In over 20 years, ETOA has achieved a level of authority and expertise in the tour operator and incoming European tourism sector
EU and national regulation and taxation affecting travel and tourism
The Package Travel Directive, as implemented by EU national governments, affects anyone who sells a package direct to the consumer. A package is currently defined as any combination of two or more tour components that last for at least 24hrs, or include accommodation. The main provisions relate to requirements to protect client money through insurance, bonding or a trust (some of which are in effect duplicated by air tour operators who must also post a bond with their civil aviation authority or similar). Other provisions relate to contractual information requirements, service substitution, a duty to repatriate etc. The directive was written in the late 1980s, pre-dating the world of online sales. This was a time when an annual holiday was still an unusually large expense for most consumers, and credit card (with the purchase protection that comes with it) use was less common.
Following de-regulation of airlines and the arrival of the online marketplace, prices have come down, consumer sophistication has increased, and components that were typically available only in packages may be bought separately by the consumer. The PTD therefore imposes a significant and costly regulatory burden on the ‘traditional’ retail tour operator that is not shared by much of the rest of the industry and an uncompetitive market has developed in consequence. Airlines selling flight only, and hotels selling accommodation only are exempt. Online consolidators that allow self-packaging with price transparency for each component are probably exempt, though self-packaging has been subject to legal uncertainty.
The European Commission (EC) has conducted a review over the past few years. This has been the subject of repeated delay. ETOA has participated in its consultation and made a strong case for light-touch regulation in order not to drive more tour operators outside the EU. A new directive should recognise the increased sophistication of consumers in an online marketplace and the manifold means by which consumers are protected through non-sector-specific legislation.
In summer 2013 the new proposal was finally published. If adopted it will increase the scope of the directive to include online packaging. In our view, this means that the regulation that has hampered the tour-operating sector will now be applied to the sector that has seen most growth and success – the online marketplace. This is a perverse outcome in what is supposed to be one of the world’s most open markets; businesses will have even more incentive to establish offshore. Doubts as to enforceability remain: will online transactions with an EU-based consumer be caught irrespective of domicile of website? While improvements have been suggested, notably in regard to the requirements for printed information, overall the proposal is ambiguous and damaging. We do not see why such draconian sector-specific regulation is needed to protect consumer spend on a holiday. There has been significant growth in non-sector specific consumer protection since the PTD first came into force. The insurance market is able to provide a variety of products to suit an individual consumer’s needs.
If adopted, the new directive will still leave considerable distance between the position of various member states, which echoes the marked differences between the domestic implementation of the PTD in operation today. Business will still be prevented from innovating and adding value by ‘packaging’ additional services (a hotel offering a transfer; a B&B offering a dinner in a neighbouring restaurant) since to do so would entail huge compliance costs. Consumers will still be in doubt as to the level of protection included.
Cross-border selling within the EU will remain a rarity, and the barrier to market entry for SMEs will remain high. Bonding organisations will see an increase in business; this will be reflected in price. No-one seriously doubts that businesses will evolve models that escape the new PTD’s scope.
In short, the business of adding value by packaging products and services is severely compromised by the current proposal. This is bad for EU business, bad for EU competitiveness, and bad for EU consumers, who will continue to find ways of buying outside the PTD as an ever-greater proportion of the market is made less competitive.
ETOA will continue to raise awareness of its implications.
A less onerous regime for tour operators selling packages
Commercial competiveness for the EU as a location for tour operators
Transparency and choice for consumers
Easier access for SMEs, and more product innovation through adding value
Explain harm and warn of consequences
Continued consultation with EC, EP and member states
Prepare responses to forthcoming policy announcements
Include consumer regulation in October 2013 tourism summit
No active involvement sought; all interest welcome
Possibility of senior figures from the industry speaking at related events or attending meetings in Brussels in order to add weight to ETOA’s analysis of current impact
Further information and commentary
ETOA 2010 position paper
Link to EC resources
This directive affects tour guiding in Europe. The PQD was intended to assist in the mobility of professionals from one country to another in the European Commission (EU). If the destination or ‘host’ country regulates a particular profession an individual wishing to provide services in that country must comply with the relevant regulation. Guiding is subject to regulation in 13 of 27 EU countries. This causes consumer detriment through interference with product delivery and choice because many individuals who provide guiding services do not hold a qualification in guiding.
Tour guides (individuals who typically accompany groups of tourists from place to place) provide cultural information to groups and must be free to do so. Therefore, given the importance of a tour guide’s role, reform of the PQD is an ETOA policy priority. Guiding does not need regulation. This is evident from the high standard of services in non-regulating countries. Where regulation persists, the PQD should assist well-suited individuals to gain market access. Tour guides may be suitable through any combination of education, training, prior qualifications and experience.
The effect of guiding regulation is to restrict market access and discourage innovation. It is up to tour operators, who are liable for the performance of any service provider they contract, to ensure that tour guides are of a suitable standard. The standard and diversity of guiding services in non-regulating countries is generally very high. There is no evidence of consumer benefit arising from regulating the profession. Use of poor tour guides quickly damages a company’s reputation; they have no incentive to provide a poor service. There is evidence of protectionist practices and price control among local guiding organisations and in some cities.
EC proposed a revised PQD. It was aware that the current directive does not promote cross-border mobility as much as it could, and that there are unacceptable barriers to market entry for professionals. The European Parliament considered the revised directive and voted on it in early 2013. Subsequently it was subject to the ‘trialogue’ process by which EC, European Parliament (EP) and the European Council attempt to evolve a consensus. It is the Council’s final proposal on which Parliament and the Council vote. The Council chose not to adopt a key provision in the new proposal that ETOA supported. This was the EP's adaptation of the EC's proposal to make special provision for service providers travelling with service recipients (i.e. tour guides). The IMCO committee (which formulated the EP's proposal) stated that as long as the service provider did not offer services to anyone else in host country they were free to provide services to those with whom they were travelling. This seemed very sensible: it provided a safeguard for consumers and widened market access. It is regrettable that the Council chose not to support the EP’s initiative; protectionism prevails despite the efforts of the directorate-general for the internal market.
While countries must provide justification for regulating given professions, they remain free to regulate what they wish. Some member states have recently concluded that regulation makes no economic sense. Portugal no longer regulates guiding. Poland has decided not to, and we expect de-regulation there to be formally adopted in the next few months. Other countries are expected to follow.
It is abundantly clear that the market for guiding services, and their standard, are working well in non-regulating countries. Regulating countries need to explain the consumer benefit arising from restricting their markets other than by repetition the tired and implausible formula that only locals or those locally trained can provide cultural information to visitors. Exceptionalism along the lines of ‘our country has so many historic monuments that only those locally trained are qualified to interpret them’ is without foundation: for it to be true, a local guide would have to be expert on an impossibly wide range of topics.
Above all, guiding is a skills and personality based profession. In the era of knowledge-on-demand, if industry wants to support the value added by human rather than digital guides, a move away from knowledge-based regulation is required.
Less regulation for guiding
Wider market access for tour guides
Improved consumer choice for guiding services
Lobby member of the ‘trialogue’ discussion (European Council,Commission and Parliament) as they finalise the proposals
Maintain awareness of impact of current regulation
Survey members and consumers to obtain evidence of market opinion
Participate in consultation with ETOA once final proposal is published
Communicate details of any difficulties their guides face
Join the guiding working group
Survey their customers
Promote use of Tour Guide ID card
See policy documents on Educational Travel, Guiding and Group Tourism
List of EU states currently regulating guiding
Full text of PQD
The PQD in practice
The Commission’s green paper COM(2011) 367 final modernising the PQD
* The first draft (in French only pending translation) of the European Parliament’s report on the green paper
The TOMS affects how much sales tax is paid by a tour operator that buys and re-sells travel services as principal. It is one of the most influential pieces of legislation on a tour operator’s profitability and will thus remain a strategic priority for ETOA. It was introduced under the 6th VAT directive of 1977 and is long overdue for reform. It only applies to operators established in the EU.
TOMS VAT is charged by the operator’s country of establishment on the gross margin of a tour. The gross margin is the difference between the retail price and the cost of production. TOMS VAT is deemed to be included within that gross margin, i.e. as if the operator had added it in order to arrive at the retail price offered to the consumer. The rate depends on operator’s country of establishment.
The motive was practical: an operator pays VAT-inclusive prices for hotels etc. so it is not obliged to register for VAT for every country in which it books hotels as it cannot recover that VAT. Those countries retain VAT paid by the tour operator on the tour components produced there, and the country where the operator is established collects VAT on the activity of tour operating. There are variations in application within the EU: some exempt B2B sales from TOMS, some do not.
About 10 years ago the Commission introduced a proposal for a special VAT scheme for travel agents; this was subsequently revised but not re-published. As changes to VAT regulation required unanimity in the European Council (they still do) discussion stalled. There are markedly different views on VAT among EU states, e.g. in relation to the use of discounted rates and exemptions. Meanwhile, it is unclear whether the proposal has been formally withdrawn or if it could still go forward; the current status is being ascertained via VAT policy unit at the Commission.
If the proposal had been withdrawn, the Commission could reconsider the question afresh; an 18-month process including consultation and impact assessment should be expected before a new proposal can be published. Once the Commission makes a proposal, it will still need unanimous support in the European Council before it can be presented to the European Parliament, who may then accept or reject the proposal. This all takes place in the context of an overall review of VAT current underway on matters such as variation of discounted rates.
Meanwhile, a very strong opinion from a European Court advocate-general was published in June 2013 that criticises the confusion caused by legislation and the variations and ambiguity in its transposition. This opinion arose in a case going through the European Court of Justice related to domestic variations in TOMS implementation: several member states assert the right to operate TOMS on B2B operators (presumably to increase domestic tax take) the Commission disagrees. On the substantive question at issue, the opinion suggested that member states should be allowed to operate TOMS on operators selling B2B.
On 26/9/13 the European Court of Justice (ECJ) ruled that the Commission was wrong to seek to prevent member states applying TOMS to B2B transactions. The court held that member states could apply TOMS to B2B transactions. Following the ruling, tour operators may have to declare the VAT levied under TOMS on each invoice; member states should assess TOMS VAT on an individual transaction basis. The practicalities of these proposals are, to say the least, challenging. We are seeking clarification. If the judgement leads to a levelling up of tax regimes whereby all member states must (rather than may) levy TOMS on B2B operators, and additional VAT reporting and assessment requirements as above, the flight from EU establishment is certain to accelerate. This would be very damaging to EU business, reduce its tax base and employment opportunities in the sector.
In summary, TOMS is anti-competitive and economically damaging to EU in effect because:
It taxes exports
It causes operators to leave the EU
It increases cost of holidays to EU destinations sold by EU operators.
Protracted uncertainty about future policy is very damaging. Any EU reform to VAT rules must be very sensitive to its effect on tourism.
A more competitive tax regime for tour operating in EU
Maintain links with the EC policy unit responsible for VAT
Participate in any consultation or legislative review
Keep EC Tourism Unit informed of ETOA position
Maintain industry awareness of current options and any developments
Ensure policy makers are aware of the difficulties caused
How ETOA members get involved
Attend TOMS seminars provided by ETOA
Help provide evidence of impact
Operators based outside the EU charge less for same product. The same 10-day tour of Italy sold by a non-EU company is cheaper than one sold by an EU-based company. This is unsustainable in a global marketplace.
TOMS does not apply if the destination is outside the EU
A holiday to Turkey and a holiday to Italy, both costing the same to produce,
will probably be sold at different prices by an EU-based operator (or agent selling its products). The retail price of the Italian tour will either be higher to cover the cost of TOMS, or the operator will make less net profit on it
A tour sold by EU-based operator to EU destination retailing at 100 and costing 60 to produce has gross margin including TOMS VAT of 40
If VAT is 20%, that 40 is made up of TOMS VAT of 6.67 plus the remaining 33.33 of the gross margin. (33.33 + 20% TOMS VAT = 40)
If the tour is to a non-EU destination, or if the tour operator is based outside the EU, then TOMS VAT is not payable. The competitive benefit to either price and/or net profit is evident [See chart]
Further information and commentary:
The current directive
[The salient paragraphs related to whether TOMS may apply to B2B transactions are 306-310]
The ECJ judgement
Tax experts Saffrey Champness provide expert insight for ETOA’s members. For further information please contact ETOA's Secretariat at email@example.com
Taxes imposed on overnight hotel guests are an easy way for a city to raise revenue; most guests do not vote locally. There has been a rapid increase in the number of cities who impose such a tax; some were introduced at very short notice. This is hard to manage for operators whose budgets are planned 12-18 months in advance. When the tax is imposed at short notice the operators have the choice of absorbing unbudgeted costs or requiring their customers to pay hotels directly on departure. This is relevant in the context of Europe’s need to remain a competitive destination in terms of price and quality, and the need to give visitors a good impression.
While revenue is needed, cities should not introduce taxes at short notice and should consider what visitor-related benefit they might pay for. Taxing authorities should consult with relevant stakeholders: hoteliers; city tourism bodies; trade associations. There are some signs that taxes are affecting demand.
Raise awareness of the burden and the effect of such tax-raising.
Achieve better consultation and collaboration among stakeholders.
Advocate against such taxes being introduced, especially at short notice, and advocate for a link with commensurate benefit to tourism where they are.
New hotel-interest working group exploring impact
Lobbying locally against new taxes as they arise
Briefings to press and membership
Tracking current taxes and publishing updates online
Promote code of conduct or similar and explore possibility of legal objections
Stakeholder meetings with city tourism orgs., taxing authorities and hotels
Contact ETOA with any news of new proposals and consequences of current or recently introduced taxes.
Click here for full details on Tourist Taxes
Directive 2003/88/EC, implemented in most EU countries, affects how many hours an employee may work within a given time frame. There are derogations available for ‘mobile workers’, and an opportunity to annualise the allowance to take account of seasonal variation.
Its impact on tourism relates to tour guides who accompany groups over a period of days, and drivers. Tour guides are generally self-employed. For those that are not, there are serious concerns that the letter of the law would, in some countries, require more than one tour guide for a multi-day tour. It is unclear how to count the hours worked: free time or rest time may be interrupted at any time by an on-tour emergency. Note that driving hours are subject to separate legislation and national variation; ETOA is working with the IRU to develop a central resource for these.
Other regulations that affect ‘mobile workers in road transport activities and self-employed driver’ are in another directive 2002/15/EC that is not currently under review. The general working time is the responsibility of the Directorate-General for Employment, Social Affairs and Inclusion DG Sanco, the sector-specific directive is the responsibility of Directorate-General for Transport DG Move. ETOA continues to encourage inter-DG communication so that consultation takes into account tourism’s interests, overseen by DG Enterprise, a complexity mirrored in many national governments.
If tour guides’ activities ever fall within the remit of the WTD they must benefit from an exemption that allows one tour guide per tour (per coach). Group tourism would be impractical if each group had 2 guides; visitors would not want it, nor would tour guides; the experience would change. There are no health and safety grounds for regulating a tour guide’s hours.
Exemption for tour guides from any revised WTD (as implemented in any member state) that would otherwise affect tour guiding
Ensure operators realise the effect of self-employment on tour guide contractual arrangements
ETOA responded formally to the second consultation early in 2011
Continue to participate in any EC consultation on WTD or driving hours
Monitor progress of WTD review and engage as necessary
How ETOA members get involved
No active involvement is sought from members; interest is welcome
Opportunities for participation in related meetings at Brussels may arise
ETOA position paper: [link being updated]
E-commerce and online marketing have transformed the travel and tourism business, contributing a significant part of the sector’s growth. Global online travel sales were worth US$590 billion in 2013, accounting for 25% of total travel sales (source: Euromonitor International). The effect on ETOA’s membership and our activities reflects this change. Online intermediaries are both buyers and service providers. Peer-to-peer platforms offering services for accommodation and transport give rise to opportunities and questions for customers, destinations and the wider industry. Our seminars and workshops address compliance, share good practice and showcase new opportunities.
Services and information available online have changed consumer and business behaviour in a way unforeseen by current legislation. The regulatory context is complex: obligations covering information provision, data protection, liability for 3rd party content, and compliance with consumer legislation not only in a company’s country of establishment but anywhere its customers may be. Selling services online in a way that currently avoids the terms of the package travel directive (either through selling single services priced separately or by being established outside the EU) provides a competitive advantage that adversely affects EU tour operators. Rate parity agreements are, increasingly, the subject of regulatory scrutiny.
Online commerce and marketing continue to grow. Many traditional operators have an online presence through which they can sell. There is no clear cut divide within the sector, though some companies specialise in services that are only available online, for example, vertical search for products and services. There should be a level regulatory playing field irrespective of selling channel that recognises the border-free nature of the online marketplace. The impact of the proposed replacement for the Package Travel Directive will be very significant if it is adopted unchanged: its scope increases to include transactions and business models currently unaffected, and serious questions remain as to its enforceability. Unchanged, it will adversely affect EU competitiveness, fail to promote cross-border services and cause widespread confusion.
1. Increased awareness of online opportunities and their regulatory context. 2. Increased awareness of impact, e.g. off-shoring 3. Forward-looking regulation that ensures neutrality of purchase channel without penalising EU establishment. 4. Share expertise among membership about online marketing.
1. Promote awareness together with members, partners and invited experts. Seminar topics have included:
a. Best practice guidelines on buying and selling travel products online.
b. Maximising online presence as a travel company.
c. How to work with review sites.
2. Engagement with EC and others on outdated regulation current affecting tour operating in a way that the online marketplace can avoid, especially the PTD.
3. Showcase.travel Digital. This annual B2B workshop brings together buyers and sellers of travel technology, and discusses key topics in digital trading. This year’s event will be on 29th September 2015.
4. Develop and promote ETOA partnerships and expertise in e-marketing.
1. Attend related events.
Further information and commentary
EC compliance sweep on travel services websites
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