ETOA Resources on Tax and Tourism

• This page covers EU-level initiatives and sets out our position.
• For our member-only database of tourism taxes per destination, click here.
• See following link for more content on Tour Operators Margin Scheme (TOMS)

Summary

How tourism is taxed is the most influential factor on business viability. The added value of intermediation is often poorly understood. The EU is at a disadvantage for three reasons: it taxes tourism exports, the price of holidays to non-EU destinations is VAT-free, and local taxes have increased significantly. Some European authorities are seeking to collect a tax on B2C sales of European product made outside the EU.

Tax systems need to be efficient, fair and effective. The cumulative effect of additional levies is critical. The increase in devolved tax-raising powers through overnight taxes and access charges was noted as a significant factor in competitiveness by the OECD in 2014. Visitors typically do not vote and they are an easy source of revenue. However, they do notice both price and service level. Both they and business have a choice.

Reform is complex. For example, change in primary EU tax law requires unanimity among all member states. Locally, tax on tourism makes sense if it improves infrastructure and services that benefit residents and visitors. Taxation without benefit to the taxpayer may bring short-term relief to hard-pressed budgets, but it will cause long-term competitive harm despite being a poor mechanism to manage demand.

Current Regulatory Progress

Following the 2024 elections and appointment of Commissioners-designate, the two main regulatory proposals that had previously stalled are likely to progress, While the VAT package for travel and tourism remains problematic due to the diversity of measures it proposes – not just on TOMS VAT, but also passenger transport and duty free – the EU ‘VAT in a Digital Age’ package (ViDA) will make progress following a meeting of ECOFIN on 5th November 2024.

VAT in a Digital Age package (ViDA)

ViDA is intended to set common standards on Digital Reporting Requirements (DRR), impose a duty on platforms to participate in VAT collection through the Deemed Supplier Regime (DSR), and expand the One Stop Shop (OSS), reducing need for multiple VAT registration through use of single registration and expanded use of reverse charge for B2B transactions.

While efficiency gains through increased digitalisation of documents and processes are welcome, the impact on platforms is highly problematic. Intended to minimise VAT leakage, in practice the DSR would be highly problematic for small service providers and platforms, as well as national tax authorities. In November 2023 ETOA added its voice EU Travel Tech and other industry partners in urging caution against its adoption.

ETOA has held an expert seminar on Tour Operator Taxation on  6th December 2024 with a focus on reforms of VAT and TOMS.

Further debate is inevitable as ViDA continues its progress through the EU’s legislative process. Remaining Member State objections were overcome late October 2024 through various compromises which will delay implementation: dates still to be confirmed but implementation now likely to be phased from 2027 to 2035. For expert report, see EY summary. 

ViDA was covered at an indirect taxation Drop In on 13th November 2023: recording and presentation available here.

• A tax framework that encourages value-adding and Europe’s tourism exports
• Reciprocity: revenue must pay for services or support purposes that benefit residents and visitors*
• Ease of compliance, better consultation and sufficient notice of change

* In the context of sectoral decarbonisation, taxes hypothecated to support the green transition could fall within the definition of reciprocity.

• Lobbying and participation in expert groups on legislative review
• Expert advice through seminars, online briefings and helpline
• Research and reports on policy impact

For further information, please contact policy@etoa.org