CFE Tax Advisers Europe has submitted an Opinion Statement in response to the European Commission’s public consultation concerning the VAT rules applicable to the travel and tourism sector, in particular the Tour Operators’ Margin Scheme (TOMS).
CFE is of the view that TOMS, in its current form, no longer achieves its intended objectives of simplification and fair taxation. The scheme creates legal uncertainty, undermines VAT neutrality, and imposes significant compliance burdens, especially in business-to-business (B2B) transactions. Divergent national implementations have exacerbated competitive distortions and administrative complexity, particularly in cases involving in-house services and non-EU suppliers.
CFE considers that fundamental reform—or even abolition—of TOMS is needed to restore consistency, neutrality, and a level playing field for EU travel operators.
Issues Identified
CFE identifies several issues with the current TOMS framework in our Opinion Statement:
- Legal Uncertainty and Divergent Application: The scheme is inconsistently applied across Member States, with expanding scope beyond original intention, including to language schools and diving schools.
- Lack of VAT Neutrality: TOMS prevents input VAT deduction, which is problematic for B2B transactions and inconsistent with core VAT principles.
- Margin Calculation Difficulties: The requirement to calculate margins on a per-transaction basis is unworkable, and alternative national solutions lack harmonisation.
- Prepayments: VAT is chargeable on prepayments, despite the margin not being determinable at that stage.
- Ambiguity in Customer Status: Travel agents often cannot determine if a client is a business or consumer at the time of sale, complicating TOMS application.
- In-House Services: Packages including in-house services must be split, requiring complex apportionment and potentially different VAT treatments.
- Non-EU B2B Transactions: The current rules require disaggregation of each supply component, significantly increasing compliance burdens.
- Zero Margin Cases: More explicit guidance is needed for transactions involving no margin or losses.
Key Recommendations
CFE recommends that the European Commission considers taking the following actions when reforming TOMS:
- Restrict Application to B2C Transactions: TOMS should only apply to business-to-consumer supplies. Business-to-business transactions should follow the normal VAT rules, allowing input VAT deduction.
- Exclude MICE and Introduce Opt-Outs: Services related to Meetings, Incentives, Conferences and Events (MICE) should be excluded. An opt-out should be introduced for businesses for which travel services are incidental to their primary activity. CFE sees merit in making the scheme generally optional.
- Replace or Complement TOMS with a One-Stop-Shop (OSS) Mechanism: A longer-term solution would involve the implementation of a one-stop-shop system for travel agents, enabling single-point VAT returns across Member States. The OSS system should:
- Ensure the right of input VAT deduction;
- Allow for unbundling of packaged services for VAT purposes;
- Require simplified reporting based on the Member States involved.
- Equal Treatment of Non-EU Travel Agents: Non-EU operators currently benefit from a competitive advantage by supplying EU services without taxation on their margins. Reform should ensure equal treatment, either through destination-based taxation or OSS access for non-EU agents.
- Simplify Multi-Country Travel VAT Rules: Allow travel businesses to designate a single Member State for VAT purposes for multi-country packages. This would reduce administrative burdens and should cover mixed in-house and purchased service packages.
- Clarify Rules Around Margin Calculation and Prepayments: Provide harmonised rules in the VAT Directive, including methods for allocating mixed supplies and treating prepayments.
- Address Zero Margin and Loss-Making Packages: Introduce more explicit rules for cases in which no margin arises, building on existing CJEU guidance.
- Clarify Treatment of In-House Services and B2B Non-EU Transactions: Ensure that rules for splitting in-house and purchased components are administrable, and provide clearer guidance for transactions between EU and non-EU taxable persons.
Conclusion
CFE Tax Advisers Europe is firmly of the view that the Tour Operators’ Margin Scheme is no longer fit for purpose. Rather than facilitating simplification and neutrality, it creates distortions and legal uncertainty.
CFE therefore calls on the Commission to modernise VAT rules for the travel and tourism sector, either by narrowing the scope of TOMS or replacing it with a coherent OSS-based solution. A successful reform should uphold the principles of neutrality, consistency, and simplification, ensuring fair and effective taxation within the Single Market.
We invite you the read the full Statement for further details and remain available for any queries you may have.