Commissioners of Customs and Excise v T.P. Madgett, R.M. Baldwin and The Howden Court Hotel.
Date: 1998-10-22
5 Article 26 of the Sixth Directive, which introduces an exception to the general rules on the taxable amount with respect to certain operations of travel agents and tour operators, states:
`1. Member States shall apply value added tax to the operations of travel agents in accordance with the provisions of this Article, where the travel agents deal with customers in their own name and use the supplies and services of other taxable persons in the provision of travel facilities. This Article shall not apply to travel agents who are acting only as intermediaries and accounting for tax in accordance with Article 11A(3)(c). In this Article travel agents include tour operators.
2. All transactions performed by the travel agent in respect of a journey shall be treated as a single service supplied by the travel agent to the traveller. It shall be taxable in the Member State in which the travel agent has established his business or has a fixed establishment from which the travel agent has provided the services. The taxable amount and the price exclusive of tax, within the meaning of Article 22(3)(b), in respect of this service shall be the travel agent's margin, that is to say, the difference between the total amount to be paid by the traveller, exclusive of value added tax, and the actual cost to the travel agent of supplies and services provided by other taxable persons where these transactions are for the direct benefit of the traveller.
3. If transactions entrusted by the travel agent to other taxable persons are performed by such persons outside the Community, the travel agent's service shall be treated as an exempted intermediary activity under Article 15(14). Where these transactions are performed both inside and outside the Community, only that part of the travel agent's service relating to transactions outside the Community may be exempted.
4. Tax charged to the travel agent by other taxable persons on the transactions described in paragraph 2 which are for the direct benefit of the traveller, shall not be eligible for deduction or refund in any Member State.'
18 It must be borne in mind at the outset that the services provided by travel agents and tour operators most frequently consist of multiple services, in particular transport and accommodation, supplied either within or outside the territory of the Member State in which the undertaking has established its business or has a fixed establishment. The application of the normal rules on place of taxation, taxable amount and deduction of input tax would, by reason of the multiplicity of services and the places in which they are provided, entail practical difficulties for those undertakings of such a nature as to obstruct their operations. In order to adapt the applicable rules to the specific nature of such operations, the Community legislature set up a special VAT scheme in Article 26(2), (3) and (4) of the Sixth Directive (see Case C-163/91 Van Ginkel v Inspecteur der Omzetbelasting te Utrecht [1992] ECR I-5723, paragraphs 13 to 15).
20 Furthermore, the underlying reasons for the special scheme for travel agents and tour operators are equally valid where the trader is not a travel agent or tour operator within the normal meaning of those terms, but effects identical transactions in the context of another activity, such as that of hotelier.
21 To interpret Article 26 of the Sixth Directive as applying solely to traders who are travel agents or tour operators within the normal meaning of those terms would mean that identical services would come under different provisions depending on the formal classification of the trader.
24 However, as the Advocate General notes in point 36 of his Opinion, traders such as hoteliers who provide services habitually associated with travel frequently make use of services bought in from third parties which take up a small proportion of the package price compared to the accommodation and are among the tasks traditionally entrusted to such traders. Those bought-in services do not therefore constitute for customers an aim in itself, but a means of better enjoying the principal service supplied by the trader.
25 In such circumstances the services bought in from third parties remain purely ancillary in relation to the in-house services, and the trader should not be taxed under Article 26 of the Sixth Directive.
33 Next, it is to be noted that Article 26 of the Sixth Directive makes no reference to in-house services, and that the essential aim of that provision is to avoid the difficulties to which traders would be exposed by application of the general principles of the Sixth Directive concerning transactions involving the supply of services bought in from third parties.
34 Finally, it should be recalled that the scheme under Article 26 constitutes an exception to the normal rules of the Sixth Directive and must be applied only to the extent necessary to achieve its objective.
35 The special scheme under Article 26 of the Sixth Directive must therefore be held to apply only to the services bought in from third parties.
40 In this connection, it should be noted that Article 11A(1)(a) of the Sixth Directive states that the taxable amount for VAT consists, in respect of most services, of everything which constitutes the consideration for the service. It has consistently been held that the consideration must be interpreted as what is actually received, not as a value estimated according to objective criteria (see Case 230/87 Naturally Yours Cosmetics v Commissioners of Customs and Excise [1988] ECR 6365, paragraph 16).
45 The actual cost method in relation to the in-house services requires a series of complex sub-apportionment exercises and thus also means substantial additional work for the trader. By contrast, use of the market value of the in-house services, as the Advocate General observes in point 76 of his Opinion, has the advantage of simplicity, since there is no need to distinguish the various elements of the value of the in-house services.
46 In those circumstances - bearing in mind that it is common ground in the present case that calculation of the VAT on the margin for the bought-in services by using one alternative or the other in principle gives the same figure for VAT - a trader may not be required to calculate the part of the package corresponding to the in-house services by the actual cost method where it is possible to identify that part of the package on the basis of the market value of services similar to those which form part of the package.
47 In the light of the foregoing, the answer to the questions referred by the VAT and Duties Tribunal must be that, on a proper construction of Article 26 of the Sixth Directive, where a trader subject to that article effects, in return for a package price, transactions consisting of services supplied partly by himself and partly by other taxable persons, the VAT scheme under that article applies solely to the services supplied by third parties. A trader may not be required to calculate the part of the package corresponding to the in-house services by the actual cost method where it is possible to identify that part of the package on the basis of the market value of services similar to those which form part of the package.