Recent News | Last reviewed March 2026

What TOMS is

The Tour Operators Margin Scheme (TOMS) is a special VAT scheme for travel agents and tour operators established in the EU or the UK. Under TOMS, VAT is applied to the operator’s profit margin rather than the full selling price of the travel package.

The margin is calculated as the difference between what the customer pays and the VAT-inclusive cost of the services bought in from suppliers.

The scheme was introduced to simplify VAT compliance for travel businesses operating across multiple countries. It helps prevent double taxation and supports a fair allocation of VAT revenue between the operator’s country and the destination where the travel services are consumed.

TOMS Reform

Although TOMS was introduced to simplify VAT compliance for tour operators, it has also created a competitive imbalance by placing EU-based operators at a disadvantage relative to non-EU operators, which are typically taxed on individual travel components and do not pay tax on their profit margins. Over time, this has encouraged the growth of a large network of non-EU operators that now handle a significant share of B2C package travel distribution.

At the same time, a substantial B2B ecosystem has developed within Europe, including wholesalers and ground handlers, with many international operators—particularly from Asia—distributing through these intermediaries. More recently, online distribution has further expanded access to non-EU operators for EU customers, while also enabling mixed models where non-VAT travel services are sold alongside VAT-liable accommodation and related products.

There are also notable differences in how TOMS is applied between Member States, and in some cases even within the same jurisdiction. As a result, the European Commission launched a review of the scheme in 2017, followed by further studies and consultations published in 2021. More recently, updated reform proposals were discussed in March 2026 with industry stakeholders, including participation from ETOA.

These developments are significant, as current discussions include the potential taxation of non-EU operators on gross margins, with estimates in some proposals reaching up to approximately 6% of turnover under certain scenarios.

Indicative planning suggests the outcome could be a legislative proposal 2026 Q4. As views vary among members states on the merits, and unanimity among EU27 is required, progress is challenging.
  • For more information about the 2025 initiative for reform and related call for evidence click here.
  • For ETOA’s latest webinar on topic, click here.

 

What you need to know

EU Reviews VAT in Travel and Tourism

  • The EU is reviewing how VAT should apply to travel and tourism: a new proposal on TOMS is expected Q4 2026.
  • The main issue is the ‘place of margin taxation’, with a realistic risk that the EU proposes to tax the margin of non-EU sales, adding cost and administrative burden to non-EU operators.
  • There is an urgent need to illustrate the impact of options on business, EU and non-EU
  • Understanding of how the travel trade works is often insufficient among policy makers.
  • Publicly-funded tourism bodies cannot easily object to government policy, so sectoral associations need to take the lead.

 

On 19 March 2026 ETOA participated in Fiscalis Workshop to review regulatory options. For ETOA’s latest webinar on topic, click here.

For note on UK application of TOMS from 2021, see Elman Wall newsletter.

For more detail, see common industry position, 2023.

Switzerland VAT

In late 2024, Switzerland announced its intention to impose VAT on all consumer sales of Swiss hotel products that take place outside a “bundled” itinerary. Official guidance, considered ambiguous by many, was provided here: DE  FR.

It appeared that any business whose B2C turnover was more than 50% FIT may be within scope of this new proposal.

In March 2025, a clarification was issued: references to 50% have been removed, and car rental was confirmed to fall within TOMS if provided as part of a bundle. The full text (which is only available in German) is as follows: Swiss TOMS circular 2025   Swiss entry into force circular 2025

ETOA on TOMS

ETOA's policy objectives

  • Exports of tourism products and services should not be taxed in destination
  • Value-adding should be encouraged, among businesses of all sizes
  • Ease of compliance, with better consultation and notice of change

What we are doing

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

How VAT Shapes EU Travel Businesses: Insights from ETOA

How tourism is taxed is one of the most important factors affecting business viability. However, the added value of intermediaries in the travel sector is often poorly understood.

In terms of VAT, the EU faces three key disadvantages:

  • It taxes tourism exports
  • Holidays to non-EU destinations are VAT-free
  • Multiple VAT rates create additional complexity (despite evidence that reduced VAT supports job-generation)

VAT reporting and collection are particularly complex in tourism. Businesses operate across multiple countries, deal with different types of services, and serve customers both within and outside the EU.

The Tour Operators Margin Scheme (TOMS) remains a useful simplification. It:

  • Shares tax revenue between the destination and EU operator’s country of establishment
  • Reduces the need for multiple VAT registrations
  • Is relatively easy to administer

However, TOMS still taxes exports to non-EU clients and does not apply to non-EU businesses selling EU travel products (although this market remains small). In addition, relocating for tax efficiency is often not a viable option for smaller businesses. There is also a persistent misunderstanding that the value of packaging services is linked to where the product is delivered, rather than where the client is located.

Tax reform in this area is inherently complex. At EU level, any significant regulatory change requires unanimous agreement from all Member States.

Taxation can support tourism if it contributes to better infrastructure and services. Maintaining and improving access to Europe’s cultural and natural heritage requires investment. However, taxation that does not deliver clear benefits may provide short-term budget relief, but risks damaging long-term competitiveness.