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EU overhaul of tourism operators VAT scheme 2023 – TOMS

40 years’ old scheme needs reform to reflect market developments; UK Brexit accelerates urgency of reforms

The European Union’s special VAT simplification scheme for tour operators VAT is looking dated. After over 40 years of reducing the VAT obligation and tour operator packages operated across EU states and ensuring a fair allocation of VAT revenue across Member States, it needs bringing into the 21st Century .

The UK’s 2021 exit from the EU VAT regime and advantages the scheme gives to such third-party tour operators has amplified the need for reform.

The European Commission is therefore planning reform proposal in 2023. This is part of the EU Tax Action Package reforms, announced in 2020.

Tour Operators Margin Scheme (TOMS)

TOMS was introduced in 1977. It treats the all pan-EU transactions made by a tour operator in their own name as a single supply in their country of residence. And VAT due is then only due on the difference between cost and sales price – ‘margin’. There is no right to deduct any input VAT incurred in return for this simplification. This reduces the obligation for tour operators to VAT register in all the EU states where they are buying and reselling holiday services (transport, hotels etc).  This applies to both to B2C and B2B holiday packages.

The scheme has largely been left unchanged since then. The sector as advanced significantly, most notably the role of digitalisation and the role of online travel marketplaces and platforms. Issues include:

  • Unfair competitive advantage for non-EU operators who face no taxation for travel services sold in the EU. With the rise of digital platforms and the UK exit from the EU, this has become a pressing issue.
  • B2B travel, which is included, does give rise to distortions. The input tax cannot be deducted, so it is necessary for travel businesses to pass on VAT inclusive costs to their customers. This hits the conference and event organising sector most acutely who are at a disadvantage from direct selling from conference venues or hotels.
  • There are varying and confusing applications of the rules by the 27 member states. Harmonisation for the efficient and fair operation of the scheme needs to be imposed.

New EC TOMS review for 2023 proposals

The European Commission has therefore launched a new study to evaluate the need to reform the scheme. It expects to present legislative reforms in 2023. The review will consider the following:

  1. special scheme for travel agents,
  2. VAT rules on passenger transport and
  3. exemption on supply of goods to non-EU travellers.

EU VAT reforms

Reform (click for details) Update
2025 VAT registration thresholds equivalence foreign businesses On track
Virtual events VAT rule changes Agreed
2024 Payment providers' seller transaction reporting and bookkeeping obligations On track
Digital Reporting Requirements including EU e-invoicing harmonisation Implementation of VAT in the Digital Age?
2023 DAC 7 - marketplace reporting harmonisation On track
Financial Services VAT exemption reform proposals Consultation complete; proposal 2023
Tour operator margin scheme VAT reforms EC undertaking fresh review
2022 IOSS reforms to prevent double taxation Proposals early 2022
EU reduced VAT rate freedoms Enter into force 6 April 2022
VAT in the Digital Age proposals On track for 7 Dec 2022 publication
Single VAT Registration in the EU - extension of OSS On track for 7 Dec 2022 publication
Proposal for VAT treatment of the platform economy On track for 7 Dec 2022 publication
EU DAC8 cryptocurrency tax reporting proposals On track for 7 Dec 2022 publication
VAT Gap Initiative Q3 2022
EU definitive VAT system On hold
2021 One-Stop-Shop (OSS) single EU VAT return In effect since 1 July 2021
Ending €22 import VAT exemption; new IOSS return In effect since 1 July 2021
Marketplace deemed supplier EU VAT reforms In effect since 1 July 2021
2020 EU four Quick Fixes for VAT In effect
Tax authorities anti-VAT fraud cooperation In effect
Tax Action Plan - 25 VAT and other tax reforms roadmap See 'VAT in the Digital Age' and others
2019 Simplification of e-services VAT compliance and thresholds In effect
Single and multi-use vouchers In effect
2018 Lower e-book and publications VAT rates In effect, although not all EU states have adopted the option
EU Generalised Domestic Reverse Charge VAT Mechanism In effect, although no country has adopted this voluntary option
2015 B2C electronic services VAT reforms - MOSS return In effect

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