Reform update on travel, tourism and passenger air travel VAT scheme winter 2026
Aim to reflect market developments & Brexit effects
The European Commission on 4 May 2026 published the results of a public consultation on TOMS, reviewing three areas of VAT on travel:
- special scheme for travel agents margin scheme (TOMS,
- VAT rules on passenger air transport and
- exemption on supply of goods to non-EU travellers.
Travel market operators call for reform
The consultation, which took place between July and October 2025, asked for views of the current TOMS VAT regime, and suggestions for improvements. Key responses included:
- Travel agents and businesses were unfairly penalised under VAT neutrality with the current regime;
- Rewrite of the scope and rules for in-house services were required;
- A voluntary opt-out route should be offered;
- VAT changeability should flip from advance payments to the completion of the travel service;
- Non-EU operators (particularly post-Brexit UK) should be taxed in their country of residence;
- Article 48 should be improved on travel distances for place of supply rule to provide fairness for rail, coach and flight services.
- Article 148 exemption extended to all international travel services.
TOMS reform package due before end of 2026
The European Commission has confirmed its VAT reform package for the travel sector will be published by the end of 2026.
The special scheme for travel agents is causing important distortions of competition.
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Scope and B2B neutrality – the scope of the special scheme, particularly to address long-standing distortions in B2B supplies and restore full VAT neutrality for business customers.
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Place of taxation for non-EU travel agents – current rules create mismatches when non-EU-established intermediaries sell EU travel packages. This implies the need for more equitable place-of-supply rules for the single supply under TOMS.
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Margin calculation – the basis of the margin calculation requires reform, with a focus on fairness, consistency and easier compliance. For the location of margin taxation, a need for approaches that maintain equal treatment between operators and achieve a reasonable revenue distribution between Member States while reducing administrative burdens.
Finally, Member States apply these rules in very different ways which create intra-EU distortions.
Passenger transport issues
The current rule—taxing according to the proportion of distance travelled in each country—is the primary problem. Alternatives included basing the place of supply on either the departure point or destination.
The rules also allow for widespread application of zero-rates, notably for all international air and maritime transport, and reduced
VAT rates for all the other passenger transport service (bus, train, etc.), which translates into very low VAT revenue (1.3% of EU total VAT). The zero rate on international transport services is in part justified due to the fact that these services are difficult to tax. Moreover, the VAT treatment differs across transport modes, regardless of their environmental impact. As a result, air transport services receive a more favourable treatment compared to land passenger transport which alone accounts for nearly 90% of the total VAT revenue of the sector. Such disparities create possible distortions on routes served by competing services across transport modes.
Background: 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.
