Summary [Case C-189/11]
The Court of Justice of the European Union (CJEU) ruled that the VAT Tour Operators Margin Scheme (TOMS) should apply to transactions provided to wholesale operators (B2B transactions) as well as end travellers (B2C transactions).
This decision is in line with the Advocate General's opinion.
As a consequence of its decision, the CJEU dismissed the actions brought by the European Commission against eight Member States for alleged failure to apply the TOMS restrictively to supplies made to travellers as may be implied in Articles 306-310 of the EU VAT Directive.
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This judgement should have an impact on travel businesses, including:
...that provide travel services to business customers and/or
individual travellers. |
Background
The TOMS applies to travel agents including tour operators who without material alterations buy in and re-sell travel, hotel, holiday and other related services to travellers. TOMS allows such operators to calculate the VAT due on just the value that they add in the transaction, that is, the margin made on their supplies (being the difference between the price charged to the "traveller" exclusive of VAT and the amount paid on supplies bought from the suppliers inclusive of VAT).
Such single service is 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 scheme was introduced as a trade facilitation measure, with the objectives of simplifying the rules applicable to tour operators in relation to VAT and to ensure that VAT revenue from travel services is in part allocated where the travel service is enjoyed and in part where the tour operator is established
To date, not all Member States have applied TOMS to wholesale transactions and therefore an inconsistent application of the TOMS was being applied across the different Member States.
Arguments
Essentially, the CJEU disagreed with the Commission with respect to the scope of the term "traveller".
The Commission argued that EU Directives must be interpreted in such a way that limits the use of the TOMS exclusively to sales made to a "traveller". According to the Commission, the term "traveller" should not include tour operators or other businesses (acting as such) within its scope. On the other hand, the eight Member States argued that, particularly in the light of developments that have taken place in the travel and entertainment industry since the implementation of the TOMS in the Directive, applying the TOMS restrictively did not achieve the intentions of the scheme.
Decision
The CJEU determined that the term "traveller" must be interpreted by reference to the general scheme and purpose of the rules of which it forms part. In this regard, the CJEU assessed that the underlying objectives of the TOMS is the simplification of the rules relating to the VAT applicable to travel agents and a fair and efficient allocation of tax revenue to the various Member States typically involved in similar transactions.
The CJEU ruled that the provisions of the VAT Directive relating to the TOMS must be interpreted by following a "customer-based" rather than a "traveller-based" approach". In this respect, the Court stated that "...the customer-based approach is the most conducive to achieving those two objectives by permitting travel agents to benefit from simplified rules regardless of the type of customer to whom they provide their services and by encouraging, in that way, a fair distribution of revenue between the Member States".
In its decision, the CJEU recalled that in other circumstances it had already previously given the word "traveller" a wider meaning than that of merely a final consumer.
In this respect, the Court decided that the TOMS should also apply to transactions provided to wholesale tour operators who therefore make travel package supplies to other businesses apart from selling directly to travellers.
The Court stated that the lack of uniformity in the approach taken by the Member States might be due to the substitution of the word "traveller" by "customers" in some language versions of the Directive. Regardless, it assessed that the provisions of EU law must be uniformly interpreted and applied in the light of the versions in all the languages of the European Union and a purely literal interpretation of the scheme cannot prevail.
Will this judgement effect Malta?
This judgement is likely to effect businesses that provide travel related services and that transact with different types of customers (i.e. not limited to providing package travel directly to travellers). The new interpretation should be applicable immediately irrespective of whether amendments to reflect the decision of the CJEU will be made to the provisions of the VAT Act.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
