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.

• What it is: TOMS is a special VAT scheme for travel agents and tour operators in the EU.
• Purpose: VAT is calculated on the margin of the package.
• Scope: Applies to package travel and certain travel-related services supplied to consumers. TOMS generally excludes purely B2B sales, but certain business arrangements—like packaged events or combined travel services—may still fall within the scheme.
• Focus: The scheme simplifies VAT compliance for travel businesses, avoids double taxation, and allows the tax burden to be shared between the operator’s country and the destination country.

In July 2025 the European Commission launched a consultation on the special VAT scheme for travel agents (TOMS) and VAT rules on passenger transport.

Of particular interest to ETOA members is how the problem is framed – that non-EU sales benefit from a competitive advantage:

“The special scheme for travel agents is causing important distortions of competition. First, the margin of non-EU travel agents selling travel services in the EU is not taxed due to the rule of taxation at origin. This competitive advantage of non-EU travel agents (which are more easily active in the EU due to digitisation) is valued in the study at 2-4% of the final price. Rigidities in the treatment of B2B supplies (e.g., wholesale supplies and organisation of business events) are also an important cause of distortions as VAT on business travelling cannot be deducted. Finally, Member States apply these rules in very different ways which create intra-EU distortions.”

The Consultation closed on 16th October 2025. 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 (as distinct from consultation above), click here.

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