need  to  recover  input  VAT 
and  the  simplified  VAT  declaration  are  some  of  the  aspects  of  the  scheme  most 
appreciated by the respondents. Furthermore, the fact that under the scheme there is no 
need  to  recover  input  VAT  in  each  Member  State  where  services  are  purchased  is  of 
particular relevance as this per se entails a heavy administrative burden relief especially 
for small businesses.  

In the absence of the special scheme, a large increase in the compliance burden for travel 
agents  is  expected  (see  section 5.2.1).  For  instance,  a  travel  operator  located  in  one 
Member  State,  providing  accommodation  for  guests  in  hotels  across  the  EU,  would  be 
required to register for VAT in each country where it supplies hotel accommodation63. 

62   In a number of Member States, VAT registration is however only required when the business turnover 

is above a certain registration threshold. 

63   Under Article 47 of the VAT Directive, the place of taxation of the provision of hotel accommodation 

is where the hotel is located. 

33 

 
                                                 
As explained above (chapters 2 and 3), the application of normal VAT rules in particular 
on place of supply, taxable amount and deduction would increase complexity for travel 
agents operating cross-border. In particular, it would require a full understanding of the 
rules applied in each Member State where travel  services are consumed.  In the case of 
the  supply  of  a  mixed  package  of  travel  services,  the  application  of  normal  VAT  rules 
would imply an even higher degree of complexity.  

According  to  the  study,  compliance  costs  savings  under  the  special  scheme  would 
amount to approximately EUR 8 000 – 15 000 a year per VAT registered entity and 
per jurisdiction.  

The  objective  of  simplification  is  largely  achieved  as  regards  the  three  aspects  of  the 
scheme that deviate from  the normal  rules:  place of supply, deduction of input tax and 
taxable amount. 

The special scheme presents also some weaknesses that make the scheme unable to fully 
address the need of reducing the burden of travel operators related to the application of 
normal  VAT  rules.  In  particular,  the  scheme,  as  interpreted  by  the  CJEU,  does  not 
provide for a simplified method to determine the profit margin. 

5.1.2  Allocation of VAT revenues 

The  special  scheme  allows  a  fair  distribution  of  VAT  revenues  among  Member  States 
through  the  taxation  of  travel  packages  supplied  by  EU  established  businesses  to  EU 
destinations. 

Under the scheme, travel agents are not taxed on their turnover, but on their margin and 
VAT incurred in respect of supplies for the direct benefit of the traveller is not eligible 
for  deduction  or  refund  in  any  Member  State.  The  effect  of  these  special  rules  is  that 
VAT  revenues  on  services  enjoyed  in  the  course  of  a  journey,  such  as  hotel 
accommodation,  restaurant  meals  or  transport,  go  to  the  Member  State  in  which  the 
traveller receives the service, whereas VAT on the travel agent’s margin is collected in 
the  Member  State  where  the  agent  is  established.  In  other  words,  all  elements  of  the 
travel package are taxed in the Member State of destination while only the margin related 
to the travel agent’s supply is taxed in the Member State of origin. 

Without  an  arrangement  such  as  the  special  scheme,  the  travel  agents  would  have  to 
collect VAT from their customers for services often consumed in other Member States. 
Not only would that impose a significant administrative burden on travel agents but, as a 
result,  such  services  would  become  subject  to  VAT  not  in  the  Member  State  in  which 
they were in fact provided and consumed but in the Member State in which the package 
was  purchased.  Significant  VAT  revenue  might  thus  be  diverted  from  Member  States 
providing tourist destinations to those providing the tourists.  

The annual value of output VAT indicatively collected via the scheme is estimated in the 
study  at  circa  EUR 1.9 billion  while  the  value  of  irrecoverable  input  VAT  incurred  on 

34 

 
costs  directly  linked  to  supplies  made  under  the  scheme  is  estimated  at  circa 
EUR 5.6 billion (of which EUR 1.15 billion is VAT on costs of B2B supplies).  

This clearly shows that the majority of VAT collected via the special scheme is allocated 
in  the  form  of  irrecoverable  input  VAT  to  the  Member  States  where  individual  travel 
services are purchased and consumed. The estimated value of the output VAT due under 
the special scheme is smaller in totality and is collected in the Member States where the 
travel agents are established. 

Table 1: VAT collected on travel services 

VAT indicatively collected on travel services in 201664 (€bn) 

Output VAT under the special scheme (1% of the EU turnover) 

Output VAT under the special scheme pertaining to B2B travel supplies 

Irrecoverable input VAT on costs directly linked to travel services under the scheme  

Irrecoverable input VAT on costs directly linked to B2B travel services under the 
scheme 

Output VAT accounted for under the normal rules (2% of the EU turnover) 

Source: Study, see Annex 3 (p. 146) 

1.9 

0.29 

5.6 

1.15 

3.7 

The  fundamental  feature  of  blocked  input  VAT  recovery  (no  deductions  or  refunds 
allowed) under Article 310 of the VAT Directive is relatively consistently applied across 
the EU and affects all business models subject to the special scheme in a similar manner. 
It  results  indeed  from  the  study  survey  that  travel  agents  in  all  Member  States  making 
supplies of travel facilities within the scheme are unable to recover the VAT incurred on 
purchases of bought-in services, without any exception.  

However differences in the implementation of the scheme between Member States may 
have an impact on the different supply chains used under the five key business models.  

The  scheme  has  then  been  effective  also  in  achieving  its  second  objective  of  fair 
distribution of VAT revenue among Member States. In particular, the broad application 
of the scheme as intepreted by the CJEU, namely the fact that, regardless of the status of 
the customer, B2B supplies fall within the scheme, has contributed to the achievement of 
that second objective.  

5.1.3  Unintended effects – Third country operators 

As recalled, the travel agent’s margin is subject to VAT in the Member State in which the 
travel  agent  is  established.  This  place  of  taxation  rule  has,  however,  the  non-intended 
effect of excluding third country operators which, with the rise of online travel platforms, 
are nowadays increasingly involved in the supply of travel services to EU customers.  

64   These figures are indicative estimates of potential VAT impacts by KPMG. The underlying data used 

are approximations or sample-based.  

35 

 
 
 
 
 
 
                                                 
Digital transformation in the travel industry has  brought significant changes to both the 
supply  and  the  demand  side.  Core  operational  processes  can  be  entirely  automated, 
digitalised  or  handled  remotely  so  that  a  local  business  establishment  is  no  longer 
necessary  to  sell  into  the  EU  market.  Also,  online  booking  platforms  have  enlarged 
consumer choice leading to greater competition across EU borders.  

While Europe is a large global travel and tourism destination, undisputed leaders in the 
online travel booking market are nevertheless based outside the EU. This puts at risk EU 
competitiveness and EU VAT revenue.  

At the time the study was published, it indicated that more than 50% of customers in the 
EU  would  have  booked  their  travel  online  in  2017  and  the  online  travel  market  would 
have  grown  faster  than  the  overall  market,  enjoying  8%  growth  throughout  2017.  This 
trend towards using online booking platforms has allowed customers to access providers 
operating outside their own territory. For example, the study assessed that in 2015 US-
based  companies  dominated  the  online  market  with  combined  revenues  of  more  than 
US$ 115 billion.  

The  place-of-supply  rule  to  be  found  in  the  special  scheme  not  only  is  inadequate  for 
coping with  the digital  and asset-free environment  of the travel  sector but  also  leads to 
unequal  treatment  which  is  detrimental  to  EU  travel  agents.  To  avoid  being 
disadvantaged, an EU-based operator could decide to relocate his activity outside the EU 
or even circumvent the rules. This would make the EU market even more fragile. While 
the  special  scheme  does  not  apply  to  travel  agents  established  in  a  third  country,  it  is 
debatable whether these operators should be considered as outside the scope of EU VAT 
or instead could be seen as subject to the normal VAT rules on place of supply65.  

In any case, such travel agents are not taxed on the same basis as EU-established travel 
agents as:  

i)  

Either the current scheme facilitates non-taxation of travel agents established in  a 
third country. This is the effect if the VAT Directive is interpreted as applying to 
all  travel  agents  but  only  imposing  a  VAT  charge  on  those  having  their  place  of 
business or a fixed establishment within the EU;  

ii)   Or  the  current  scheme  does  not  cover  travel  agents  established  in  a  third  country 
with  the  effect  that  they  should  apply  the  normal  VAT  rules  on  place  of  supply, 
valuation,  liability  and  input  tax  deduction.  Accordingly,  they  should  register  in 
Member States in which they supply services and would be subject to the rules of 
the Member State(s) involved. Difficulties would then arise from the enforcement 
of these obligations. 

65 

In  guidelines  resulting  from  the  101st meeting  of  the  VAT  Committee.  a  large  majority  of  Member 
States  concluded  that  transactions  of  third  country  agents  fall  outside  the  special  scheme 
(taxud.c.1(2015)553554 – Working paper No 831).  

36 

 
                                                 
The lack of a level playing field between established and non-established travel agents is 
also expected to be exacerbated due to the withdrawal of the United Kingdom from the 
European  Union.  As  a  Member  State,  the  United  Kingdom,  according  to  the  special 
scheme,  had  to  tax  the  margin  of  travel  operators  established  in  its  own  territory  at 
standard rate of VAT. Now that the United Kingdom has become a non-EU country, the 
margin of its operators on all travel services enjoyed in the EU will be zero-rated66.  

From  an  EU  perspective,  this  means  that  the  distortion  of  competition  with  non-
established  operators  will  be  exacerbated  with  EU  travel  agents  either  tempted  to 
establish in the United Kingdom or suffering from the competitive advantage of United 
Kingdom travel agents. On the other hand, as United Kingdom businesses will no longer 
be able to use the simplification for EU travel supplies, it is possible that some Member 
States will require United Kingdom-based travel agents to register for VAT for supplies 
of  travel  services  made  in  their  country  with  a  risk  for  an  even  higher  degree  of  non-
harmonisation in the application of the normal VAT rules among Member States. 

5.2 

Efficiency 

Efficiency analysis considers the costs and benefits of EU interventions indicating areas 
where  there  is  potential  to  reduce  inefficiencies,  in  particular  unnecessary  regulatory 
costs, and simplify the intervention.  

This  section presents  the analysis  of the efficiency  of the travel  agent  scheme from  the 
perspective of the businesses and that of internal market. 

5.2.1  VAT compliance costs under the normal VAT rules 

To fully understand the benefits of the special scheme, it is essential to consider what the 
application of normal VAT rules would involve for travel operators. 

As  set  out  in  the  2016  VAT  Action  Plan67,  the  EU  VAT  system  is  highly  complex  for 
businesses  generally,  and  particularly  for  small  enterprises  which  bear  on  average 
proportionally higher VAT compliance costs than large enterprises. 

Compliance  costs  related  to  VAT  stem  indeed  from  the  complexity  of  VAT  rules  (e.g. 
different rates, different place-of-supply rules, many derogations), the extensive number 
of VAT obligations and  their  frequency.  In addition,  cross-border compliance  costs are 
much  more  significant  due  to  fragmentation  of  the  VAT  system68,  which  represents  a 
significant barrier to the single market. 

66   Cf. supra note 59. 
67   Communication  from  the  Commission  to  the  European  Parliament,  the  Council  and  the  European 
Economic and Social Committee on an action plan on VAT – Towards a single EU VAT area – Time 
to decide (COM(2016) 148 final of 7.4.1016). 

68   Despite a certain degree of  harmonisation, large differences remain between  national systems. Since 
VAT is levied and collected according  to the Member States’ laws, a business carrying out intra-EU 
trade has to deal with different national VAT systems and tax administrations.  

37 

 
                                                 
For instance, research shows that on average a firm trading in two Member States would 
have to deal with 11 differences in VAT-related procedures69.  

In the B2C sector, the average annual cost for an SME to account for VAT in a Member 
State in which it is not established is estimated to be EUR 4 100. This compares to the 
average  annual  cost  of  EUR 8 000  for  a  larger  business  per  Member  State,  where  a 
simplification measure such as the Mini One Stop Shop (MOSS) is not available70. 

That  cost  can  cover  registration  (or  the  appointment  of  a  fiscal  representative),  VAT 
returns, statistical listings, tax advice, dealing with queries from tax administrations etc.  

Overall,  the  study  suggests  that  annual  costs  savings  for  a  travel  operator  under  the 
special  scheme  could  approximately  range  between  EUR 8 000  and  EUR 15 000  per 
Member State. 

In the EU, the activity carried out by travel agents by its very nature has a cross-border 
dimension. There is no doubt that the application of normal VAT rules, namely those on 
place  of  supply,  taxable  amount  and  deduction,  would  increase  considerably  the 
compliance  burden  on  travel  agents  of  all  sizes.  Such  a  burden  would  fall 
disproportionally  on  smaller  operators  who  in  particular  might  be  discouraged  from 
selling services in a large number of Member States. 

However,  any  intervention  in  the  VAT  treatment  of  the  travel  services  must  take  into 
account  changes that have occurred so far in  the VAT system aimed at  simplifying the 
administration of VAT for taxable persons not  established in  the Member States where 
VAT is due.  

In  particular,  the  modernisation  of  VAT  as  regards  the  B2C  sector  could  help  travel 
agents to comply with the complex VAT rules in a scenario without a special scheme.  

The  extension  of  the  current  MOSS  turning  it  into  a  One  Stop  Shop71  as  from  1 July 
2021, would make available simplified arrangements to pay and declare VAT in relation 
to  all  types  of  cross-border  services  supplied  to  final  consumers  within  the  EU.  This, 
however, would not solve the problem of having to abide by the substantive rules in each 
Member  States,  would  not  be  applicable  to  B2B  supplies  and  would  not  solve  the 
problem of multiple requests for tax refund in different Member States. 

69   Institute  for  Fiscal  Studies  (IFS)  and  others,  A  retrospective  evaluation  of  elements  of  the  EU  VAT 

system, 2011. 

70   Deloitte Study on “Modernising VAT for cross-border e-commerce”, 2016, Lot 1, p. 32 and 44. 
71   Council  Directive  (EU)  2017/2455  of  5 December  2017  amending  Directive  2006/112/EC  and 
Directive  2009/132/EC  as  regards  certain  value  added  tax  obligations  for  supplies  of  services  and 
distance  sales  of  goods  (OJ L 348,  29.12.2017,  p. 7),  as  amended  by  Council  Directive  (EU) 
2019/1995 of 21 November 2019 (OJ L 310, 2.12.2019, p. 1). 

38 

 
                                                 
5.2.2  Cost-benefit analysis for businesses  

Similar  to  other  special  schemes72  foreseen  in  the  VAT  Directive,  the  inherent 
consequence  of  not  charging  VAT  on  the  consideration  of  output  supplies  is  that  a 
business  is  not  allowed  to  deduct  input  VAT.  Such  a  consequence  can  be  seen  as  the 
price to be paid by the business in return of the benefits of simplification and compliance 
costs savings.  

As regards in particular the exemption scheme for small enterprises, which is optional for 
businesses, it has been assessed that the scheme is more beneficial for the taxable person 
where most of its customers are final consumers or exempted businesses (with no right of 
deduction) and where the amount of input VAT is relatively lower than VAT that should 
be charged on sales under the normal VAT rules73.  

It  can be observed that,  when the choice is available, depending on the type of activity 
and business model in use, the taxable person may prefer to apply the normal VAT rules 
in  order  to  enable  their  business  customers  to  recover  input  VAT.  On  the  other  hand, 
despite the cost of non-deductible input VAT, a business that makes both B2B and B2C 
supplies may find it convenient to opt for a special scheme provided that the business is 
able to offer lower prices (competitive advantage). 

Since  the  travel  agent  scheme  is  mandatory,  the  impact  on  a  business’  VAT  liability 
cannot be minimised by simply choosing the VAT regime that is the most favourable for 
a certain type of activity.  

While  the  inclusion  of  B2B  supplies  in  the  scope  of  the  travel  agent  scheme  ensures 
effectiveness, it has drawbacks as regards the efficiency. Compared to the normal VAT 
rules which ensure VAT neutrality, the taxation of B2B supplies at the margin comes at a 
cost: non-deductibility of input VAT.  

The blocked input tax on direct costs of B2B supplies resulting from the application of 
the special scheme has been indicatively estimated to amount to circa EUR 1.15 billion 
annually across the EU while the irrecoverable output tax declared on B2B supplies made 
under  the  special  scheme  has  been  indicatively  estimated  to  amount  to  circa 
EUR 0.29 billion74.  

The cost  of non-deductible input VAT varies  considerably  from  sector to  sector.  In the 
DMC  sector,  whilst  the  immediate  client  in  the  wholesale  transaction  will  always  be  a 
business,  the final  customer is  often a non-business  person and therefore the use of the 
special scheme may not be an issue as there would be no final right to input tax deduction 
by  the  end  customer.  On  the  contrary,  in  the  MICE  and  TMC  sectors  (where  the  end 

72   Special  scheme  for  small  enterprises  under  Articles 281-294  and  margin  scheme  for  taxable  dealers 

under Articles 312-325 of the VAT Directive.  

73   Deloitte study “Special scheme for small enterprises under the VAT Directive 2006/112/EC - Options 

for review” 2017, Volume 1, p. 80-82. 

74   See p. 47 of the study. 

39 

 
                                                 
customer  is  normally  a  taxable  person  who  would  expect  to  deduct  VAT  incurred  on 
business expenditure) and in the DMC sector whenever the final customer is a business, 
the application of the special scheme would deny that final business customer the right to 
input tax deduction. 

This can place the travel agent at a disadvantage when compared to suppliers of similar 
services  not  subject  to  the  special  scheme  (e.g.  principal  suppliers  and  providers  of  in-
house services).  

To overcome this negative effect, some Member States have excluded B2B transactions 
from the scope of the special scheme, disregarding the interpretation given by the CJEU. 
Other Member States have allowed instead business customers to recover VAT in respect 
of supplies made under that scheme where a VAT amount is shown on the invoice of the 
travel  agent.  In  these  Member  States,  the  practice  may  differ  as  regards  the  invoicing 
rules.  Travel  agents  using  the  scheme  may  display  VAT  due  on  the  margin  on  their 
invoices or could be required to do so. 

When the special scheme is applied, travel agents operating in B2B sectors are tempted 
to adapt their business model and to introduce arrangements whereby they can qualify as 
intermediary and then apply the normal VAT rules.  

This  is  already  the  usual  outcome  in  the  TMC  and  MICE  sectors,  notwithstanding  that 
acting  as  an  intermediary,  while  allowing  input  tax  deduction,  would  also  impose 
constraints on the taxable persons involved, notably the difficulty for the intermediary in 
setting its own price for the intermediation service supplied and in ensuring that the client 
receives the correct documentation to support input tax deduction. The problem faced in 
regard  to  the  B2B  transactions  was  confirmed  by  the  open  public  consultation,  in  the 
context  of  which  respondents  attributed  the  highest  importance  for  B2B  supplies  to 
benefit  from  input  tax  deduction  as  provided  for  under  the  normal  VAT  rules  (165 
respondents  equal  to  80%)  over  the  benefit  of  simplification  provided  by  the  special 
scheme  (only  37  respondents  equal  to  18%).  Therefore,  the  competitive  disadvantages 
caused by the lack of input tax deduction are not perceived as compensated by the benefit 
of  simplification  provided  by  the  special  scheme  to  business  clients,  such  as  the 
advantage  of  avoiding  input  tax  refunds,  which  are  subject  to  different  evidential 
requirements in each Member State. 

5.2.3  Potential distortions of competition 

Differences in the application of the travel agent scheme by Member States, as outlined 
in  section 3.2,  generate  two  main  potential  distortions  of  competition  which  affect  the 
proper  functioning  of  the  single  market.  The  first  involves  the  treatment  of  wholesale 
supplies which is of particular concern for those sectors of the industry whose activities 
are  focused  on  corporate  clients.  The  second  relates  to  varying  definitions  of  what 
constitute “travel facilities”. 

40 

 
In addition, inconsistencies as regards the rules of the scheme as interpreted by the CJEU 
may  affect  the  level  playing  field  of  travel  operators  and  put  businesses  within  the 
scheme in a different competitive position compared to those falling outside the scheme. 

5.2.3.1. Wholesale supplies 

In  respect  of  wholesale  supplies  of  travel  facilities,  namely  supplies  made  to  business 
customers  destined  for  subsequent  resale,  a  number  of  Member  States  consider  such 
supplies  to  fall  within  the  scheme  while  others  exclude  such  supplies  or  provide 
businesses with an option to exclude them from the scheme and apply the normal VAT 
rules. 

Wholesale supplies may consist of both single items and packages. When these supplies 
are  taxed  under  the  normal  VAT  rules,  the  travel  agent  who  acts  in  his  own  name  is 
deemed to have received and supplied the services himself under Article 28 of the VAT 
Directive. 

As  seen  in  section 3.2.2,  under  the  normal  VAT  rules,  indeed,  a  supply  of 
accommodation as a single item would be subject to VAT in the Member State in which 
the  accommodation  is  situated,  whilst  passenger  transport  alone  would  fall  within  the 
scope of VAT in the Member State in which the transport takes place. The supply would 
then  be  subject  to  VAT  at  the  rate  (usually  a  reduced  rate)  stipulated  by  the  Member 
State of supply. 

illustrate  mismatches 

The  following  examples 
the  supply  chain  of  hotel 
accommodation  due  to  different  local  treatments  of  the  wholesale  supply.  In  the 
examples it is assumed that a reduced rate of 10% applies to the hotel accommodation in 
Member  State  1  while  the  margin  is  taxed  at  the  standard  rate  of  20%  in  all  other 
Member States. 

in 

41 

 
Figure 11: Supply of accommodation only – example 1 

Source: Study on the review of the VAT special scheme for travel agents and options for reform. 

In example 1 above, all Member States treat the wholesale supply as falling in the special 
scheme and the amount of VAT collected is the highest.  

42 

 
 
Figure 12: Supply of accommodation only – example 2 

Source: Study on the review of the VAT special scheme for travel agents and options for reform. 

In example 2, Member States 2 and 3 treat the wholesale supplies under the normal VAT 
rules (or an option is given to the taxable person to apply them) and the amount of VAT 
collected is the lowest. The example illustrates a situation of non taxation due to different 
local treatments of the same supply. Both  Bed Banks take indeed advantage of the fact 
that in Member State 1 the wholesale supplies fall within the special scheme and do not 
account for VAT in that Member State.  

43 

 
 
Figure 13: Supply of accommodation only – example 3 

Source: Study on the review of the VAT special scheme for travel agents and options for reform 

In  example 3,  all  Member  States  treat  the  wholesale  supplies  as  falling  under  normal 
VAT  rules.  The  total  VAT  revenue  is  lower  than  in  example 1  as  both  Bed  Banks  are 
entitled  to  input  deduction  but  both  of  them  have  to  register  and  account  for  VAT  in 
Member State 1.  

As  seen  in  section 3.2.2,  the  treatment  of  wholesale  packages  under  the  normal  VAT 
rules  may  also  involve  different  approaches  applied  by  Member  States  with  regard  to 
valuation  and  place  of  supply  (“multiple  supply”,  “predominant  supply”  and  “general 
rule” approach). 

When the wholesaler is established in a Member State other than that in which the travel 
facilities are consumed, potential distortions may therefore arise in particular between:  

-  Travel agents established in a Member State which requires the use of the special 
scheme  and  those  established  in  a  Member  State  which  excludes  such  supplies 
from the scheme; 

-  Travel  agents established in a Member State which requires the compulsory use 
of  normal  VAT  rules  and  those  established  in  a  Member  State  which  allows 
taxpayers a choice between normal VAT rules and use of the special scheme;  

44 

 
 
-  Travel agents established in Member States with differing interpretations of what 

is meant by normal VAT rules in the context of wholesale packages. 

These  mismatches  in  VAT  treatment  lead  to  non-taxation  or  double  taxation  of  the 
margin:  (i)  non-taxation  where  a  wholesale  supply  of  accommodation,  located  in  a 
Member State which considers wholesale supplies to be subject to the special scheme, is 
made  by  a  supplier  established  in  a  Member  State  in  which  wholesale  supplies  fall 
outside  the  special  scheme75,  and  (ii)  double  taxation  where  a  wholesale  supply  of 
accommodation, located in a Member State which considers that wholesale supplies fall 
outside the special scheme, is made by a supplier established in a Member State in which 
wholesale supplies are subject to the special scheme76. 

Destination  management  companies  are  amongst  the  main  providers  of  wholesale 
supplies. Different local treatments of such supplies may result in considerable variations 
in the profits raised by the operators involved and in the revenue collected.   

5.2.3.2. Definition of travel facilities 

The  lack  of  a  precise  and  harmonised  definition  of  the  scope  of  the  special  scheme, 
which  does  not  provide  for  a  precise  list  of  travel  facilities  covered,  leads  to  many 
inconsistencies  and  difficulties  for  taxable  persons  who  operate  in  multiple  Member 
States. This hampers the efficiency of the special scheme and can lead to non-taxation or 
double taxation in certain circumstances.  

For instance, a number of Member States do not consider the single supply of car hire per 
se a travel facility while other Member States may treat such a supply under the special 
scheme if the conditions are met.  

Therefore, it is possible that a supplier of car hire services could establish his business in 
a Member State which considers car hire to fall outside the special scheme and pay VAT 
in that Member State only on hires on a short-term basis for which the car is put at the 
disposal of a customer in that State (Article 56(1) of the VAT Directive). It would follow 
that the supplier involved should have no liability to pay VAT on hires where the car is 
put  at  the  disposal  of  the  customer  in  those  Member  States  which  consider  the  special 
scheme to apply as those States would expect VAT to be paid under the special scheme 
in the Member State in which the supplier is established. The same is true of the services 
of a guide as some Member States consider this to be a travel facility while others do not 
and this causes uncertainty and can result in non-taxation or double taxation.  

75   For  example  where  a  Bulgarian  hotel  room  is  sold  as  a  wholesale  supply  by  a  travel  business  in 
Austria  to  a  travel  business  in  Bulgaria  the  Austrian  tax  authorities  would  consider  this  is  taxable 
under  normal  VAT  rules  (in  Bulgaria  using  the  reverse  charge  mechanism)  whilst  the  Bulgarian  tax 
authorities would consider this is taxable under the special scheme (in Austria).  

76   For example where a Austrian hotel room is sold as a wholesale supply by a travel business in Croatia 
to a Austrian travel business, the Austrian tax authorities would consider this is taxable under normal 
VAT  rules  (in  Austria)  whilst  the  Croatian  tax  authorities  would  consider  this  is  taxable  under  the 
special scheme (in Croatia).  

45 

 
                                                 
In the following example, the car rental company is established in Member State 1 and 
owns  the  cars  to  be  rented  to  customers.  The  car  hire  broker  is  established  in  Member 
States 2. In both Member States the standard rate is 20%. 

Scenario 1:  Member  State  1  considers  car  hire  to  be  within  the  special  scheme  while 
Member  State  2  follows  the  normal  VAT  rules.  The  short-term  car  rental  is  subject  to 
VAT in Member State 1 where the car is put at the disposal of the customer. The broker 
does not pay any VAT on its supply of car hire. In Member State 2 the special scheme 
does  not  apply  and  according  to  rules  in  Member  State  1  VAT  should  be  paid  on  the 
margin in Member State 2. The broker therefore retains its margin of EUR 12 and incurs 
non-deductible VAT in Member State 1 of EUR 20. 

Scenario 2: Member State 1 considers car hire to fall under the normal VAT rules while 
Member State 2 considers the supply within the special scheme. The broker now has to 
pay VAT in Member State 2 on its margin. However, Member State 1 also expects VAT 
to be paid. If the broker registers and account for VAT in Member State 1 he would pay 
output tax of EUR 22 and deduct EUR 20.  

The two scenarios illustrates how the lack of consistency may create risks of non-taxation 
and double-taxation.  

Figure 14: Car rental 

Source: Study on the review of the VAT special scheme for travel agents and options for reform 

The lack of harmonisation is also found on the rule on the place of supply to be adopted 
whenever the special scheme is not applied. Absent a clear rule, the scope for distortion 
is much greater. For guide services, for example, when the special scheme is not applied, 
some  Member  States  believe  that  the  supply  should  fall  within  the  general  place-of-

46 

 
 
supply rule77 whilst others consider it to be taxable where performed when supplied to a 
non-taxable person78.  

Additionally,  difficulties  with  non-taxation  or  double  taxation  arise  due  to  the  varying 
interpretations  applied  by  Member  States  to  packages,  i.e.  whether  they  are  single  or 
multiple supplies and, where a single supply exists, how it should be taxed. 

With  regard  to  the  provision  of  single  travel  facilities,  notwithstanding  the  CJEU 
judgments  (Van  Ginkel79  and  Star  Coaches80),  some  Member  States  consider  that  the 
special scheme only  applies to  “packages” and  a “package” must by its  very definition 
consist of more than one item. Therefore, such Member States consider that the sale of, 
for example, just a hotel room without a flight cannot be considered as falling within the 
special scheme.  

Differing treatment of single travel facilities creates potential for meaningful distortions: 
in  respect  of  B2B  supplies,  as  input  tax  might  be  recoverable  absent  application  of  the 
special scheme81 and with regard to B2C supplies, as the supply of a single travel facility 
might be subject to a reduced rate while the margin of a travel agent must be taxed at the 
standard  rate  of  VAT.  The  taxation  of  the  supply  of  a  single  travel  facility,  like 
accommodation only, under the normal VAT rules not only ignores the interpretation of 
the common rules by the CJEU, but also leads to unequal treatment of similar supplies, 
because  if  the  travel  agent  supplies  accommodation  together  with  in-house  or  ancillary 
supplies, that supply must be taxed under the special scheme. 

With regard to the supply of mixed packages, differences in treating the same provision 
of  services  give  rise  to  distortion  of  competition  especially  affecting  operators  in  the 
MICE sector.  

In  this  sector,  facilities  such  as  venue,  accommodation,  travel  and  entertainment  are 
bought in for the onward B2B provision of a conference or similar event.  

Divergent interpretations given by Member States lead to differing treatments of MICE 
operators,  not  only  in  the  application  of  the  scheme  itself  but  also  in  terms  of  the 
application of normal VAT rules where the special scheme does not apply.  

Uncertainty arises as many events contain services which cannot ordinarily be described 
as travel facilities (e.g. entertainment, the use of sports facilities, food and drink and the 
provision  of  conference  facilities  such  as  audio  visuals,  meeting  rooms  and  external 

77  Article 44 or 45 of the VAT Directive depending on whether the client is a taxable person. 
78  Article 54 of the VAT Directive. 
79  Cf. supra note 31. 
80  Cf. supra note 30. 
81  According  to  the  study  “A  precise  calculation  of  the  impact  of  this  issue  would  require  a  detailed 
breakdown of travel agent’s turnover at an individual line-level, and this was not within the scope of 
the  business  questionnaire.  However  we  think  this  issue  would  account  for  only  a  fraction  of  the 
indicatively estimated circa €1.15bn input tax and circa €0.29bn output tax indicated to pertain to B2B 
supplies and hence it is not considered to be significant in its own right on aggregate for the EU as a 
whole, but needs to be considered in conjunction with the meaning of travel facilities”. 

47 

 
                                                 
speakers). Many Member States, therefore, either exclude these facilities from the special 
scheme by splitting the event package between travel and non travel facilities, or exclude 
the whole package from the scheme considering the travel facilities within a package as 
being ancillary and not the main purpose of the event82. Hence, absent the application of 
the special scheme (to whole or part of the package), normal VAT rules must be applied.  

The lack of clarity on whether an event considered as single supply can be split and on 
which  place-of-supply  rule  must  be  applied  leads  to  a  multitude  of  approaches  being 
taken.  Indeed,  the  place  of  supply  of  the  services  of  organisers  of  activities  such  as 
entertainment,  education, fairs and  exhibitions is defined just  for B2C  supplies83  as  the 
place where the activities (i.e. the fair/exhibition etc.) take place. For B2B supplies, most 
frequent in  MICE  circumstances, no specific rule is  defined leaving  uncertainty  among 
Member  States  which  have  to  ascertain  whether  a  single  or  a  multiple  supply  has 
occurred  and,  within  a  single  supply,  whether  a  predominant  approach  can  be  applied. 
Depending on the chosen approach, different rules for the place of supply apply leading 
to different tax treatments and to potential distortion of competition84.  

5.2.4  Lack of level playing field 

The margin of a travel agent must be taxed at the standard rate of VAT regardless of the 
rate applied to the individual travel facilities when supplied outside the special scheme. 
The supply of travel services is, indeed, not included in Annex III of the VAT Directive 
and can therefore not benefit from a reduced rate of VAT.  

However,  many  tourism  services  such  as  passenger  transport,  hotel  accommodation, 
restaurant services and admission to cultural events and facilities are often exempted or 
subject to reduced rates.  

Hence,  when  dealing  with  final  consumers,  travel  agents  suffer  a  competitive 
disadvantage  compared  to  providers  whose  services  can  be  exempted  or  subject  to 
reduced rates. These providers can either be i) taxable persons falling outside the scope 
of  the  special  scheme  (e.g.  principal  suppliers  of  travel  services  such  as  hotel 
accommodation  and  intermediaries  such  as  online  travel  agencies);  or  ii)  other  travel 
agents supplying the same services using their own resources (in-house supplies) which 
are not subject to the special scheme but to normal VAT rules.  

Lack  of  level  playing  field  is  especially  found  in  the  airline  sector  where  travel  agents 
owning their own aircraft and airline companies providing travel packages can treat the 
supply of flight seats as an in-house supply which is therefore not subject to the special 
scheme. As a result, avoidance practices have developed. Travel agents have been able to 
reduce their margin (and therefore their VAT payment) by establishing subsidiaries that 

82  However,  these  potentially  ancillary  services  are  unlikely  to  form  only  a  small  part  of  the  package 

(event) value, requiring that the special scheme is applicable. 

83  Article 54 of the VAT Directive. 
84 

If considered that such services fall within the general rule, for example, then they are supplied where 
the client is established (Article 44 of the VAT Directive). 

48 

 
                                                 
purchase airline tickets from airlines and sell them to the travel agent for an artificially 
high price. This diminishes the profit of the travel agent and, therefore, results in a lower 
tax base. The subsidiary, in return, generates unusually high profit margins. However, the 
purchase and sale of international airline tickets is zero rated passenger transport in many 
Member  States.  For  this  reason,  the  subsidiary  has  no  VAT  to  declare  or  pay85.  Such 
avoidance  practice  is,  in  turn,  made  possible  by  the  (non-compliant)  exclusion  of  B2B 
supplies from the application of the scheme which allows the subsidiary to provide travel 
services to the travel agent under application of the normal VAT rules. 

Another important source of a lack of level playing field is found when comparing travel 
agents  with  intermediaries.  As  recalled  in  section 3.1,  over  the  last  years  new  business 
players have emerged and now compete with travel agents on the same market, but under 
different  rules. Among those players, online travel  agencies acting as intermediaries  do 
not fall within the scope of the special scheme and therefore benefit from reduced VAT 
rates on their fees when providing travel facilities (e.g. airline services). 

The magnitude of this competitive disadvantage is however dependent on the differential 
between  the  relevant  reduced  rate  applicable  to  the  travel  service  when  sold  separately 
and the standard rate applicable when sold in a special scheme package. This differential 
varies considerably from one Member State to another and also depends on the relative 
values  of  reduced-rated  and  standard-rated  elements  sold  in  each  special  scheme 
package. The information obtained from the business questionnaire in the study was not 
sufficiently  granular  to  allow  this  to  be  calculated.  The  results  of  the  open  public 
consultation, however, clearly showed that the highest importance when it comes to B2C 
supplies was attributed by respondents to the benefit of simplification (160 respondents 
equal to 78%) provided by the special scheme rather than application of the reduced rates 
provided under the normal VAT rules (only 39 respondents equal to 19%). 

Indeed,  while  the  application  of  normal  VAT  rules  would  mean  that  the  rate  of  VAT 
payable would often be a local reduced rate as opposed to the standard rate currently due 
on  the  margin,  the  travel  agent  would  however  need  a  full  understanding  of  the  rules 
applied in each Member State involved. This would require the travel agent to appreciate 
Member States’ varying interpretations of various types of service, in terms of the place 
of  supply  of  that  service,  and  to  identify  the  appropriate  rate  of  VAT  to  be  applied  to 
each  supply  made  in  that  Member  State.  Furthermore,  travel  agents  would  need  to 
understand,  in  the  case  of  packages,  whether  the  supply  is  considered  to  be  a  single 
supply or a multiple supply as determined by the Member State of supply. As described 

85  These arrangements have operated in the United Kingdom (where passenger transport is “zero rated”) 
since 1996 and are commonly known as the “transport company scheme”. A similar scheme was also 
found  in  Denmark  and  could  exist  in  other  Member  States.  Denmark,  in  order  to  stop  this  abusive 
practice,  in  accordance  with  Article 395(2)  of  the  VAT  Directive,  in  February  2020  requested  a 
derogation from Article 308 of the VAT Directive. The purpose of the requested measure (which was 
not authorised – see COM(2020) 168 final of 6.5.2020) was 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 would then be the 
payment received by the last company in the chain that is not closely linked to the travel agent. 

49 

 
                                                 
in  section 5.1.1,  the  simplification  of  the  special  scheme  would  then  be  replaced  by 
significantly higher complexity under the normal VAT rules. 

5.2.5  Calculation of profit margin 

According to Article 308 of the VAT Directive, the profit margin has to be determined in 
respect of each single service provided by the travel agent as the difference between the 
price of that single service and direct costs incurred86. 

The method of calculation of the VAT due as it exists constitutes a source of complexity 
and  of  administrative  costs  for  the  businesses  operating  in  the  travel  industry  as  it 
requires  the  identification  of  the  margin  every  time  a  service  is  provided.  This  could 
mean  calculating  VAT  payable  numerous  times  for  just  a  single  provision  of  travel 
facilities. For  example, the travel  agent  may receive a deposit,  stage payment and final 
balance and would need to  identify the margin inherent  in each payment. Furthermore, 
declaration of the VAT due once full payment is received could not be considered to be 
final  as  there  are  numerous  circumstances  in  which  the  final  cost  is  not  known  at  that 
time:  

-  Rebates received subsequent to the provision of the travel facility (based on, for 
example, the level of business placed with a supplier over a period) and which 
would  have  the  effect  of  reducing  the  cost  of  all  supplies  purchased  over  a 
period;  

-  The cost of in-house services supplied with bought-in services where the actual 

costs basis for the valuation of the in-house services is used;  

-  Difficulties in identifying cost where services have been block booked and the 

cost for the services per unit can only be determined at a later date. 

The  costs  of  a  single  service  may  change  several  times  after  the  service  has  been 
performed  requiring  the  travel  agent  to  adjust  the  VAT  payable  potentially  on  several 
occasions. 

This method also prevents the travel agent from offsetting negative margins over a period 
of time.  

A calculation based instead on the aggregation of sales and associated costs over a period 
(a global calculation method) would in contrast provide for simplicity and enable a travel 
agent to offset negative margins against positive margins on other supplies. Accordingly, 
a global calculation may result in lower administration costs and potentially a lower VAT 
cost  as compared to  a method of separate VAT  calculation for each supply  made. This 
was  confirmed  by  the  results  of  the  open  public  consultation  where  almost  all 
respondents agree that the transaction-by-transaction margin calculation adds complexity 
to  the  simplified  rules  of  the  special  scheme  (191  respondents,  equal  to  93%)  and  is 

86  Cf. supra notes 20 and 21. 

50 

 
                                                 
detrimental  to  the  industry,  because  negative  margins  cannot  be  offset  against  positive 
margins (188, equal to 91%). 

Against this, it has to be acknowledged that, currently, the only possibility allowed for a 
simplified  calculation  of  a  margin  can  be  found  in  Article 318  of  the  VAT  Directive 
relating  to  the  supply  of  goods  under  the  margin  scheme  for  taxable  dealers. 
Nevertheless, such a global calculation is only allowed for simplification purposes rather 
than to offset losses. Under that scheme, Member States are also required to consult the 
VAT  Committee  before  seeking  to  provide  that,  for  certain  transactions  or  for  certain 
categories of taxable dealers, the taxable amount in respect of supplies of goods subject 
to  the  margin  scheme  is  to  be  determined  for  each  tax  period  for  which  the  taxable 
business submits VAT returns. 

As seen in section 3.2, each Member State has its own rules under which calculation of 
the  margin  is  undertaken.  Nevertheless,  differing  method  of  margin  calculation  applied 
by Member States can affect the competitive position of travel agents throughout the EU. 
As a  global margin  calculation  allows for the aggregation of sales  and associated costs 
over a period and enables any negative margins to be offset against positive margins on 
other  supplies,  a  travel  agent  established  in  a  Member  State  which  allows  this  enjoys 
lower administration costs  and potentially lower  VAT costs when compared to  a travel 
agent established in a Member State which requires a separate VAT calculation for each 
supply made.  

5.3 

Relevance 

Europe  is  the  largest  global  travel  and  tourism  market  and  a  major  tourist  destination, 
with  five  Member  States  among  the  world’s  top  ten  destinations  for  holidaymakers, 
according to UNWTO.  

In the last decade, digital technologies have  significantly transformed the travel service 
market.  Nowadays  travel  services  are  the  most  popular  category  of  services  purchased 
on-line. Digital transformation is reshaping the whole travel ecosystem. These years have 
also  seen  enormous  growth  in  international  travel  and  in  mobility  of  passengers  and 
widespread  deregulation  (particularly  in  the  airline  industry)  that  have  increased 
competition at global level. All these changes are not reflected in the special rules. 

More  than  half  of  respondents  to  the  public  consultation  questioned  the  ability  of  the 
special scheme to respond to the evolved needs of the industry. In particular, with regard 
to  developments  in  technology,  stakeholders  stated  that  the  current  rules  of  the  special 
scheme are not fit for purpose in the digital age87.  

A MOSS system (Mini  One Stop Shop) has been in place since 2015 for TBE services 
(telecommunications, broadcasting and electronically supplied services) provided to non-

87   To  the  question  “To  what  extent  do  you  agree  that  the  current  rules  of  the  special  VAT  scheme  for 
travel  agents  and  tour  operators  is  fit  for  purpose  in  the  digital  age”  90  disagree  and  15  strongly 
disagree, equal to 51% in total. 

51 

 
                                                 
taxable  persons  (B2C  services)  by  EU-established  and  non-EU  established  suppliers. 
This  system  allows  taxable  persons  to  make  a  single  declaration  of  VAT  due  on  B2C 
supplies of TBE services as an alternative to registration in and the separate payment of 
VAT to multiple Member States. This has responded to the change in the place of supply 
of these services from the place of establishment of the supplier to that of the customer 
providing a solution to the tax collection issues associated with the growth of the digital 
economy.  

From  July  2021  the  scope  of  this  system  will  be  extended,  turning  it  into  a  One  Stop 
Shop  (OSS),  to  cover  B2C  supplies  of  services  other  than  TBE  services,  intra-EU 
distance  sales  of  goods,  certain  domestic  supplies  of  goods  facilitated  by  electronic 
interfaces,  distance sales of  goods imported from third countries and  third territories in 
consignments of an intrinsic value of maximum EUR 150. The evaluation has shown that 
many would see this system either as a substitute for the current special scheme or as a 
complement  to  the  current  special  rules  (e.g.  as  limited  to  B2C  supplies).  In  case  this 
system were to be applied in the travel sector, however, B2B supplies would be excluded 
from  its  scope  and  it  would  not  solve  the  problem  of  multiple  input  tax  refunds  in 
different Member States where the supplier is not registered88.  

Notwithstanding  developments  in  the  VAT  system,  the  evaluation  clearly  shows  that 
travel  operators  continue  to  need  special  VAT  rules  (90%  of  respondents  to  the  public 
consultation  believes  so).  An  urgent  need  to  support  the  sector  emerges  in  view  of  the 
heavy hit caused by the pandemic. 

The  majority  of  respondents  to  the  public  consultation  also  confirmed  that  the  special 
scheme  simplifies  the  application  of  VAT  rules  for  travel  agents  (79%).  The  most 
important  aspects  of  the  special  scheme  are  seen  to  be  the  unique  VAT  registration 
number (85%), the simplified margin calculation which avoids the need to recover input 
VAT  (83%),  the  access  to  a  simplified  VAT  declaration  (78%)  and  the  treatment  of  a 
package as a single supply (76%). 

The  abolition  of  the  special  scheme  and  its  replacement  by  a  system  based  on  the 
application  of  the  normal  VAT  rules  on  place  of  supply,  valuation  and  input  tax 
deduction would bring about, according to the study, a likely fall in total VAT revenue 
from the EU travel sector, re-allocation of revenue between Member States and a large 
increase in the compliance burden for travel agents. In particular, from the perspective of 
the  industry,  it  would  increase  considerably  the  complexity  of  VAT  accounting  and 
compliance burden placed on travel  agents  of all sizes, especially on smaller ones who 
might see the resulting compliance burden as a barrier to the sale of travel consumed in 
other  Member  States.  The  increase  in  complexity  could  also  discourage  travel  agents 
from selling services in a large number of Member States and thereby form a barrier to 
the  creation  of  a  single  market  in  the  travel  sector.  Such  a  system  would  also  impose 

88 

It is not possible to reclaim input tax via the MOSS VAT return. Where a taxable person is entitled to 
reclaim tax incurred in a Member State in which it is not VAT registered, this would need to be done 
by way of an Electronic VAT Refund (EVR) claim or a 13th Directive claim. 

52 

 
                                                 
greater obligations on the Member States and could increase instances of avoidance and 
fraud.  

5.4 

Coherence 

This section analyses the coherence of the special scheme, with the wider VAT system 
under constant review and with other EU policies. 

“A Europe fit for the digital age” is one of the six top priorities of the Commission. The 
EU's digital strategy will in particular strengthen the responsibility of online platforms by 
proposing  a  Digital  Services  Act  and  clarifying  rules  for  online  services.  It  will  also 
foster innovation and competitiveness of the European online environment89.  

In this respect, in line with the Council conclusions90, the VAT system is at the centre of 
an  ongoing  in-depth  review  to  adapt  its  structure  to  digital  and  technological 
developments while ensuring fair and effective taxation.  

The VAT treatment of the platform economy will be part of a digital package announced 
in the Tax Action Plan91. For this purpose, a study has been launched to gauge the size of 
the platform economy in the EU, assess the VAT implications (e.g. nature of the services, 
parties involved and their obligations) and provide impacts on possible policy options.  

The  Commission  has  included  in  its  new  fiscal  agenda  a  set  of  initiatives  to  support  a 
swift  and  sustainable  economic  recovery  and  ensuring  sufficient  public  revenue  in  the 
EU. In particular, the reduction of tax obstacles and unnecessary administrative burdens 
for businesses in the Single Market is confirmed to be a key objective of EU tax policy.  

Tourism  has  been  the  worst  affected  of  all  major  economic  sectors  by  the  outbreak  of 
Covid-19.  A  Commission  action  in  the  tax  policy  area  to  assist  travel  businesses  and 
allow them to face the crisis seems therefore necessary and urgent. 

The special scheme has to a large exetent been effective in achieving the objective of 
simplification  of  VAT  rules  for  travel  agents.  Maintaining  such  rules  in  order  to 
facilitate the supply of travel services is in line with both the new policy goals and 
the needs of travel operators.    

However,  the  assessment  of  the  special  scheme  as  well  as  the  stakeholder 
consultation  clearly  show  that  the  scheme  as  it  currently  stands  does  not  fit  the 
reality in which the travel industry operates. This would translate into the need to 
adapt  the  special  rules  to  the  digital  and  asset-free  environment  of  the  travel  and 
tourism sector. 

89   Communication: Shaping Europe’s digital future, February 2020. 
90  Council conclusions on “Shaping Europe’s Digital Future”, 9 June 2020. 
91   Cf. supra note 8. 

53 

 
                                                 
5.4.1 Shift towards taxation at destination 

Over the years, the VAT system has gradually evolved towards the principle of taxation 
in  the  Member  State  of  destination.  In  particular,  Directive  2008/8/EC  introduced 
important changes in order to ensure that VAT on services accrues to the Member State 
of consumption.  

In 2016, the Commission proposed92 to replace the current transitional arrangements for 
the taxation of B2B supplies between Member States by a definitive system based on the 
principle of taxation at destination, in line with requests of the European Parliament and 
the Council93. 

The proposal for a definitive VAT regime adopted by the Commission94 sets out the first 
step  of  implementation  of  the  new  system:  taxation  of  intra-EU  supplies  of  goods 
together  with  improved  One-Stop-Shop  arrangements.  The  approach  taken  would  only 
consider the taxation of intra-EU B2B services at a later stage.  

The  adoption  of  a  definitive  VAT  system,  which  rests  upon  the  agreement  of  Member 
States, would implement taxation at destination  fully into the VAT Directive with  very 
few exceptions remaining, notably the special scheme. 

Despite  governed  by  the  rule  of  taxation  at  origin,  most  of  the  VAT  collected  via  the 
special  scheme  takes  the  form  of  irrecoverable  input  tax,  which  is  collected  in  the 
Member  State  of  consumption  (see  section 5.1.2).  The  services  purchased  by  the  travel 
agent are in fact taxed in accordance with the normal place-of-supply rules, i.e. mostly in 
the Member State where the travel takes place95.  

Hence,  the  special  scheme  has  kept  adequate  consistency  with  the  destination 
principle. The vast majority of respondents (73%) to the public consultation confirmed 
indeed this trend.  

On the other hand taxation of the margin at origin does not ensure equal treatment 
between  EU  and  non-EU  businesses  since  EU  travel  services  supplied  by  travel 
agents established in third countries are not taxed under the special scheme. These 
services are merely  considered outside the scope of the special scheme because the 
travel agents are established outside the EU.  

92   Action  Plan  on  VAT  –  Towards  a  single  EU  VAT  area  –  Time  to  decide  (COM(2016) 148 final  of 

7.4.2016). 

93   European Parliament Resolution of 13 October 2011 on the future of VAT; Council conclusions on the 

future of VAT, 15 May 2012. 

94   Proposals  for  a  Council  Directive  (COM(2017) 569 final  of  4.1.2017  and  COM(2018) 329 final  of 

25.5.2018). 

95  The vast majority of services typically provided by travel agents has its place of supply in the Member 
State of consumption. The current place of supply rules for services such as accommodation, catering 
and  the  hire  of  a  means  of  transport  is  the  Member  State  of  consumption.  In  the  case  of  passenger 
transport, however, the place of supply is within each Member State in which the transport takes place. 

54 

 
                                                 
The growing presence of platforms has made this problem even more acute as little 
physical presence is required to sell into the EU market.  

5.4.2  Regulatory framework 

Travel services are widely regulated at EU level in sector-specific legislation, e.g. in the 
transport sector, where various regulations safeguard passenger rights depending on the 
mode of transport. Travel services are also covered by horizontal EU legislation, such as 
the Consumer Rights Directive96, the Services Directive97 and, when provided online, of 
the e-Commerce Directive98. 

Despite its  years, the special scheme remains in  many respects consistent with some of 
EU legislation. In particular, the scheme incorporates a key principle of the e-Commerce 
Directive: the internal market clause, which ensures that providers of online services are 
subject to the law of the Member State in which they are established and not that of the 
Member  States  where  their  services  are  accessible.  The  internal  market  principle 
continues  to  be  relevant  in  the  Digital  Services  Act  package  proposals99.On  the  other 
hand,  the  special  rules  and  their  interpretation  have  not  taken  into  account  essential 
developments  in  the  regulatory  framework  aimed  at  improving  legal  certainty  and 
uniformity of treatment with the regard to the functioning of the travel package market. 
Directive  (EU)  2015/2302100  on  package  travel  and  linked  travel  arrangements  has 
adapted EU legislation to the online booking models to better protect consumers who are 
using a combination of services.  

The rules as modernised indeed take well into account the fact that travel services are not 
only combined in the form of traditional pre-arranged packages, but are often combined 
in  a  customised  way  by  the  traveller.  In  particular,  it  is  the  booking  process  that  will 
determine  whether  the  traveler  has  booked  a  package,  a  linked  travel  arrangement  or 
merely  a  stand-alone  service  as  defined  by  that  Directive101.  The  creation  of  a  package 
could  also  be  possible  when  the  traveller  books  separate  travel  services  from  different 
websites  (separate  traders)  but  bookings  are  interrelated  through  links  provided  by  a 
website leading the customer on to another website, and the first trader transmits to the 
second  trader  the  specific  traveller’s  personal  data,  i.e.  the  traveller’s  name,  payment 
details and email address, the so called “click-through” booking.  

96   Directive 2011/83/EU of the European Parliament and of the Council of 25 October 2011 on consumer 

rights (OJ L 304, 22.11.2011, p. 64). 

97   Directive  2006/123/EC  of  the  European  Parliament  and  of  the  Council  of  12 December  2006  on 

services in the internal market (OJ L 376, 27.12.2006, p. 36). 

98   Directive 2000/31/EC of the European Parliament and of the Council of 8 June 2000 on certain legal 
aspects  of  information  society  services,  in  particular  electronic  commerce,  in  the  Internal  Market 
(OJ L 178, 17.7.2000, p. 1). 

99   https://ec.europa.eu/digital-single-market/en/digital-services-act-package. 
100   Directive  (EU)  2015/2302  of  the  European  Parliament  and  of  the  Council  of  25 November  2015  on 
package  travel  and  linked  travel  arrangements,  amending  Regulation  (EC)  No 2006/2004  and 
Directive 2011/83/EU of the European Parliament and of the Council and repealing Council Directive 
90/314/EEC (OJ L 326, 11.12.2015, p. 1). 

101   Report  from  the  Commission  to  the  European  Parliament  and  the  Council  on  the  provisions  of 

Directive (EU) 2015/2302 (COM(2019) 270 final of 21.6.2019). 

55 

 
                                                 
Another  important  set  of  rules  that  need  to  be  considered  is  the  EU  Regulation102  on 
platform-to-business relations (P2B Regulation), which has applied since July 2020. The 
Regulation puts in place a harmonised framework for minimum transparency and redress 
rights.  It  also  protects  companies  that  depend  on  online  platforms  for  reaching 
consumers,  while  safeguarding  the  innovation  potential  of  platforms.  In  view  of  the 
global dimension of online intermediation services, the new rules apply to all providers 
of  those  services  into  the  EU  market  regardless  of  whether  they  are  established  in  a 
Member State or outside the Union. 

5.5 

EU added value 

As  the  special  scheme  constitutes  a  particular  feature  of  the  VAT  system,  which  is 
harmonised  at  EU  level,  any  intervention  in  this  field  can  only  pass  through  an 
amendment  of  the  VAT  Directive.  Hence,  the  problems  triggered  by  the  rules  of  the 
existing  VAT  Directive  cannot  be  tackled  at  national  level  alone  as  any  initiative  to 
modify  VAT  rules  of  the  special  scheme  requires  a  proposal  by  the  Commission  to 
amend the VAT Directive. 

The  legal  basis  lies  in  Article 113  of  the  Treaty  on  the  Functioning  of  the  European 
Union according to which “The Council shall, acting unanimously in accordance with a 
special  legislative  procedure  and  after  consulting  the  European  Parliament  and  the 
Economic  and  Social  Committee,  adopt  provisions  for  the  harmonisation  of  legislation 
concerning turnover taxes, excise duties and other forms of indirect taxation to the extent 
that such harmonisation is necessary to ensure the establishment and the functioning of 
the internal market and to avoid distortion of competition”. 

It  is  precisely  the  harmonisation  of  the  rules  of  the  special  scheme  that  is  widely 
requested  by  most  of  the  stakeholders  during  the  process  of  evaluation  and  which  can 
only  be  achieved  at  EU  level:  a  common  EU  approach  brings  results  that  would 
otherwise  not  be  achieved  through  individual  national  measures.  As  shown  in  the 
evaluation, due to the lack of clarity of the rules and inconsistency in adherence, Member 
States have adopted diversified interpretation and application of the law which, in turn, 
have  hampered  the  correct  functioning  of  the  internal  market  by  causing  distortions  of 
competion in terms of episodes of non-taxation or double taxation.  

102   Regulation  (EU)  2019/1150  of  the  European  Parliament  and  of  the  Council  of  20 June  2019  on 
promoting  fairness  and  transparency  for  business  users  of  online  intermediation  services  (OJ L 186, 
11.7.2019, p. 57). 

56 

 
 
                                                 
6. 

CONCLUSION 

The  following  sections  summarise  the  key  findings  of  the  evaluation  in  terms  of 
achievements and shortcomings of the special scheme as a basis for future policy actions.  

6.1 

Achievements of the special scheme  

The  special  scheme  has  been  widely  effective  in  achieving  its  two  main  objectives 
namely  simplifying  the  application  of  VAT  rules  for  travel  agents  and  ensuring  a 
fair allocation of VAT revenue.  

The interpretation of the special rules by the CJEU according to which B2B supplies fall 
within the scheme (customer approach) has in particular contributed to the achievement 
of the second objective.  

The  place-of-supply  rule  and  the  concept  of  single  service  are  the  most  important 
elements leaving no doubt that the scheme is  much more straigthforward to apply 
than the normal  VAT  rules. Taxation at origin permits indeed the highest level  of 
simplification possible in relation to a cross-border oriented activity like that mostly 
conducted by travel operators.  

It  is  especially  when  a  package  includes  travel  facilities  located  in  different  Member 
States  that  the  special  scheme  proves  to  be  most  beneficial.  In  particular  thanks  to  the 
concept  of  single  service,  the  need  to  qualify  the  services  provided  by  the  travel  agent 
(single or multiple supply) is eliminated.  

These  simplification  benefits,  although  variously  perceived  depending  on  the  business 
model adopted, are mostly appreciated by the industry in the context of cross border and 
B2C  supplies,  where  the  final  customer  would  not  be  allowed  to  deduct  any  input  tax 
charged. 

Finally, the fact that the special scheme prevents the travel agent from either deducting or 
obtaining refund of the VAT included in its costs, ensures equal distribution of revenues 
among Member States. The study in particular shows that the majority of VAT collected 
via the special scheme comes from irrecoverable input VAT while the VAT due on the 
margin is smaller in totality.  

6.2 

Shortcomings of the special scheme 

While  being  effective  in  achieving  its  objectives,  the  special  scheme  presents  the 
following shortcomings: 

  It is unfair: the rule of taxation at the origin leads to non-taxation of the margin made 
by third country operators on travel  services consumed in  the EU. The inequality of 
treatment becomes more acute with the digitalisation of the travel industry and the rise 
of  the  online  platform  economy  as  no  physical  business  presence  is  required  to  sell 

57 

 
 
travel  services  into  the  EU  market.  Online  travel  platforms  have  enlarged  market 
opportunities at global level and increased their volume of trade across borders. While 
Europe  is  a  large  global  travel  and  tourism  destination,  undisputed  leaders  in  the 
online  travel  booking  are  however  based  outside  the  EU.  This  puts  at  risk  EU 
competitiveness  and  EU  VAT  revenue.  In  the  absence  of  a  level  playing  field,  EU-
established  travel  agents  can  easily  relocate  their  almost  asset-free  business  outside 
the  EU  to  fill  the  gap.  The  withdrawal  of  the  United  Kingdom  from  the  European 
Union can further amplify this trend, as operators established in United Kingdom will 
apply zero-rating to travel services sold into EU market. 

  It is inefficient: Taxation of B2B supplies at the margin does not ensure efficiency as 
it comes at a cost for businesses, that is non-deductibility of input VAT. If on the one 
hand the loss of input VAT deduction is an inherent consequence of the simplification, 
the fact that the special rules are mandatory for businesses could be said not to provide 
the  flexibility  to  meet  the  needs  of  the  complex  multi-faced  travel  sector.  Costs  and 
benefits  deriving  from  the  application  of  the  special  rules  differ  according  to  the 
business  model  in  use.  In  particular,  a  business  that  operates  in  both  B2C  and  B2B 
segments,  can still find the simplification benefits of the special scheme  higher than 
the  cost  of  non-deductible  input  VAT  if  the  business  can  remain  competitive  on 
prices. On the contrary, a business that only makes B2B supplies could rather prefer to 
apply the normal VAT rules in order to enable its business customers to recover input 
VAT. Digitalisation has further facilitated contact of business customers to the travel 
agent’s  own  service  provides  such  as  hotels  and  airlines  from  whom  they  can  buy 
services directly and deduct the VAT paid. 

  It is outdated: the special scheme was designed for "brick and mortar" travel agencies 
with  a  local  office  that  hardly  exist  any  longer.  In  the  expanding  digital  landscape, 
travel agencies have partially or totally shifted online. Digital technology has forged 
new  business  and  pricing  models  and  disrupted  the  traditional  value  chain.  At  the 
same time, new services have emerged in the travel ecosystem and changed over time 
(and will continue to do so), raising a number of challenges as regards the application 
of VAT. The special rules do not  capture  well new business  models, do not  address 
the  different  needs  of  travel  operators  and  certainly  are  not  fit  for  the  digital  age. 
Travel agents are therefore less and less able to operate under the same conditions. 

  It does not ensure competitiveness: The blocked input VAT has in particular placed 
travel  B2B  sectors,  namely,  TMC  and  MICE,  at  a  competitive  disadvantage  when 
compared  to  suppliers  not  subject  to  the  special  scheme  (e.g.  principal  suppliers, 
suppliers  of  in-house  services  and  intermediaries).  As  a  result,  some  Member  States 
have  in  an  arbitrary  manner  excluded  or  granted  travel  agents  the  option  to  exclude 
B2B  supplies  from  the  special  scheme.  In  other  Member  States  where  such  an 
exclusion is not available, travel agents can change their business model in order to be 
qualified as intermediaries and bypass the application of the scheme (notwithstanding 
the possible constraints of acting as intermediary such as for instance the fact that the 
margin  has  to  be  disclosed).  The  evaluation  suggests  that  travel  agents  primarily 

58 

 
involved in B2B transactions would rather renounce to simplification benefits in order 
to  restore  VAT  neutrality  and  allow  for  input  tax  deduction,  thereby  regaining 
competitiveness on the market.  

A  lack  of  a  level  playing  field  has  also  been  detected  when  dealing  with  final 
customers,  as  travel  agents  suffer  a  competitive  disadvantage  compared  to  principal 
suppliers whose travel services can be exempted from VAT or subject to reduced rates 
(e.g. accommodation and transport). This is so since the margin of a travel agent must 
always  be  taxed  at  the  standard  rate  of  VAT  regardless  of  the  (reduced/zero)  rate 
applicable  to  the  underlying  individual  travel  facility  supplied.  This  has  led  to  some 
avoidance practices, especially in the airline business, aimed at shifting the margin to 
subsidiaries  not  subject  to  the  special  scheme.  However,  the  evaluation  clearly 
indicates that in the B2C segments these competitive disadvantages are largely off-set 
by the simplification benefits granted by the special scheme. 

  It lacks clarity and harmonisation: Despite or even because of the extensive case-
law,  the  special  rules  remain  unclear  and  not  uniformly  applied  by  Member  States. 
This is not only a source of complexity in the application of the scheme but also leave 
scope  for  distortions  of  competition  detrimental  to  the  proper  functioning  of  the 
internal market.  

The lack of clarity is especially found with regard to the scope of the special scheme, 
and  with  regard  to  the  normal  VAT  rules  to  be  applied  e.g.  in  case  of  in-house 
supplies.  Without  a  precise  definition  of  travel  facilities,  the  provision  of  some 
services may not always be seen to fall within the special scheme as not qualified as 
travel  related  (e.g.  car  hire)  while  the  provision  of  a  travel  related  service  may  not 
always be seen as falling under the scheme if not comprised within a package (e.g. the 
provision of accommodation only). In addition, in the context of the supply of mixed 
packages,  especially  in  the  MICE  sector,  events  containing  services  not  ordinarily 
described as travel facilities (e.g. entertainment, food and drink, conference facilities) 
may be seen to fall outside the scope of the special scheme. On the other hand, absent 
the application of the special scheme, there is  no clarity on which normal  VAT rule 
should be applied, especially with regard to the place of supply (e.g. tour guides). 

A  high  degree  of  non-harmonisation  is  present  especially  in  the  field  of  wholesale 
transactions, definition of travel facilities and margin calculation. With regard to the 
wholesale  packages,  inconsistency  between  Member  States  in  the  application  of  the 
scheme (some exclude or allow an option to exclude such supplies from the scheme) 
creates  a  significant  distortion  in  the  application  of  VAT  rules.  Non-uniformity  of 
treatment  may  lead  to  non-taxation  or  double  taxation  of  the  margin  as  well  as  to  a 
risk of VAT loss and wrongful allocation of VAT revenues which especially affects 
the  DMC  sector  (as  the  one  mainly  involved  in  wholesale  transactions).  These 
mismatches  in  VAT  treatment  are  also  found  in  terms  of  margin  calculation  and 
definition  of  travel  facilities,  increasing  distortions  and  inefficiencies  in  the 
functioning of the scheme. 

59 

 
6.3 

Issues at stake  

The special scheme was put in place together with the common VAT system in 1977 to 
facilitate  in  particular  the  application  of  VAT  by  travel  agents  that  combine  and  sell 
services outside their own Member State.  

Since  its  adoption,  the  VAT  system  has  undergone  fundamental  changes  that  are  not 
reflected in the special rules. The market for travel services as such was also subject to 
major changes. 

The  VAT  system  has  gradually  evolved  towards  taxation  at  destination  allowing  for  a 
simplified way of charging and collecting VAT across Member States with the inclusion 
of  third  country  operators.  The  new  OSS  will  certainly  make  the  application  of  the 
normal  VAT  rules  easier  with  regard  to  cross-border  B2C  supplies.  The  simplified 
arrangements, however, will not be available to intra-EU B2B trade which remains part 
of the ambitious long-term project for a definitive VAT system. 

At the same time, profound changes in the travel industry such as growth in international 
travel,  digital  transformation  and  rise  of  Online  Travel  Platforms  have  disrupted  the 
traditional  business  models  and  increased  competition  in  the  global  market.  On  top  of 
that,  travel  and  tourism  are  the  worst  affected  of  all  major  economic  sectors  by  the 
outbreak of Covid-19 with a number of businesses that struggle to survive. 

The special rules have, in many respects, been successful and there is low desire within 
the  industry  to  see  the  scheme  as  such  brought  to  an  end.  The  public  consultation 
strongly confirms that there is still a need for simplified rules for travel agents:  90% of 
respondents  believe  so  in  particular  where  cross-border  and  B2C  transactions  are 
concerned.  

Widespread  calls  for  improvements  of  the  current  rules  however  emerge  from  the 
analysis. The scheme in its present form is inadequate to meet diverse and new needs of 
travel operators and to support them in addressing the challenges of the industry arising 
from the digital disruption, changes in business environment and the Covid-19 crisis.  

Stakeholders, in particular, request clearer, simpler and more harmonised rules for travel 
operators  whilst  keeping those flexible. These rules should also  address  distortions and 
ensure  a  level  playing  field  for  all  travel  agents  operating  in  the  EU  market,  including 
those not established within the EU.   

Ensuring fairness  and  competitiveness  in  a borderless  digital  world  is  however  a major 
challenge for the whole EU tax system. In the field of direct taxation, policy makers are 
struggling to find solutions to ensure fair and effective taxation as consensus on common 
tax principles is very hard to find but necessary. The VAT system is also at the centre of 
an  ongoing  in-depth  review  to  adapt  its  structure  to  digital  and  technological 
developments  while  ensuring  fair  and  effective  taxation.  The  initiative  “VAT  in  the 
digital age” will in particular examine the implications of the platform economy on VAT 
rules. 

60 

 
Overall, the Commission has included in its fiscal agenda a set of initiatives to support a 
swift  and  sustainable  economic  recovery  and  ensuring  sufficient  public  revenue  in  the 
EU. In particular, the reduction of tax obstacles and unnecessary administrative burdens 
for businesses in the Single Market is confirmed to be a key objective of EU tax policy.  

61 

 
ANNEXES 

Annex 1: Procedural information 

1.  Lead DG – DG TAXUD 

The initiative was planned under PLAN/2019/5715 – TAXUD.  

2.  The evaluation was supported by an independent study carried out by KPMG.  

The contract with the contractor was signed on 10 January 2017. The Final Report 
was submitted on 1 December 2017 and published in December 2017. 

3.  The  first  meeting  of  the  Inter-Service  Steering  Group  (ISSG)  took  place  on 
9 October  2019  to  discuss  with  the  members  the  current  rules  of  the  special 
scheme,  the  future  tasks  of  the  Group  and  the  draft  roadmap  including  the 
consultation  strategy  of  the  evaluation.  A  second  meeting  with  the  ISSG  took 
place  on  25 November  2019  to  discuss  the  meeting  held  with  Member  States 
(Group on the Future of VAT of 11 November 2019) and the draft online public 
consultation to be launched.  

62 

 
 
 
 
 
 
Annex 2: Stakeholder consultation 

The  consultation  collected  data  and  evidence  to  evaluate  the  special  scheme  for  travel 
agents.  To  this  aim  the  consultation  gathered  the  views  of  the  stakeholders  on  the 
following topics: i) whether the special scheme achieves its objectives of simplification, 
ii) which are the drawbacks of the special scheme compared to its benefits, iii) to what 
extent the special scheme is still aligned with stakeholders' needs, iv) whether it needs to 
be reformed. 

The consultation process consisted of: 

1.  Business survey within the study by KPMG; 
2.  Targeted  Consultation  of  Member  States  in  the  context  of  the  Group  on  the 

Future of VAT; 

3.  Feedback to the evaluation roadmap; 
4.  A  public  consultation  addressed  to  all  stakeholders  and  members  of  the 

public.  

The  results  and  input  received  during  these  consultations  were  the  main  source  of 
information  to  assess  the  evaluation  questions  and  thus  were  instrumental  for  the 
conclusions of the evaluation report. 

1. 

Business survey within the study by KPMG  

Surveys  have  been  used  in  the  2017  KPMG  study  for  two  purposes:  i)  to  collect 
information  on  the  application  of  the  Special  Scheme  local  VAT  rules  from  KPMG 
specialists  across  the  EU;  and  ii)  to  collect  financial  information  from  relevant 
businesses, both within and outside the EU, with a view to quantifying the impact of the 
Special Scheme VAT rules.  

With  regard  to  surveys  issued  to  KPMG  VAT  specialists,  a  series  of  questions  was 
designed to obtain responses that can be meaningfully viewed from a “high-level”, whilst 
also capturing specific local detail wherever possible. This was achieved by a multi-stage 
questioning format; seeking first to gather a high-level initial “yes” or “no” answer which 
can  be  quickly  compared  between  EU  Member  States,  and  subsequently  to  gather 
qualifications,  caveats  and  explanations  in  longer-form  text  answers  to  reveal  more 
detail.  Questionnaires  were  issued  through  an  online  platform  in  order  to  ensure 
consistency of responses and to provide a clear audit trail.  

With regard to surveys issued to travel businesses, to maximise the response rate a single 
questionnaire  was  prepared,  minimising  the  burden  on  respondent  businesses.  The 
business  questionnaire  was  issued  in  a  Microsoft  Excel  document  format  to  ensure 
universal  accessibility  –  whilst  drop-down  lists  and  table  structures  were  employed  for 
consistency  of  responses.  To  allow  for  consolidation  of  the  survey  responses  into  EU-
wide economic models, this business questionnaire was formatted in a consistent manner 
regardless  of  the  country  of  response.  This  business  questionnaire  was  sent  to  KPMG 

63 

 
 
clients and known travel businesses within each of the business models identified. This 
business questionnaire was also sent to ETOA (European Tourism Association); ECTAA 
(European  Travel  Agents’  and  Tour  Operators’  Associations);  EFAPCP  (European 
Federation  of  the  Associations  of  Professional  Congress  Organisers)  as  well  as  similar 
national bodies in key Member States, for electronic distribution to member businesses. 
While responsiveness and quality of replies could not be guaranteed as this depends on 
the  goodwill  of  respondents,  the  intention  was  to  obtain  responses  to  the  business 
questionnaire from at least 10 businesses per business model across each of Germany and 
the United Kingdom, plus a further 10 businesses per business model from the other 26 
Member States, together with Turkey and Switzerland. The final responses utilised in the 
calculations  covered  98  businesses  in  18  Member  States,  spanning  all  five  business 
models.  The  total  turnover  of  these  businesses  represents  approximately  10%  of  the 
estimated EU market (circa EUR 19 billion). No responses were received from non-EU 
businesses.  Meanwhile  by  turnover,  94%  of  the  utilised  respondent  businesses  were 
based in only five Member States. 

2. 

Targeted Consultation of Member States in the context of the Group on the 
Future of VAT 

On 11 November 2019 the Group on the Future of VAT met in order to collect Member 
States’  views  on  the  special  scheme  for  travel  agents  with  regard  to  the  interpretation 
given  by  the  CJEU  of  the  common  EU  rules,  the  conclusions  reached  at  the  2018 
FISCALIS  workshop,  the  findings  of  the  study,  the  evaluation  and  the  reform  options. 
Member States were also invited to provide their feedbacks in written within one month 
following the meeting. 

The 27 Member States present at the meeting were invited to contribute either orally or 
through written contributions to the questions listed in the working paper presented at the 
meeting. 

Key findings 

Data availability 

Tax  data  as  regards  the  special  scheme  was  only  collected  in  few  Member  States. 
According to the vast majority of Member States, data was not available and would also 
be difficult to obtain, either because travel agents could be taxed both under the special 
scheme and under the normal VAT rules or as data are consolidated in the tax returns. 

Evaluation questions 

Effectiveness – The special scheme achieves its objective of simplification 

The special scheme allows travel agents to benefit from simplified origin-based taxation 
by paying VAT on their profit margin in the Member State where they are established. 
This is particularily important when supplying a package of different facilities which is 
considered as a single supply under the special rules. The margin scheme permits travel 
agents to operate in all other Member States without further need for VAT registration or 

64 

 
declaration. That is so since travel agents are not paying VAT on supplies made in those 
Member  States.  By  not  having  to  deduct  input  VAT,  travel  agents  do  not  have  to 
understand and comply with those Member States’ differing VAT regimes and to interact 
with the respective tax authorities requiring different evidential requirements to support 
input  tax  refunds.  By  not  deducting  the  VAT  included  in  their  costs,  VAT  on  the 
underlying supplies always remains in the Member State of consumption.  

22 Member States contributed to this question. The vast majority of them recognised the 
achievement of the simplification objectives by the special scheme (in terms of place of 
supply, input tax deduction, taxable amount). Some Member States mentioned the need 
for an increased simplification and therefore for a reform of the scheme. Some Member 
States,  however,  showed  a  misled  interpretation  of  the  term  “simplification”  by 
requesting, for example, the exclusion of B2B transactions from the scope of the scheme 
in  order  to  “simplify”  its  application.  However,  it  is  in  fact  the  inclusion  of  business 
clients in the scope of the scheme that allows it to achieve its objectives of simplification 
(in terms of place of supply, input tax deduction, taxable amount). Finally, few Member 
States,  while  recognising  the  simplification  benefits  of  the  scheme  at  the  time  it  was 
introduced,  raised  doubts  on  its  current  effectiveness  (potential  replacement  of  the 
scheme by the OSS system).  

Third country operators 

The place of supply rule within the special scheme is an origin based rule as the travel 
agent’s  margin  is  subject  to  VAT  in  the  Member  State  in  which  the  travel  agent  is 
established. This  simplification rule has, however, the non-intended  effect  of excluding 
third  country  operators  which,  with  the  expanding  use  of  the  Internet,  have  become 
increasingly  involved  in  the  supply  of  travel  packages  to  EU  consumers.  According  to 
almost half of the Member States, this has led to a distortion of competition due to a lack 
of level playing field. Little and mostly anecdotal evidence could however be provided in 
this regard. Some Member States proposed to apply the OSS to third country operators.  

Efficiency – The common rules, although interpreted by the CJEU, still lack clarity 

Lack of clarity 

The large majority of Member States expressed the need for more clarity of the rules on 
the special scheme. Among the main issues raised were the need to clarify the definition 
of travel facilities, especially in case of provision of single travel facilities. 

Need for harmonisation  

One third of Member States raised the issue of lack of harmonisation in the interpretation 
and  implementation  of  the  rules  governing  the  special  scheme  which,  in  turn,  raised 
problems  of  distortion  of  competition  within  the  internal  market.  The  lack  of 
harmonisation  among  Member  States  was  in  particular  claimed  in  the  field  of  B2B 
transactions, margin calculation and definition of travel facilities/single travel facilities. 

65 

 
Business to business transactions 

One third of Member States asked for the exclusion of business clients from the scope of 
the  special  scheme,  granting  them  the  right  of  input  VAT  deduction  under  the  normal 
VAT rules. Some of them would prefer to allow an “opt-out” to exclude B2B transaction, 
while others expressed opposition to an option which would further increase the degree 
of non-harmonisation among Member States.  

Margin calculation 

Almost half of Member States agreed on the difficulty of calculating the margin for each 
transaction. Some of them expressed a preference for a global margin calculation. 

Relevance – The travel industry continues to need special VAT rules 

Almost  unanimously,  Member  States  agreed  on  the  need  of  a  special  scheme  for  the 
industry, while underlining as well the need for it to be reformed. Few of them proposed 
to  consider  the  application  of  the  One  Stop  Shop  mechanism  to  the  industry  as  an 
alternative to the special scheme. 

Coherence  –  There  is  a  need  for  amending  the  current  rules  as  interpreted  by  the 
CJEU and consequently a need for an impact assessment, which could be followed by 
a Commission proposal 

Almost  unanimously,  Member  States  agreed  on  the  need  for  a  revision  of  the  special 
scheme for travel agents.  

The special scheme taxes the margins in the Member State of establishment of the travel 
agent  while  according  to  the  wider  VAT  system,  and,  in  particular,  through  the 
implementation  of  the  One-Stop-Shop  in  2021,  services  are  to  be  taxed  at  the  place  of 
consumption.  Some  Member  States  therefore  proposed  the  application  of  the  OSS 
mechanism to the travel industry, not only for non-established operators but also for EU 
travel agents.  

3. 

Feedback  mechanism  –  Comments  and  contributions  to  the  evalaution 
roadmap 

The  Roadmap  was  published  on  4 February  2020.  During  the  4  weeks  after  the 
publication  of  the  roadmap,  interested  stakeholders  had  the  opportunity  to  provide 
comments and suggestions. By 3 March 2020, a total of 8 contributions were submitted, 
mostly from business associations.  

Key findings 

While recognising the achievement of the simplification benefits by the special scheme, 
primarily the avoidance of multiple registration obligations, it was largely underlined the 
need for a review and a reform of the scheme. Among the main issues raised were i) the 
distortion of competition by third country operators, ii) the need for harmonisation in the 
application of the scheme among Member States, iii) the exclusion/optional exclusion of 

66 

 
B2B  transactions  from  the  scope  of  the  scheme,  iv)  the  difficulties  in  calculating  the 
margin, v) the compatibility of the scheme with the taxation at destination principle, vi) 
the need for clarifications especially with regard to the definition of travel facilities.  

4. 

Public consultation open to all stakeholders and members of the public 

The  public  consultation  was  launched  on  25 May  2020  and  remained  open  until 
14 September 2020, for a total  of 16 weeks (i.e. for longer than the usual 12 weeks, to 
take  into  account  potential  capacity  limitations  of  interested  stakeholders  due  to  the 
Covid-19  crisis).  A  total  of  206  responses  were  received  from  18  Member  States,  the 
United Kingdom, and Liberia. 

The  public  consultation  questionnaire  consisted  of  24  questions  (both  open  and  close) 
mainly focused on the assessment of the evaluation criteria. 

4.1.  The overview 

A  total  of  206  valid  responses  were  received  and  were  used  for  the  analysis.  The 
majority  of  respondents  answered  in  their  professional  capacity,  while  5  private 
individuals  participated  in  their  personal  capacity.  Amongst  professionals,  the  largest 
group  is  “company  and  business  organisations”,  with  153  respondents.  Noteworthy  are 
furthermore  the  group  of  buisness  associations  with  30  respondents.  Smaller  numbers 
have  been  collected  for  NGOs  (3  respondents),  public  authority  (2),  research  and 
academia (1), consumer organisation (1), and the group of other respondents (11). Due to 
their low participation, these groups have been aggregated into the category ‘other’ (O) 
for the analysis.  

In  total,  18  EU  Member  States,  the  United  Kingdom  and  Liberia  are  represented 
within the Public Consultation. The Member States most represented are Germany (62 
respondents),  Austria (47), Belgium  (24), Netherlands (12)  and  Italy  (10). Respondents 
answering in their professional capacity come from all 18 Member States, while private 
individuals participating are resident in 5 Member States. The below table illustrates the 
countries of respondents.  

Table 2: Country of origin 

67 

Country of originNumber of respondentsCountry of originNumber of respondentsGermany62Portugal3Austria47Croatia2Belgium24Cyprus2Netherlands12Denmark2Italy10Romania2Spain9Bulgaria1Estonia8Finland1France7Liberia1Malta4Poland1Sweden4Total206United Kingdom4 
 
Most  of  the  participating  companies  (83%)  are  either  SMEs  or  micro-sized 
respondents103  (86  respondents  each).  Additionally,  29  large  companies  (14%)  with 
more than 250 employees submitted their answers to the Public Consultation104.  

Regarding the market segments in which companies and consultancies are active in,  53 
respondents  (26%)  declared  the  Business  to  Business  (B2B)  segment  as  either 
exclusive or dominant, while 35 respondents declared the Business to Customer (B2C) 
as their exclusive or predominand market. 42 respondents resulted being active in equal 
measure in both segments.  

Half  of  respondents  (50%)  gave  his  contribution  as  travel  agent/tour  operator,  29 
respondents as both tour operator and provider of their own services and 4 as providers of 
their own services. 

60  respondents  (29%)  declared  to  act  as  principal  in  their  own  name,  36  as 
intermediary, while 37 declared to act in equal measure as principal and intermediary. 

90  respondents  (44%)  work  both  via  online  and  offline  channels,  while  32  only  via 
offline channels and just 10 only via online channels. 

Laslty, 88 respondents (43%) are only or mainly taxed under the special scheme, while 
21 are only or mainly taxed under the normal VAT rules. 23 respondents declared to be 
taxed in equal measure under both the special scheme and the normal VAT rules. 

4.2.  Key findings 

Overall assessment of the special scheme 

When asked regarding the most important aspects of the special scheme, the majority of 
respondents  (176  equal  to  85%)  pointed  to  the  unique  VAT  registration  number, 
followed  by  the  simplified  margin  calculation  (no  need  to  recover  input  VAT)  by  172 
(83%), the access to a simplified VAT declaration (160 equal to 78%) and the treatment 
of  a  package  as  a  single  supply  (157  equal  to  76%).  88  respondents  (43%)  also 
appreciated  the  fact  that  with  the  special  scheme  there  is  no  need  to  identify  the  legal 
status  of  the  customer  (taxable  or  non-taxable  person).  The  combination  of  all  these  5 
aspects was selected by 70 respondents, most of which companies/business associations 
(58) of micro and small size (56). The need to identify the legal status of the customer 
was less of a problem for large businesses (21, equal to 72% of them, did not select it).  

The special scheme simplifies the application of VAT rules for travel agents according to 
the  majority  of  respondents  which  either  agree  (106  respondents  equal  to  51%)  or 
strongly agree (57 equal to 28%). Companies/business associations accounted for most of 
this majority (85 and 41 respectively). A minority of respondents either disagree (15) or 
strongly disagree (12).  

103  From 1 to 9 employees. 
104  The remaining 5 respondents are private citizens. 

68 

 
                                                 
According  to  slightly  more  than  half  of  respondents  the  current  rules  of  the  special 
scheme are not  fit  for purpose in  the digital  age (90 disagree and 15 strongly disagree, 
equal  to  51%  in  total).  Those  respondents  are  mainly  companies/business  associations 
(82)  of  micro  and  small  size  (76)  acting  as  travel  agents/tour  operators  (56).  The  same 
position was shared by the majority of whom declared to  operate only online (7 out  of 
10).  

The highest importance when it comes to B2B supplies was attributed by respondents to 
the benefit of input tax deduction (165 respondents equal to 80%) provided by the normal 
VAT  rules  instead  of  to  the  benefit  of  simplification  provided  by  the  special  scheme 
(only  37  respondents  equal  to  18%).  Out  of  53  respondents  who  declared  to  operate 
exclusively or mainly with taxable persons, 41 (77%) attributed the highest importance to 
input  tax  deduction.  Almost  all  the  large  size  respondents  (22  out  of  29  large 
respondents)  and  most  of  the  middle  size  ones  (26  out  of  36)  shared  the  view  of  the 
majority of respondents. 

On the contrary, the highest importance when it comes to B2C supplies was attributed by 
respondents to the benefit of simplification (160 respondents equal to 78%) provided by 
the special scheme instead of to the benefit of reduced rates provided by the normal VAT 
rules (only 39 respondents equal to 19%). Out of 35 respondents who declared to operate 
exclusively  or  mainly  with  non-taxable  persons,  30  shared  the  view  of  the  majority 
attributing the highest importance to the benefit of simplification granted by the special 
scheme. 

Almost  all  respondents  (191,  equal  to  93%)  agree  that  the  transaction-by-transaction 
margin calculation adds complexity to the simplified rules of the special scheme, either 
to a large extent or to a significant extent. This margin calculation method is also seen as 
detrimental  to  the  industry,  because  negative  margins  cannot  be  offset  against  positive 
margins,  by  almost  the  same  majority  of  respondents  (188  equal  to  91%).  90%  of 
respondents  who  declared  to  be  taxed  mainly  or  exclusively  under  the  special  scheme 
shared the view of the  majority regarding the complexity of the margin calculation  (80 
out of 88).  

166 respondents (80%) declared that the rules of the special scheme, as interpreted by the 
CJEU, lack clarity in terms of the scope of the scheme and in terms of the application of 
the normal VAT rules once the scheme is not applied. This view was shared in particular 
by the 83% (24 out  of 29) of those who declared to  provide travel  services partially as 
travel agent and/or tour operator, partially as provider of his own services.  

The existence of a distortion of competition due to differences in VAT treatment between 
competing travel agents and/or tour operators was confirmed by 177 respondents (86%). 
The  main  reasons  for  this  distortion  have  been  attributed  firstly  to  different 
implementation and application of the rules by Member States (167 respondents equal to 
81%),  secondly  to  third  country  travel  agents  and  tour  operators  not  covered  by  the 
special scheme (158, 77%) and thirdly to the rules of the special scheme as interpreted by 

69 

 
the  CJEU  (137,  66%).  In  particular,  129  respondents  (66%),  most  of  which  companies 
(103), selected all of these three aspects as the main sources of distortion of competition. 

Although  slightly  more  than  half  of  respondents  (108,  52%),  believes  that  the  special 
scheme does not respond anymore to the evolved needs of the industry, the vast majority 
(185  equal  to  90%)  either  strongly  agree  (145)  or  agree  (40)  that  the  travel  industry 
continues to need special VAT rules. 

The vast majority of respondents (150, 73%) stated the coherence of the special scheme 
to the principle of taxation at destination, notwithstanding that under the special scheme 
the margin is taxed where the operator is established.  

Finally,  176  respondents,  equal  to  85%,  believe  there  is  a  need  to  reform  the  special 
scheme against 19 respondents for which the scheme does not need amendments and 11 
which does not know. 

The  following  pages  illustrate  the  main  messages  received  in  response  to  each  of  the 
main issues raised in the consultation. 

70 

 
 
Figure 15: Comments re simplification 

Comments made on simplification 

0

2

4

6

8

10

12

14

16

18

Number of mentions 

TOMS should not apply to B2B supplies or made optional for those

Transaction-based margin calculation should be removed

Implementation and application of TOMS provisions should be harmonised in the EU

Clarification of provisions and introduction of definitions are needed

TOMS should not be mandatory but optional

It should be possible to apply reduced VAT rates under TOMS

Taxation should continue taking place where the travel agent is established

TOMS should also include other than travel services

A One Stop Shop (OSS) application is missing

There should be more simplifications for intermediaries

It is necessary to reduce administrative burden

A profit margin calculation should be applied

The method of margin calculation is too complex

71 

 
 
 
Figure 16: Comments re fitness for digital age 

Comments made on fitness for digital age 

0

10

20

30

40

50

60

70

Number of mentions 

TOMS should be extended to also cover non-EU businesses

There is no uniform application by Member States

TOMS application to B2B supplies not appropriate (e.g. loss of deduction)

It should be possible to apply reduced VAT rates under TOMS

Lack of level playing field between business types

There is too much compliance cost and administrative burden

Clearer and simpler provisions and definitions are necessary

Other introduced VAT simplifications (OSS, refund) minimise the benefit of TOMS

VAT avoidance by certain operators should be stopped

There is no uniform application of CJEU rulings

TOMS should not be mandatory but optional

A One Stop Shop (OSS) application is missing

The place of supply rules concerning TOMS should be reviewed

Margin calculation makes automated tax reportings difficult

TOMS should not apply to Meetings, Incentives, Conferences and Exhibitions (MICE)

The method of margin calculation is too complex

Domestic travel packages should not be covered by TOMS

Certain businesses types should be out of TOMS scope

72 

 
 
Figure 17: Comments re lack of clarity 

Comments made on lack of clarity 

0

5

10

15

Number of mentions 
20
30
25

35

40

45

50

Lack of clarity on services covered by TOMS (scope)

Missing definition of "travel service" or "package"

No clear rules on how to calculate the margin

Lack of uniform application throughout the EU

Missing definition of "intermediary" or "acting in own name"

Missing definition of inbound supplies

Lack of clarity on the role of platforms (e.g.AirBnB)

Lack of uniform application of CJEU rulings

Missing distinction between B2B and B2C transactions

Lack of clarity on how to treat a congress

Missing defintion of "travel agent" or "tour operator"

Lack of clarity on interaction of TOMS and normal VAT rules

Missing rules on how to treat in-house supplies by travel agents (own hotel, aircraft)

Unclear distinction between EU and non-EU transactions

Lack of clarity in cases of reverse charge

Missing definition of "traveller"

Lack of clarity on how to avoid double taxation

73 

 
 
Figure 18: Comments re distortion of competition 

Comments made on distortion of competition 

0

20

40

Number of mentions 
60

80

100

120

Competitive disadvantage for suppliers with business clients (B2B) forced to apply TOMS

Distortion due to non-uniform application of rules by Member States

Competitive advantage for non-EU suppliers who are not covered by TOMS

Competitive advantage for travel agents supplying in-house services (own hotel or aircraft)

Competitive advantage for intermediaries who are not covered by TOMS

Unfair competition with sharing economy platforms (e.g. Airbnb)

Profitable margins not achievable under TOMS

Transaction-based calculation particularly burdensome for SMEs

Disadvantage through the disregard of negative margins

74 

 
 
Figure 19: Comments re business needs 

Comments made on business needs 

0

10

20

30

Number of mentions 
40
60
50

70

80

90

100

More and more complex business/pricing models and supply chains are a challenge

Service providers became competitors by selling services directly to travellers

There is more competition with non-EU businesses who are not covered by TOMS

There are new challenges because of digitilisation and development of new technologies

TOMS provisions are too complex and unclear

The increased volume of travel operations is a challenge

TOMS is not suitable for travel agents with business clients (B2B)

Member States apply the rules differently which hampers a level playing filed

The transaction-based margin calculation is not feasible

Unfair competition with sharing economy (e.g. Airbnb) where sellers often do not pay VAT

Other introduced VAT simplifications (OSS, refund) minimise the benefit of TOMS

TOMS still meets business needs well

Travel agents should be able to opt for normal VAT rules

Services other than traditional travel services play a bigger role

Competitive advantage for travel agents supplying in-house services (own hotel or aircraft)

TOMS does not sufficiently reflect the development of the e-commerce sector

Negative margins should be carried forward or offset with positives

75 

 
 
Figure 20: Comments re need for amendment 

Comments made on the need for amendment 

0

20

Number of mentions 
60

80

40

100

120

Transaction-based margin calculation should be removed

TOMS should be generally optional

Reduced or zero VAT rates should apply to TOMS transactions

TOMS should not apply to B2B supplies or made optional for those

VAT exemption should apply if the customer is non-EU resident

Terminologies of TOMS should be more clearly defined (e.g. "travel")

The scope of TOMS should be more clearly defined

TOMS should be extended to also cover non-EU businesses

The place of supply should be changed to customer location principle

Implementation and application of TOMS provisions should be harmonised in the EU

The rules on TOMS should be made less complex and easier to apply

The rules on margin calculation should be made clearer

A One Stop Shop (OSS) should be made available for TOMS transactions

A level playing field among businesses involved should be ensured

TOMS should not apply to travel operations within the same Member State (domestic travel)

Negative margins should be carried forward or offset with positives

TOMS should not cover Meetings, Incentives, Conferences and Exhibitions (MICE)

TOMS should not cover in-house supplies by tour operatorts (own hotel, airplane)

An opt out should be possible for international passenger transport

TOMS should be generally eliminated

Travel services should not be subject to reverse charge

National tax authorities should decide whether TOMS is to apply

76 

 
 
Figure 21: Further comments 

Replies under further comments 

0

10

20

30

40

50

60

70

Number of mentions 

Transaction-based margin calculation should be removed

Place of supply rules should be reviewed, moving away from tour operator location

TOMS should be extended to also cover non-EU businesses

TOMS should not apply to B2B supplies or made optional for those

Implementation and application of TOMS provisions should be harmonised in the EU

Reduced or zero VAT rates should apply to TOMS transactions

Scope and terminology of TOMS should be clearer defined and guidance provided

TOMS should be generally optional

Negative margins should be carried forward or offset with positives

TOMS is still useful for B2C transactions

The rules on TOMS should be made less complex and easier to apply

VAT exemption should apply if the customer is non-EU resident

Nothing should be changed

TOMS should not apply to travel operations within the same Member State (domestic)

Fair competition with direct service providers (e.g. hotels or airlines) should be ensured

National tax authorities should decide whether TOMS is to apply

TOMS should be extended to also cover intermediaries

All TOMS transactions should be taxed at the same VAT rate in the EU

TOMS should also cover bus travel operations

77 

 
 
Annex 3: Methods and analytical models 

The evaluation is supported by a study105, a consultation of Member States in the context 
of  the  Group  on  the  Future  of  VAT,  feedback  received  regarding  the  roadmap,  and  a 
public consultation (see Annex 2 on the consultation process). 

With  respect  to  the  availability  of  underlying  economic  data,  the  study  relied  on  pre-
existing data sources, such as Eurostat, that helped provide a wider economic backdrop to 
the travel industry in Europe as a whole. At the time the study was conducted, available 
data referred to  2015.  For the purpose of this evaluation,  these data have been updated 
through  desk  research  in  order  to  properly  describe  the  current  state  of  play  of  the 
industry and its economic importance (see section 3.1). 

As Eurostat data do not distinguish between the VAT treatments applicable to respective 
sales and purchases, specific surveys (questionnaires) have also been used by the study to 
gather  VAT  data  from  a  representative  sample  of  businesses  (see  Annex 2  on  how  the 
business  consultation  was  conducted).  The  extent  of  such  data  was  however  curbed  by 
limited  willingness  of  businesses  to  respond  with  commercially  sensitive  financial 
information,  and  was  further  constrained  by  the  practicalities  of  conducting  a  survey 
within limited timeframe.  

To  compensate  from  these  constraints,  extrapolation  methodologies  have  been  used  by 
the  contractor  to  combine  survey  responses  with  macro-economic  Eurostat  data  to 
provide indicative VAT figures at European level. The study used Eurostat EU turnover 
data  referring  to  the  accounting  year  2015  and  turnover  data  from  the  business 
questionnaire  indicative  of  a  2016  accounting  period.  The  aggregate  values  of  interest 
were  benchmarked  against  the  turnover  of  businesses  in  the  sample,  and  this  ratio  was 
then applied to total EU turnover to give indicative figures at an EU level. For example, 
in order to estimate the amount of output VAT under the special scheme at EU level, the 
average  output  tax  of  75  respondents  was  used  (equal  to  circa  EUR 2.1 million)  and 
proportioned  against  the  average  turnover  of  the  same  respondent  businesses  (equal  to 
EUR 194 million). The resulting estimated percentage of the output tax (equal to 1% of 
turnover) was then applied to the total proxy EU special scheme turnover (equal to circa 
EUR 187 billion) in order to obtain an indication of the amount of output tax under the 
special scheme (equal to EUR 1.9 billion). 

At the outset of the study, the expectation was that these figures could be scaled by each 
Member State and by each business model. However, the relatively small sample size in 

105  Cf. supra note 49. 

78 

 
 
 
                                                 
the majority of Member States106 meant that specific quantification of any given issue in a 
particular Member State was not possible. 

Lack of available tax data and of enough granularity of their estimates have therefore not 
allowed advanced statistical methodology or econometric modelling to be applied in the 
preparation of this evaluation report. 

Instead,  in  the  study  the  contractors  applied  VAT  extrapolations  and  simulated  VAT 
impacts.  As  the  study  did  not  achieve  through  the  VAT  extrapolation  the  expected 
granularity of data, contractors analysed possible VAT implications in different scenarios 
through the use of numerical and graphical examples involving multiple Member States 
and five business models considered as a proxy for the travel industry. 

The  evaluation  also  benefits  from  the  data  analysis  of  the  answers  to  the  public 
consultation, conducted through the use of Pivot tables and a software specialised in data 
analytics  services  (DORIS  –  Data  ORIented  Services).  This  enabled  grouping  the 
responses  into  stakeholders  groups,  calculation  of  percentages,  comparisons  and 
identification of recurrent topics. In the context of the analysis of the evaluation criteria, 
a  qualitative  counterfactual  analysis  was  also  conducted  with  reference  to  the  VAT 
obligations  and  complexities  that  would  arise  in  the  absence  of  the  special  scheme. 
Lastly,  a  qualitative  cost-benefit  analysis  was  applied  when  considering  the  application 
of the special scheme by travel agents dealing with business customers. 

106  The final responses utilised in the calculations covered 98 businesses in 18 Member States, spanning 
five  business  models  in  the  travel  industry.  The  total  turnover  of  these  businesses  represents 
approximately  10%  of  the  estimated  EU  market  (circa  EUR 19 billion).  No  responses  were  received 
from  non-EU  businesses.  Meanwhile  by  turnover,  94%  of  the  utilised  respondent  businesses  were 
based in only five Member States. 

79