Tourism is one of Europe’s major industries and it is a complex sector. Governments at national and European level often struggle to fully understand tourism and accordingly impose fiscal rules that hinder growth and ultimately result in the taxation of exports. Nowhere is this clearer than with the Tour Operators Margin Scheme (TOMS).
ETOA has long pushed for its reform but only if this is carried out with a light touch. If TOMS is replaced with a worse scheme, it will cause untold damage to the industry, which is why we are at the heart of negotiations.
What is TOMS?
The Tour Operators Margin Scheme (TOMS) was introduced in 1977 as article 26 of the 6th VAT directive.
Impractical VAT obligations on Tour Operators
Tour operators put together holiday packages. These often consist of hotel accommodation or other services enjoyed by the customer in a country (or countries) other than that in which the tour operator is based. For the tour operator to comply with standard VAT rules, they would have to register for VAT in every country in which they do business. As the European Parliament has recognised, this would "entail practical difficulties for those undertakings of such a nature as to obstruct their operations".
TOMS aimed to provide a solution to this problem
Tour operators pay VAT inclusive prices on the 'tour components' that they buy from their suppliers. These transactions are treated for tax purposes as one single supply, and the operators do not reclaim any VAT on these services. The operators' taxable amount becomes the margin between the total cost of the components (tax inclusive) and the price charged to the consumer.
Tour Operators' place of taxation is the country in which they are based
Thus operators are spared having to register for VAT in all the countries visited. Their place of taxation remains the country in which they are based. And the countries where the services are supplied and 'enjoyed' - retain their VAT revenue from the sale of the packages' components.
TOMS is not applied uniformly in all member states of the European Union
Some states apply TOMS to packages sold by one operator to another (i.e. business-to-business), others exempt their tour operators from paying on the margin on certain EU holidays.
This disparity is even more extreme if a comparison is made between EU and non-EU companies selling the same services. The margin can only be taxed if the tour operator is based within the EU. If they are based outside the EU, there is no compulsion to pay VAT on their margin. TOMS is thus a voluntary tax. This causes severe problems for any EU-based operator who competes internationally.
Out-of-date legislation
The legislation dates from a period when the main option for purchasing a holiday was through a brochure showing a fixed price, stocked by a travel agent. The advent of worldwide electronic distribution systems has changed this. Consumers can buy a product from an operator or agent based anywhere in the world, who need not pay tax on their margin.